<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998.
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AKI, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2799 13-3785856
- ------------------------------- ---------------------------- ----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
1815 EAST MAIN STREET
CHATTANOOGA, TENNESSEE 37404
(423) 624-3301
-----------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
KENNETH A. BUDDE
CHIEF FINANCIAL OFFICER
AKI, INC.
1815 EAST MAIN STREET
CHATTANOOGA, TENNESSEE 37404
(423) 624-3301
(Name, address, including zip code, and telephone number
including area code, of agent for service)
---------------
COPIES TO:
EDWARD D. SOPHER, ESQ.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
590 MADISON AVENUE
NEW YORK, NEW YORK 10022
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) PRICE (1) FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/2% Senior Notes Due 2008 ......... $115,000,000 100% $115,000,000 $33,925
==============================================================================================================
</TABLE>
- ---------------
(1) Estimated solely for the purpose of calculating the registration fee.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $115,000,000 of New 10 1/2% Senior Notes due 2008 (the "New
Notes") of AKI, Inc. (the "Company") that may be exchanged for equal principal
amounts of the Company's outstanding 10 1/2% Senior Notes due 2008 (the "Old
Notes") (the "Exchange Offer"). This exchange offer registration statement (the
"Exchange Offer Registration Statement") also covers the registration of the
New Notes for resale by Donaldson, Lufkin & Jenrette Securities Corporation in
market-making transactions. The complete Prospectus relating to the Exchange
Offer (the "Exchange Offer Prospectus") follows immediately after this
Explanatory Note. Following the Exchange Offer Prospectus are certain pages of
the Prospectus relating solely to such market-making transactions (the
"Market-Making Prospectus"), including alternate front and back cover pages, an
alternate "Available Information" section, a section entitled "Risk
Factors--Trading Market for the New Notes" to be used in lieu of the section
entitled "Risk Factors--No Public Market for the New Notes," a new section
entitled "Use of Proceeds" and alternate sections entitled "Certain U.S.
Federal Income Tax Considerations for Non-U.S. Holders" and "Plan of
Distribution." In addition, the Market-Making Prospectus will not include the
following captions (or the information set forth under such captions) in the
Exchange Offer Prospectus: "Prospectus Summary--Summary of Terms of the
Exchange Offer," "Risk Factors--Consequences of the Exchange Offer on
Non-Tendering Holder of the Old Notes" and "The Exchange Offer." All other
sections of the Exchange Offer Prospectus will be included in the Market-Making
Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE 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 ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO ANY REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED , 1998
PROSPECTUS
OFFER TO EXCHANGE
10 1/2% NEW SENIOR NOTES DUE 2008 FOR UP TO $115,000,000
IN PRINCIPAL AMOUNT OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
OF
AKI, INC.
----------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
AKI, Inc., a Delaware corporation (the "Company"), 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 together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal
amount of its New 10 1/2% Senior Notes due 2008 (the "New Notes") for each
$1,000 principal amount of the outstanding 10 1/2% Senior Notes due 2008 (the
"Old Notes") of the Company, of which $115,000,000 principal amount is
outstanding from the holders thereof (the "Holders"). The New Notes will be
obligations of the Company issued pursuant to the Indenture under which the Old
Notes were issued (the "Indenture"). The form and terms of the New Notes are
the same as the form and terms of the Old Notes except that (i) the New Notes
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to an Exchange Offer Registration Statement (as
defined herein) of which this Prospectus is a part, and thus will not bear
legends restricting their transfer pursuant to the Securities Act, (ii) Holders
of the New Notes will not be entitled to certain rights of Holders of the Old
Notes under the Registration Rights Agreement (as defined herein) which rights
will terminate upon the consummation of the Exchange Offer and (iii) for
certain contingent liquidated damages provisions. See "The Exchange Offer." The
New Notes and the Old Notes are collectively referred to herein as the "Notes."
The New Notes will mature on July 1, 2008. Interest on the New Notes will
be payable semi-annually on January 1 and July 1 of each year, commencing on
January 1, 1999, at a rate of 10 1/2% per annum. Holders of Old Notes whose Old
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest accrued from June 25, 1998 to the
date of issuance of the New Notes. The New Notes will be redeemable at the
option of the Company, in whole or in part, at anytime on or after July 1,
2003, in cash at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as defined herein), if any, thereon to
the date of redemption. In addition, at any time prior to July 1, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of New Notes originally issued at a redemption price equal to
110.5% 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 Public Equity Offerings (as defined herein); provided
that at least 65% of the aggregate principal amount of New Notes originally
issued remains outstanding immediately after the occurrence of any such
redemption. See "Description of New Notes--Optional Redemption." In addition,
upon the occurrence of a Change of Control (as defined herein), each holder of
Notes will have the right to require the Company to repurchase all or any part
of such Holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase. See "Description of New
Notes--Repurchase at the Option of Holders--Change of Control." There can be no
assurance that, in the event of a Change of Control, the Company would have
sufficient funds to purchase all Notes tendered. See "Risk Factors--Limitations
on Ability to Make Change of Control Payment."
(Continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO
TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE>
The New Notes will be general unsecured obligations of the Company, will
rank pari passu in right of payment to all existing and future senior unsecured
indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Company. The New Notes,
however, will be effectively subordinated to all secured obligations of the
Company, including borrowings under the Credit Agreement (as defined herein),
to the extent of the assets securing such obligations. As of March 31,1998, on
a pro forma basis, after giving effect to the Refinancing (as defined herein)
and the consummation of the 3M Acquisition (as defined herein), the Company
would have had no outstanding secured obligations (other than outstanding
letters of credit in the amount of $0.6 million) under the Credit Agreement. In
addition, as of such date and on such pro forma basis, borrowings of up to
approximately $19.4 million were available under the Credit Agreement, subject
to certain conditions.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Old Notes were originally issued and sold on June 25, 1998 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
requirements of the Securities Act is available. Based upon interpretations by
the staff of the Securities and Exchange Commission (the "Commission") set
forth in no-action letters issued to unrelated third parties, the Company
believes that New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by a
Holder thereof (other than a "Restricted Holder," being (i) a broker-dealer who
purchases such Old Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the Holder is
acquiring the New Notes in the ordinary course of its business and is not
participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of the New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal relating the Exchange Offer states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that it will make this Prospectus available
to any broker-dealer for use in connection with any such resale for a period
from the date of this Prospectus until 180 days after the consummation of the
Exchange Offer, or such shorter period as will terminate when all Old Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for New Notes and
resold by such broker-dealers. See "The Exchange Offer" and "Plan of
Distribution."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders
of Old Notes will continue to be subject to the existing restrictions on
transfer thereof and the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the Old
Notes. See "Risk Factors--Consequences of Exchange Offer on Non-Tendering
Holders of the Old Notes."
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Old Notes. If a market for the New Notes
should develop, the New Notes could trade at a discount from their principal
amount. The Company does not intend to list the New Notes on a national
securities exchange or to apply for quotation of the New Notes through the
National Association of Securities Dealers Automated Quotation System.
Accordingly, there can be no assurance as to the development or
i
<PAGE>
liquidity of any public market for the New Notes. The Company has been advised
by the Initial Purchaser (as defined herein) that the Initial Purchaser intends
to make a market for the New Notes. However, the Initial Purchaser is not
obligated to do so and any market-making activities with respect to the New
Notes may be discontinued at any time without notice. See "Risk Factors--No
Public Market for the Notes" and "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. See
"Use of Proceeds." The Company will accept for exchange any and all Old Notes
that are validly tendered on or prior to 5:00 p.m. New York City time, on the
date the Exchange Offer expires, which will be , 1998, unless the
Exchange Offer is extended (the "Expiration Date"). The exchange of New Notes
for Old Notes will be made promptly following the Expiration Date. Tenders of
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date, unless previously accepted for exchange. 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
conditions which may be waived by the Company. See "The Exchange Offer." The
Company has agreed to pay the expenses of the Exchange Offer (which shall not
include the expenses of any Holder of the Notes in connection with resales of
the New Notes).
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered
in the name of a nominee of The Depository Trust Company ("DTC"), as
depository. The New Notes exchanged for Old Notes represented by the global
Note will be represented by one or more global New Notes in registered form,
registered in the name of the nominee of DTC. New Notes in global form will
trade in DTC's Same-Day Funds Settlement System, and secondary market trading
activity in such New Notes will therefore settle in immediately available
funds. See "Description of New Notes--Form, Denomination and Book-Entry
Procedures."
----------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
----------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS EXCHANGE OFFER COVERED BY THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OR TRANSMITTAL DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
ii
<PAGE>
----------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement") under the Securities Act with
respect to the New Notes being offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Exchange Offer Registration
Statement and the exhibits and schedules thereto, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed or incorporated by reference
as an exhibit to the Exchange Offer Registration Statement, reference is made
to such exhibit for a more complete description of the matter involved, and
each such statement is qualified in its entirety by such reference.
The Exchange Offer Registration Statement and the exhibits and schedules
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
Under the terms of the Indenture pursuant to which the Old Notes were, and the
New Notes will be issued, the Company has agreed that, whether or not it is
required to do so by the rules and regulations of the Commission, for so long
as any of the Notes remain outstanding, it will furnish to the Trustee and
Holders of the Notes and file with the Commission (unless the Commission will
not accept such a filing) (i) all quarterly and annual financial information
that would be required to be contained in such a filing with the Commission on
Forms 10-Q and 10-K if the Company was required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company was required to file such reports. Following the consummation of the
Exchange Offer, the Company has agreed to make such information available to
the Trustee, securities analysts and prospective investors upon request. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or Holder of
the Notes in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act.
iii
<PAGE>
------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information 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 competitive environment in the sampling industry in
general and in the Company's specific market areas; changes in prevailing
interest rates; inflation; changes in costs of goods and services; economic
conditions in general and in the Company's specific market areas; changes in or
failure to comply with postal regulations or other federal, state and/or local
government regulations; liability and other claims asserted against the
Company; changes in operating strategy or development plans; the ability of the
Company to effectively implement its cost reduction program; the ability to
attract and retain qualified personnel; the significant indebtedness of the
Company; labor disturbances; changes in the Company's capital expenditure
plans; 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. 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," "intends" or the negative of any thereof, or other variations
thereon or comparable terminology, or by discussions of strategy or intentions.
Given these uncertainties, Holders of Notes are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and Consolidated Financial
Statements of the Company, together with the notes thereto, contained elsewhere
herein. Unless the context otherwise requires, all references herein to (i)
"Acquisition Corp." shall mean AHC I Acquisition Corp., (ii) "Holding" shall
mean AKI Holding Corp., a wholly-owned subsidiary of Acquisition Corp., (iii)
the "Company" shall mean AKI, Inc., a wholly-owned subsidiary of Holding, and
its predecessors and subsidiaries and (iv) the "Offering" or the "Note
Offering" shall mean the offering of the Old Notes. Prior to commencement of
the Offering, Acquisition Corp. contributed all of its ownership interest in
the Company to Holding and all financial information contained herein gives
effect to such contribution. As used herein, the terms "Fiscal 1995," "Fiscal
1996" and "Fiscal 1997" when used with respect to the Company refer to the
Company's fiscal years ended June 30, 1995, 1996 and 1997, respectively, the
term "Interim 1997 Period" refers to the Company's nine months ended March 31,
1997 and the term "Interim 1998 Period" refers to the Company's nine months
ended March 31, 1998, which includes the period prior to the acquisition of the
Company by Acquisition Corp. on December 15, 1997.
THE COMPANY
The Company is the leading global marketer and manufacturer of cosmetics
sampling products, including fragrance, skin care and makeup samplers. The
Company produces a range of proprietary and patented product samplers that can
be incorporated into various print media principally designed to reach the
consumer in the home, such as magazine inserts, catalog inserts, remittance
envelopes, statement enclosures and blow-ins. The Company is the only sampling
company positioned to provide complete marketing and sampling programs to its
customers, including creative content and sample production and distribution.
The Company's customers include most of the world's largest cosmetics
companies, such as Calvin Klein Cosmetics (Unilever Plc), Chanel, Inc.,
Christian Dior Perfumes Inc., Coty Inc., Elizabeth Arden (Unilever Plc), Estee
Lauder, Inc., Giorgio Beverly Hills (The Procter & Gamble Company), L'Oreal
S.A./Cosmair, Inc., Revlon, Inc. and Sanofi Beaute, Inc.
Sampling is one of the most effective and widely used promotional
practices for consumer products. Product sampling expenditures have increased
faster than any other form of consumer promotional expenditure from 1992 to
1996, the last year for which data is available. Product sampling is
particularly critical to the cosmetics industries, where consumers generally
must try products prior to purchase because of their uniquely personal nature.
The Company's introduction in 1979 of the ScentStrip (Registered Trademark)
sampler, the first pull-apart microencapsulated fragrance sampler, transformed
the fragrance industry by providing the first cost-effective means to reach
consumers in their homes on a mass scale by combining advertising and product
sampling. All of the Company's sampling products are approved by the U.S.
Postal Service for inclusion in subscription magazines at periodical postage
rates, which is a more cost-effective means of reaching consumers than
alternatives such as direct mail or newsstand magazine distribution. While the
Company's ScentStrip sampler remains the most widely used technology in the
sampling industry, the Company continues to be the leading innovator in the
sampling industry through its development of alternative sampling technologies,
all of which are designed for cost-effective mass distribution.
In recent years, the Company has complemented its fragrance sampling
business by focusing its research and development efforts on new product
technologies and sampling solutions for the skin care, makeup and consumer
products markets. While product sampling is critical to the success of these
products, sampling programs for these products have been constrained
historically by the characteristics of the available sampling alternatives.
Most sampling programs have consisted of relatively limited in-store or direct
mail efforts because existing samples have been too costly to produce in mass
quantities
1
<PAGE>
and have been incapable of being efficiently incorporated into magazines,
catalogs and other print advertising. Since June 1997, the Company has
introduced three innovative product sampling technologies to address this need,
providing the first cost-effective means to reach consumers in their homes on a
mass scale with samples of these products. Management believes these new
technologies have fundamentally altered the economics and efficiencies of
product sampling in these markets. Existing customers such as Chanel, Christian
Dior, Estee Lauder, L'Oreal/Cosmair and Revlon have utilized these new
technologies in sampling programs for their cosmetics products, such as skin
care and liquid makeup. The Company has also created and produced initial
sampling programs for new consumer products customers.
COMPETITIVE ADVANTAGES
Founded in 1902 as a printing company, the Company has been the market
leader in fragrance sampling since its introduction of the ScentStrip sampler
almost two decades ago and has recently expanded the application of its
sampling technologies to new markets. Management believes that the Company has
significant competitive advantages compared to other sampling companies:
o Full product line. The Company is unique in the breadth of its product
line, which includes a full range of fragrance sampling products and
innovative new technologies for sampling skin care and makeup products.
The Company offers nine distinct sampling products, while none of the
Company's major competitors offers more than three sampling
technologies. Although most major cosmetics companies generate
significant revenues in each of the fragrance, makeup and skin care
categories, the Company is the only sampling provider that offers
sampling products for all such categories of products.
o Technological leadership. The Company is the technological leader in the
cosmetics sampling industry, and has introduced almost every major
fragrance sampling technology to the market since its introduction of
the ScentStrip sampler in 1979. Management believes that its product
development program is the largest and most effective in the cosmetics
sampling industry. Over the past three years, the Company's increased
emphasis on new product research and development has expanded the size
of the potential sampling market through the introduction of new
technologies, such as BeautiSeal (Trade Mark) , LiquaTouch (Trade Mark)
and PowdaTouch (Trade Mark) samplers, which target the skin care and
makeup categories. Seven of the Company's nine major sampling
technologies are patented or have patents pending, and all are approved
by the U.S. Postal Service for inclusion in subscription magazines.
Competing sampling technologies that are not approved for inclusion in
subscription magazines are more expensive to mass distribute. In
addition, the Company has developed certain proprietary manufacturing
techniques that management believes provide the Company with a
competitive advantage.
o Low cost, highest quality producer. The Company is the most vertically
integrated manufacturing company in the sampling industry as all of its
major competitors source all or part of their products from third-party
manufacturers. Management believes that the Company's high degree of
vertical integration, together with the high volume resulting from the
Company's market share position, provides the Company with certain cost
and quality advantages. In addition, unlike some of its major
competitors, which are divisions of large companies, management believes
that the Company's focus on the product sampling industry allows it to
produce the highest quality product offering in the industry. Management
believes this focus on quality is a competitive advantage because the
Company's customers are reluctant to jeopardize an expensive product
launch by using an unproven sampling source that may not provide
consumers with an accurate first exposure to a sampled product.
o Strong customer relationships. More than 75% of Fiscal 1997 net sales
were generated by sales to customers that have been doing business with
the Company for the past five years or longer. The Company is proactive
in proposing innovative campaigns and sampling solutions, which result
in strong relationships with its customers. The Company has
long-standing relationships with the key marketing, purchasing and
technical executives at most of the world's leading cosmetics companies.
2
<PAGE>
It has also developed relationships with flavor and fragrance companies,
media companies and leading retailers servicing the cosmetics industry.
o Superior customer service. Managing sampling programs is highly service
intensive and the Company has the most experienced customer service
representatives in the industry. As cosmetics companies seek to
streamline their purchasing operations, the Company's ability to provide
complete marketing and sampling programs is becoming increasingly
important. Management believes that the Company's ability to provide
excellent customer service is a competitive advantage for the Company,
particularly with regard to department store sampling programs, such as
catalog inserts, billing enclosures and remittance envelopes, which
require significant coordination with individual retailers.
o Sole global provider. The Company is the only sampling company to
provide local sales, service and production capabilities on a global
basis. The major cosmetics companies are increasingly global, and the
Company's ability to service these customers in Europe, the United
States and Southeast Asia is becoming increasingly important. The
Company currently has sales offices in New York, San Francisco, Paris,
France and London, England and sales agents in Sydney, Australia and
Caracas, Venezuela. In addition, the Company has third-party
manufacturing capabilities in Europe and Australia to complement its
established domestic manufacturing operations.
BUSINESS STRATEGY
Management's goal is to enhance the Company's position as the leading
global marketer and manufacturer of cosmetics sampling products and position
itself for growth in the consumer products sampling market, while increasing
its profitability. To achieve this goal, management is pursuing a strategy
based on the following elements:
o Leverage existing customer relationships to expand into new cosmetics
categories. Almost all of the Company's sales have historically been in
the fragrance category, but for many of the Company's cosmetics
customers, fragrance represents a small portion of their total sales.
Management estimates that skin care and makeup sales account for
approximately two-thirds of all cosmetics industry sales, while sampling
for such products accounts for less than one-fourth of all cosmetics
sampling units. Historically, most skin care and makeup sampling
programs have consisted of relatively limited in-store or direct mail
efforts because existing samples have been too costly to produce in mass
quantities and too expensive to incorporate into subscription magazines
and other forms of distribution. Since June 1997, the Company has
introduced three innovative product sampling technologies for the makeup
and skin care categories, which provide a cost effective means to reach
consumers in their homes. Management believes that these innovative new
technologies, together with its established cosmetics industry customer
relationships, position the Company for future growth in this area.
o Penetrate the consumer products market. Management believes that the
Company has significant opportunities to increase its existing sampling
business by applying its cost-effective sampling technologies to new
end-user categories within the consumer products market. The consumer
products market is significantly larger than the Company's traditional
fragrance market.
o Continue implementation of cost reduction program. The Company is
implementing a comprehensive program to reduce annual operating costs by
approximately $4.0 million. The comprehensive cost reduction program was
developed by the Company in connection with an evaluation of its
operations conducted by manufacturing consultants with significant
experience in the printing industry and is designed to improve the
Company's operating efficiency through (i) reduced materials cost
derived from scrap/waste reduction and from more effective purchasing,
(ii) streamlined manufacturing processes that reduce the amount of time
required to prepare for successive manufacturing jobs utilizing the same
equipment and (iii) rationalized staffing in the product support area.
Management expects the benefit of the materials cost reductions and
3
<PAGE>
rationalized staffing will begin to be realized in the short term, while
the benefits of a streamlined manufacturing process are expected to be
realized incrementally through June 1999.
o Increase international sales. Since reacquiring its European license
with respect to its sampling technologies in August 1994, the Company
has significantly increased revenues from European customers and is the
leading fragrance sampling company in Europe. Management estimates that
the fragrance sampling industry in Europe is only approximately 20% of
the size of the fragrance sampling industry in the United States, even
though the size of the fragrance markets in Europe and the United States
are comparable. Management believes that European cosmetics companies
have preferred fragrance renditions that contain alcohol rather than
microencapsulated renditions. Given product innovations such as the
Company's Scent Seal (Registered Trademark) and LiquaTouch samplers
(which are alcohol-based sampling systems), the increasing globalization
of the cosmetics industry and the success of sampling techniques in the
U.S. market, management believes that the use of sampling will continue
to become more widespread in Europe.
4
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
DLJ Merchant Banking Partners II, L.P. and certain related investors
(collectively, "DLJMBII") and certain members of the Company's management
organized Acquisition Corp. in connection with the December 15, 1997
acquisition (the "Acquisition") of all the outstanding equity interests of the
Company. The total cost of the Acquisition (including related fees and
expenses) was approximately $205.7 million. Non-cash costs of the Acquisition
totaling approximately $6.2 million were funded by (i) the assumption of the
Scent Seal Note (as defined) and certain capital lease obligations and (ii) the
rollover of equity interests in the Company by the Company's Chief Executive
Officer. See "Description of Certain Indebtedness." To provide the cash
necessary to fund the Acquisition, including the equity purchase price and the
retirement of all existing preferred stock and debt of the Company not assumed,
(i) the Company issued $123.5 million in Senior Increasing Rate Notes (the
"Bridge Notes") to an affiliate of DLJMBII and the Initial Purchaser and (ii)
Acquisition Corp. received $76.0 million from debt and equity (common and
preferred) financings, including equity investments by the Company's Chief
Executive Officer and certain other prior stockholders. As of June 22, 1998,
(i) DLJMBII held an aggregate of approximately 81.3% of the outstanding common
stock of Acquisition Corp. and (ii) the Company's Chief Executive Officer held
an aggregate of approximately 12.1% of the outstanding common stock of
Acquisition Corp. See "Risk Factors--Control by DLJMBII," "Security Ownership
of Certain Beneficial Owners and Management" and "The Acquisition." Acquisition
Corp. has adopted a stock option plan for management of Acquisition Corp.,
Holding and the Company and granted options thereunder to the Company's Chief
Executive Officer. See "Management--Equity-Based Compensation."
3M ACQUISITION
On June 22, 1998, the Company acquired (the "3M Acquisition") the
fragrance sampling business of the Industrial and Consumer Products division of
Minnesota Mining and Manufacturing Company ("3M"). The Company intends to
relocate all of the business operations acquired in the 3M Acquisition to its
existing facilities to utilize current excess capacity at such facilities.
Management believes that in order to properly service the incremental sales
volume associated with the 3M Acquisition, several additional sales, marketing
and administrative employees will be hired. However, the Company believes that
due to the similarity of its existing customers and 3M's existing customers, no
other additional employee hiring will be required as a result of the 3M
Acquisition.
THE OFFERINGS
On June 25, 1998, the Company consummated the Note Offering. The Old Notes
were sold pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act. In addition, on June 25, 1998,
Holding issued and sold $50,000,000 in aggregate principal amount at maturity
of debentures (the "Debentures") (the "Debenture Offering") for gross proceeds
of $26.0 million. The Debentures were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act. The consummation of the Note Offering occurred concurrently with and was
conditioned upon, the consummation of the Debenture Offering.
5
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $115,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except (i) that the New Notes
have been registered under the Securities Act, (ii) that the New Notes are not
entitled to certain registration rights which are applicable to the Old Notes
under the Registration Rights Agreement and (iii) for certain contingent
Liquidated Damages provisions. The Old Notes and the New Notes are collectively
referred to herein as the "Notes." See "Description of New Notes."
THE EXCHANGE OFFER.......... $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered pursuant to
the Exchange Offer. The exchange of New Notes for
Old Notes will be made with respect to all Old
Notes validly tendered and not withdrawn on or
prior to the Expiration Date promptly following
the Expiration Date. As of the date hereof,
$115,000,000 in aggregate principal amount of Old
Notes are outstanding.
RESALE...................... Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to unrelated third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale and resold or otherwise transferred by
Holders thereof (other than any Restricted
Holder) 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 Holders'
business and such Holders are not participating,
do not intend to participate and have no
arrangement or understanding with any person to
participate in a distribution of such New Notes.
See "K-III Communications Corporation," SEC
No-Action Letter (available May 14, 1993);
"Morgan Stanley & Co., Incorporated," SEC
No-Action Letter (available June 5, 1991); and
"Exxon Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1988). Each
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer" and "Plan of Distribution."
If any person were to participate in the
Exchange Offer for the purpose of distributing
securities in a manner not permitted by the
preceding paragraph, such person could not rely
on the position of the staff of the Commission
and must comply with the prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction. Therefore,
each holder of Old Notes who accepts the
Exchange Offer must represent in the Letter of
Transmittal that it meets the conditions
described above. See "The Exchange
Offer--Purpose and Effects of the Exchange
Offer."
6
<PAGE>
EXPIRATION DATE............. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD NOTES..... Interest will accrue on the New Notes from June
25, 1998 or from the most recent interest payment
date on the Old Notes surrendered in exchange
therefor. Holders of Old Notes whose Old Notes
are accepted for exchange will be deemed to have
waived the right to receive any payment in
respect of interest accrued from June 25, 1998 to
the date of issuance of the New Notes. See "The
Exchange Offer--Interest on New Notes."
CONDITIONS TO THE
EXCHANGE OFFER.............. The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company in whole or in part and from time to time
in its sole discretion. See "The Exchange
Offer--Conditions." The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
PROCEDURE 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 (unless such tender
is being effected pursuant to the procedures for
book-entry transfer described below) to be
exchanged and any other required documentation to
the Exchange Agent (as defined herein) at the
address set forth herein and therein. See "The
Exchange Offer--Procedure for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIALOWNERS............ 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 in the Exchange Offer
should contact such registered Holder promptly
and instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on 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 Holder's name
or obtain a properly completed bond power from
the registered Holder. The transfer of record
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Procedure for
Tendering."
GUARANTEED DELIVERY
PROCEDURES.................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot
7
<PAGE>
deliver their Old Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS........... Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date, unless previously accepted
for exchange. See "The Exchange Offer--Withdrawal
of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES....... The Company will accept for exchange any and
all Old Notes which are validly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
CONSEQUENCE OF FAILURE
TO EXCHANGE................ Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the Exchange
Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set
forth on the legend thereon. In addition, if the
Exchange Offer is consummated, the Company does
not intend to file further registration
statements for the sale or other disposition of
the Old Notes. See "Risk Factors--No Public
Market for the Notes" and "Risk
Factors--Consequences of the Exchange Offer on
Non-Tendering Holders of the Old Notes."
REGISTRATION RIGHTS AGREEMENT;
EFFECT ON HOLDERS........... The Old Notes were sold by the Company on June
25, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), as the initial
purchaser (the "Initial Purchaser") pursuant to a
Purchase Agreement dated June 22, 1998 between
the Company and the Initial Purchaser (the
"Purchase Agreement"). The Initial Purchaser
subsequently sold the Old Notes to qualified
institutional buyers and non-U.S. persons in
reliance on Rule 144A and Regulation S,
respectively, under the Securities Act. Pursuant
to the Purchase Agreement, the Company and the
Initial Purchaser entered into a Registration
Rights Agreement dated as of June 25, 1998 (the
"Registration Rights Agreement") which grants the
Holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is being
made to satisfy this contractual obligation of
the Company. The Holders of New Notes are not
entitled to any exchange or registration rights
with respect to the New Notes. See "The Exchange
Offer--Purpose and Effects of the Exchange
Offer."
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES................ The exchange of Old Notes for New Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes,
8
<PAGE>
and such holders will not recognize any taxable
gain or loss or any interest income for federal
income tax purposes as a result of such
exchange. See "Certain U.S. Federal Income Tax
Consequences."
EXCHANGE AGENT.............. IBJ Schroder Bank & Trust Company, the Trustee
under the Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The address of the Exchange Agent
is P.O. Box 84, Bowling Green Station, New York,
New York 10274-0084. Hand and overnight
deliveries should be directed to the Exchange
Agent at One State Street, New York, New York
10004, Attn: Securities Processing Window,
Subcellar One (SC-1). For information with
respect to the Exchange Offer, call (212)
858-2103. See "The Exchange Offer--Exchange
Agent."
USE OF PROCEEDS............. The Company will not receive any cash proceeds
from the exchange of the New Notes for the Old
Notes pursuant to the Exchange Offer. The net
proceeds from the sale of Old Notes of
approximately $110,150,000 (after deducting
underwriting discounts and expenses of the
Offering) have been used, together with the
Equity Contribution, (i) to repay the entire
outstanding principal amount of, and accrued and
unpaid interest on, the Bridge Notes, which were
issued to an affiliate of DLJMBII and the Initial
Purchaser in connection with the Acquisition and
(ii) to fund working capital requirements and for
general corporate purposes, including funding the
purchase price of the 3M Acquisition. See "Use of
Proceeds" and "--3M Acquisition."
9
<PAGE>
SUMMARY DESCRIPTION OF NEW NOTES
SECURITIES OFFERED.......... $115.0 million in aggregate principal amount of
the Company's 10 1/2% Senior Notes due 2008 (the
"New Notes").
MATURITY DATE............... July 1, 2008.
INTEREST RATE............... The New Notes will bear interest at the rate of
10 1/2% per annum, payable semi-annually in cash
in arrears on January 1 and July 1 of each year,
commencing January 1, 1999.
OPTIONAL REDEMPTION......... The New Notes will be redeemable at the option
of the Company, in whole or in part, at any time
on or after July 1, 2003, in cash at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption. In
addition, at any time prior to July 1, 2001, the
Company may on any one or more occasions redeem
up to 35% of the aggregate principal amount of
New Notes originally issued at a redemption price
equal to 110.5% 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 Public
Equity Offerings; provided that at least 65% of
the aggregate principal amount of New Notes
originally issued remain outstanding immediately
after the occurrence of such redemption. See
"Description of New Notes--Optional Redemption."
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control,
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 an offer price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
date of repurchase. See "Description of New
Notes--Repurchase at the Option of
Holders--Change of Control." There can be no
assurance that, in the event of a Change of
Control, the Company would have sufficient funds
to repurchase all New Notes tendered. See "Risk
Factors--Limitations on Ability to Make Change of
Control Payment."
RANKING..................... The New Notes will be general unsecured
obligations of the Company, will rank pari passu
in right of payment to all existing and future
unsecured senior indebtedness of the Company and
will rank senior in right of payment to all
existing and future subordinated indebtedness of
the Company. The New Notes, however, will be
effectively subordinated to all secured
obligations of the Company, including borrowings
under the Credit Agreement, to the extent of the
assets securing such obligations. As of March 31,
1998, on a pro forma basis, after giving effect
to the Refinancing and the consummation of the 3M
Acquisition, the Company would have had no
outstanding secured obligations (other than
outstanding letters of credit in the amount of
$0.6 million) under the Credit Agreement. In
addition, as of such date and on such pro forma
basis, borrowings of up to approximately $19.4
million were available under the Credit
Agreement, subject to certain conditions.
10
<PAGE>
CERTAIN COVENANTS........... The Indenture contains certain covenants that
will limit, among other things, the ability of
the Company to: (i) pay dividends, redeem capital
stock or make certain other restricted payments
or investments; (ii) incur additional
indebtedness or issue preferred equity interests;
(iii) merge, consolidate or sell all or
substantially all of its assets; (iv) create
liens on assets; and (v) enter into certain
transactions with affiliates or related persons.
See "Description of New Notes--Certain
Covenants."
RISK FACTORS
Holders of "Old Notes" should take into account the specific
considerations set forth under "Risk Factors" as well as the other information
set forth in this Prospectus before tendering Old Notes in exchange for New
Notes.
------------
The Company operates under the trade name "Arcade" and its principal
executive offices are located at 1815 East Main Street, Chattanooga, Tennessee
37404 and its telephone number is (423) 624-3301.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
Set forth below are summary historical and pro forma consolidated
financial data of the Company and the predecessor of the Company (the
"Predecessor") as of the dates and for the periods presented. The summary
historical consolidated financial data of the Predecessor were derived from the
audited consolidated financial statements of the Predecessor, except for the
data for the nine months ended March 31, 1997 and the period from July 1, 1997
to December 15, 1997, which were derived from unaudited consolidated financial
statements of the Predecessor. The summary historical consolidated financial
data of the Company as of March 31, 1998 and for the period from December 16,
1997 to March 31, 1998 have been derived from the unaudited consolidated
financial statements of the Company. In the opinion of management, the
unaudited consolidated financial statements of the Predecessor and the Company
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition and results of
operations as of such dates and for such periods. The pro forma consolidated
financial data give effect to the Acquisition, the Refinancing and the 3M
Acquisition and have been derived from the Unaudited Pro Forma Condensed
Consolidated Financial Data appearing elsewhere herein. The information
contained in this table should be read in conjunction with "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Unaudited Pro
Forma Condensed Consolidated Financial Data and the notes thereto, the
Company's Consolidated Financial Statements and the notes thereto and the other
information contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------------------------------
NINE
MONTHS JULY 1, 1997
FISCAL YEAR ENDED JUNE 30, ENDED TO
-------------------------------------- MARCH 31, DECEMBER 15,
1995 1996 1997 1997 1997
------------ ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales .................. $ 61,794 $ 73,486 $ 77,723 $ 62,367 $ 35,186
Cost of goods sold ......... 38,333 49,862 49,467 39,529 22,809
-------- -------- -------- -------- --------
Gross profit ............... 23,461 23,624 28,256 22,838 12,377
Selling, general and
administrative
expenses .................. 8,483 10,655 13,353 10,470 5,712
Amortization of
goodwill .................. 1,113 1,214 1,214 911 559
-------- -------- -------- -------- --------
Income from
operations ................ 13,865 11,755 13,689 11,457 6,106
OTHER DATA (1):
Capital
expenditures .............. 1,325 2,051 2,462 1,839 807
Ratio of earnings to
fixed charges (2) ......... 2.2x 1.6x 2.1x 2.4x 2.2x
</TABLE>
<PAGE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
THE COMPANY
----------------------------------------
PRO FORMA
-------------------------
DECEMBER 16, FISCAL NINE
1997 YEAR MONTHS
TO ENDED ENDED
MARCH 31, JUNE 30, MARCH 31,
1998 1997 1998
-------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales .................. $21,982 $ 87,771 $ 64,038
Cost of goods sold ......... 13,782 54,157 39,656
------- -------- --------
Gross profit ............... 8,200 33,614 24,382
Selling, general and
administrative
expenses .................. 3,189 14,335 9,647
Amortization of
goodwill .................. 1,125 4,032 3,028
------- -------- --------
Income from
operations ................ 3,886 15,247 11,707
OTHER DATA (1):
Capital
expenditures .............. 255 2,462 1,062
Ratio of earnings to
fixed charges (2) ......... -- 1.2x 1.2x
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------------------
PRO
ACTUAL FORMA
------------------- ----------
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ........... $ 988 $ 637
Working capital (deficit) ........... (107,821)(3) 16,733
Total assets ........................ 202,667 213,020
Total debt .......................... 128,779 118,679
Total stockholder's equity .......... 61,273 82,118
</TABLE>
- ----------
(1) EBITDA is defined as income from operations plus depreciation and
amortization. EBITDA is discussed because it is a widely accepted
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA is not
intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States
and is not indicative of operating income or cash flow from operations as
determined under GAAP. EBITDA for the Predecessor was $17,492, $16,177
and $18,773 for the fiscal years ended June 30, 1995, 1996 and 1997,
respectively, $15,285 for the nine months ended March 31, 1997 and $8,562
for July 1, 1997 to December 15, 1997. EBITDA for the Company was $5,893
for December 16, 1997 to March 31, 1998 and pro forma EBITDA for the
Company was $22,587 for the fiscal year ended June 30, 1997 and $17,213
for the nine months ended March 31, 1998.
Pro forma EBITDA for the nine months ended March 31, 1998 includes the
effect of the following unusual items: (i) $525 of legal costs and
royalty payments associated with a successful patent infringement claim
against a competitor; (ii) costs totaling $252 incurred in connection
with centralizing certain acquired technologies; and (iii) costs totaling
$278 related to former stockholder expenses and severance costs at the
Company's European subsidiary.
Depreciation and amortization for the Predecessor was $3,627, $4,422 and
$5,084 for the fiscal years ended June 30, 1995, 1996 and 1997,
respectively, $3,828 for the nine months ended March 31, 1997 and $2,456
for July 1, 1997 to December 15, 1997. Depreciation and amortization for
the Company was $2,007 for December 16, 1997 to March 31, 1998 and pro
forma depreciation and amortization was $7,340 for the fiscal year ended
June 30, 1997 and $5,506 for the nine months ended March 31, 1998.
(2) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness and
amortization of deferred financing costs. Earnings were not sufficient to
cover fixed charges by $1,325 for the period from December 16, 1997 to
March 31, 1998.
(3) The Bridge Notes mature on December 15, 1998 and, therefore, are
classified on the Company's consolidated balance sheet as a current
liability in accordance with GAAP, the result of which is a substantial
working capital deficit.
13
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider the following factors,
together with the other information set forth in this Prospectus, before
tendering Old Notes in exchange for New Notes. However, the risk factors set
forth herein may not be exhaustive and these or other factors could have a
material adverse effect on the ability of the Company to service its
indebtedness, including principal and interest payments on the New Notes.
SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company has substantial indebtedness and debt service obligations. As
of March 31, 1998, after giving pro forma effect to the Refinancing and the 3M
Acquisition, the Company would have had total consolidated indebtedness of
approximately $118.7 million and the Company's pro forma ratio of earnings
available to cover fixed charges for Fiscal 1997 and the Interim 1998 Period
would both have been 1.2x. In addition, on June 25, 1998, the date of the
closing (the "Closing") of the Offering (the "Closing Date"), the Company had a
maximum of $19.4 million of availability under the Credit Agreement. The
Indenture and the Credit Agreement permit the Company and its Restricted
Subsidiaries, in each case, to incur additional indebtedness, subject to
certain limitations.
The level of the Company's indebtedness could have important consequences
to holders of the New Notes, including, but not limited to, the following: (i)
a substantial portion of cash flow from operations must be dedicated to debt
service and will not be available for other purposes; (ii) additional debt
financing in the future for working capital, capital expenditures or
acquisitions may be limited; (iii) the level of indebtedness could limit
flexibility in reacting to changes in the operating environment and economic
conditions generally; (iv) the level of indebtedness could restrict the
Company's ability to increase manufacturing capacity; (v) the Company may face
difficulties in satisfying its obligations with respect to its indebtedness;
and (vi) a portion of the Company's borrowings bear interest at variable rates
of interest, which could result in higher interest expense in the event of an
increase in market interest rates.
The ability of the Company to pay principal and interest on the New Notes
and to satisfy its other debt obligations will depend upon the Company's future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond the
Company's control, as well as the availability of revolving credit borrowings
available under the Credit Agreement. The Company anticipates that its
operating cash flow, together with borrowings under the Credit Agreement, will
be sufficient to meet its operating expenses and to service its debt
requirements as they become due. However, if the Company is unable to service
its indebtedness, the Company may be required to take action such as reducing
or delaying capital expenditures, selling assets, restructuring or refinancing
its indebtedness or seeking additional equity capital. There can be no
assurance that any of these remedies can be effected on satisfactory terms, if
at all.
The Indenture and the Credit Agreement contain certain covenants that,
among other things, limit the ability of the Company and its Restricted
Subsidiaries to (i) pay dividends or make certain restricted payments; (ii)
incur additional indebtedness and issue preferred stock; (iii) create liens;
(iv) incur dividend and other payment restrictions affecting subsidiaries; (v)
enter into mergers, consolidations or sales of all or substantially all of the
assets of the Company; (vi) enter into certain transactions with affiliates;
and (vii) sell certain assets. In addition, the Credit Agreement requires the
Company to maintain specified financial ratios and satisfy certain financial
condition tests. The Company's ability to meet those financial ratios and tests
can be affected by events beyond its control, and there can be no assurance
that the Company will meet those tests. See "Description of New Notes" and
"Description of Certain Indebtedness--Credit Agreement."
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EFFECTIVE SUBORDINATION; ENCUMBRANCES ON ASSETS
Under the terms of the Credit Agreement, Heller Financial, Inc. (the
"Lender") has a security interest in all of the capital stock of the Company
and the Company has granted to the Lender security interests in substantially
all of the current and future assets of the Company (other than the issued and
outstanding shares of capital stock of the Company's subsidiaries). In the
event of a default under the Credit Agreement (whether as a result of the
failure to comply with a payment or other covenant, a cross-default or
otherwise), such Lender will have a prior secured claim on the capital stock of
the Company and the encumbered assets of the Company. As a result, the
encumbered assets of the Company would be available to pay obligations on the
Notes only after borrowings under the Credit Agreement and any other secured
indebtedness have been paid in full. If the Lender should attempt to foreclose
on their collateral, the Company's financial condition and the value of the New
Notes will be materially adversely affected and could be eliminated. See
"Description of Certain Indebtedness." As of March 31, 1998, on a pro forma
basis, after giving effect to the Refinancing and the consummation of the 3M
Acquisition, the Company would have had no outstanding obligations (other than
outstanding letters of credit in the amount of $0.6 million) under the Credit
Agreement. In addition, as of such date and on such pro forma basis, borrowings
of up to approximately $19.4 million were available under the Credit Agreement,
subject to certain conditions.
POSTAL REGULATION
The Company's sampling products are approved by the U.S. Postal Service
for inclusion in subscription magazines mailed at periodical postage rates. The
Company's products have a significant cost advantage over certain competing
sampling products, such as miniatures, vials, packettes, sachets and
blisterpacks, because such competing products cause an increase from periodical
postage rates to the higher third class rates for the magazine's entire
circulation. Subscription magazine sampling inserts delivered to consumers
through the U.S. Postal Service accounted for approximately 40% of the
Company's net sales in Fiscal 1997. There can be no assurance that the U.S.
Postal Service will not approve other competing types of sampling products for
use in subscription magazines without requiring a postal surcharge, or that the
U.S. Postal Service will not reclassify the Company's sampling products such
that they would incur a postal surcharge. Any such action by the U.S. Postal
Service could have a material adverse effect on the Company's results of
operations and financial condition.
RELIANCE UPON SIGNIFICANT CUSTOMERS
The Company's top ten customers by sales generated accounted for
approximately 61% of the Company's net sales in Fiscal 1997 and each of Estee
Lauder and Procter & Gamble accounted for in excess of 10% of the Company's net
sales in Fiscal 1997. Although the Company has long-established relationships
with most of its major customers, the Company does not have long-term contracts
with any of its customers. The Company is currently working with Procter &
Gamble to qualify the Company's manufacturing operations under certain supplier
standards established by Procter & Gamble that the Company has not yet met.
There can be no assurance that the Company will be able to qualify under such
supplier standards or that Procter & Gamble will continue to purchase sampling
products from the Company if the Company's manufacturing operations are not so
qualified. An adverse change in its relationships with significant customers,
including Estee Lauder and Procter & Gamble, could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION
The Company's competitors, some of whom have substantially greater capital
resources than the Company, are actively engaged in manufacturing certain
products similar to those of the Company. The Company's principal competitors
in the printed fragrance sampler market are Webcraft, a subsidiary of Big
Flower Holdings, Inc., Orlandi Inc., Retail Communications Corp. and Quebecor
Printing (USA) Corp. Competition in the Company's market is based upon product
quality, product technologies, customer relationships, price and customer
service. The future success of the Company's business will depend in large part
upon its ability to market and manufacture products and services that meet
customer
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needs on a cost-effective and timely basis. There can be no assurance that
capital will be available for these purposes, that investments in new
technology will result in commercially viable products or that the Company will
be successful in generating sales on commercially favorable terms, if at all.
In addition, the Company's success, competitive position and revenues will
depend, in part, upon its ability to protect its proprietary technologies and
to operate without infringing on the proprietary rights of others. Although the
Company has certain patents and has filed, and expects to continue to file,
other patent applications, there can be no assurance that the Company's issued
patents are enforceable or that its patent applications will mature into issued
patents. The expense involved in litigation regarding patent protection or a
challenge thereto has been and could be significant and any future expense, if
any, cannot be estimated by the Company. A portion of the Company's
manufacturing processes are not covered by any patent or patent application. As
a result, the business of the Company may be adversely affected by competitors
who independently develop technologies substantially equivalent to those
employed by the Company. See "Business--Competition."
DEPENDENCE ON FRAGRANCE INDUSTRY; SEASONALITY
The advertising budgets of the Company's customers, and therefore the
revenues of the Company, are susceptible to prevailing economic and market
conditions that affect advertising expenditures, the performance of the
products of the Company's customers in the marketplace and certain other
factors. See the discussion of net sales for the Interim 1998 Period compared
to the Interim 1997 Period and Fiscal 1997 compared to Fiscal 1996 in
"Management's Discussion of Financial Condition and Results of
Operations--Results of Operations." There can be no assurance that further
reductions in advertising spending will not occur, which could have a material
adverse effect on the Company's results of operations and financial condition.
In addition, the Company's sales and operating results have historically
reflected seasonal variations. Such seasonal variations are based on the timing
of the Company's customers' advertising campaigns, which have traditionally
been concentrated prior to the Christmas and spring holiday seasons. As a
result, a higher level of sales are reflected in the Company's first two fiscal
quarters ended December 31 when sales from such advertising campaigns are
principally recognized while the Company's fourth fiscal quarter ended June 30
typically reflects the lowest sales level of the fiscal year. These seasonal
fluctuations require the Company to accurately allocate its resources to manage
the Company's manufacturing capacity, which often operates at full capacity
during peak seasonal demand periods.
RAW MATERIALS--PAPER
Paper is the primary raw material utilized by the Company in producing its
sampling products. Paper costs represented approximately one-third of the
Company's cost of goods sold in each of Fiscal 1995, 1996 and 1997. During the
five years prior to Fiscal 1996, the Company had not experienced any
significant increases in paper prices. In Fiscal 1996, a series of significant
price increases for paper occurred, which increased the Company's average price
of paper by 14.8% as compared to Fiscal 1995. The magnitude and close proximity
of such increases prevented the Company from recovering all of such increased
paper costs from its customers and had an adverse impact on the Company's
results of operations. Future significant increases in paper costs could have a
material adverse effect on the Company's results of operations and financial
condition to the extent that the Company is unable to price its products to
reflect such increases. There can be no assurance that the Company's customers
would accept such price increases or the extent to which such price increases
would impact their decision to utilize the Company's sampling products.
All of the Company's encapsulated sampling products, which accounted for a
majority of the Company's net sales in Fiscal 1997, utilize specific grades of
paper that are produced exclusively for the Company by one supplier. However,
the Company does not have any supply contract with
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respect to such grades of paper. Any disruption or loss of such supply of paper
could have a material adverse effect on the Company's results of operations and
financial condition to the extent that the Company is unable to obtain such
paper elsewhere.
DEPENDENCE UPON SENIOR MANAGEMENT
The Company is substantially dependent on the personal efforts,
relationships and abilities of Roger L. Barnett, the Company's President and
Chief Executive Officer. Barry W. Miller, the Company's Chief Operating
Officer, joined the Company in May 1998 and, consequently, the Company has
limited operating history under such senior manager upon which holders of New
Notes may base an evaluation of his performance. The Company has entered into
employment agreements with Messrs. Barnett and Miller. The Company does not
maintain key person life insurance on any member of senior management of the
Company. The loss of Mr. Barnett's services or the services of any other member
of senior management could have a material adverse effect on the Company. See
"Management."
RISKS OF INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS
Approximately 9.6% of the Company's net sales in Fiscal 1997 were
generated outside the United States. Foreign operations are subject to certain
risks inherent in conducting business abroad, including, among others, exposure
to foreign currency fluctuations and devaluations or restrictions on money
supplies, foreign and domestic export law and regulations, price controls,
taxation, tariffs, import restrictions, and other political and economic events
beyond the Company's control. The Company has not experienced any material
effects of these risks as of yet, but there can be no assurance that they will
not have such an effect in the future.
CONTROL BY DLJMBII
DLJMBII has the power to elect a majority of the directors of Acquisition
Corp. and generally exercises control over the business, policies and affairs
of Acquisition Corp., Holding and the Company through its ownership of
Acquisition Corp. By reason of such ownership, DLJMBII may have interests that
could be in conflict with those of the holders of New Notes. A portion of the
net proceeds from the Offering and the Equity Contribution have been used to
repay the Bridge Notes, which were issued to an affiliate of DLJMBII and the
Initial Purchaser. See "Use of Proceeds," "Security Ownership of Certain
Beneficial Owners and Management" and "Certain Relationships and Related
Transactions."
LIMITATIONS ON ABILITY TO MAKE CHANGE OF CONTROL PAYMENT
Upon the occurrence of a Change of Control, each holder of New Notes will
have the right to require the Company to purchase all or any part of such
holder's New Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. The prepayment of the New Notes
following a Change of Control would constitute a default under the Credit
Agreement. In the event that a Change of Control occurs, the Company would
likely be required to refinance the indebtedness outstanding under the Credit
Agreement and the New Notes. There can be no assurance that the Company would
be able to refinance such indebtedness or, if such refinancing were to occur,
that such refinancing would be on terms favorable to the Company. See
"Description of New Notes--Repurchase at the Option of Holders--Change of
Control."
LABOR RELATIONS
As of March 31, 1998, approximately 60% of the Company's employees worked
under a collective bargaining agreement that expires on April 1, 1999. While
the Company believes that its relations with its employees are good, there can
be no assurance that the Company's collective bargaining agreement will be
renewed in the future. A prolonged labor dispute (which could include a work
stoppage) could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Employees."
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RISK OF FRAUDULENT TRANSFER LIABILITY
If a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that either the Company did not receive fair
consideration or reasonably equivalent value for issuing the Notes and, at the
time of the incurrence of indebtedness represented by the New Notes, the
Company was insolvent, was rendered insolvent by reason of such incurrence, was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay as such debts matured, or intended to hinder,
delay or defraud its creditors, such court could avoid such indebtedness,
subordinate such indebtedness to other existing and future indebtedness of the
Company or take other action detrimental to the holders of the New Notes. The
measure of insolvency for purposes of the foregoing will vary depending upon
the law of the relevant jurisdiction. Generally, however, a company would be
considered insolvent for purposes of the foregoing if the sum of such company's
debts is greater than all the company's property at a fair valuation, or if the
present fair saleable value of the company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and matured.
YEAR 2000 ISSUES
The Company has commenced a study of its computer systems in order to
assess its exposure to Year 2000 issues. The Company expects to make the
necessary modifications or changes to its computer information systems to
enable proper processing of transactions relating to the Year 2000 and beyond.
The Company will evaluate appropriate courses of action, including replacement
of certain systems whose associated costs would be recorded as assets and
subsequently amortized. There can be no assurance that costs and expenses or
other matters relating to Year 2000 issues will not have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issues."
NO PUBLIC MARKET FOR THE NEW NOTES
There has previously been only a limited secondary market and no public
market for the Old Notes, and there can be no assurance as to the liquidity of
any market that may develop for the New Notes, the ability of Holders of the
New Notes to sell their New Notes, or the prices at which the Holders of the
New Notes would be able to sell their New Notes. In addition, because the
Exchange Offer is not conditioned upon any minimum number of Old Notes being
tendered for exchange, the number of New Notes tendered could be quite small
which could have an adverse effect on the liquidity of the New Notes. The
Initial Purchaser has advised the Company that it currently intends to make a
market in the New Notes. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to the New Notes may be
discontinued at any time without notice. Also, to the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. Therefore, no assurance can
be given as to the liquidity of the trading market for the New Notes. The
Company does not intend to list the New Notes on a national securities exchange
or to apply for quotation of the New Notes through the National Association of
Securities Dealers Automated Quotation System. However, it is expected that the
New Notes will be eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") Market upon issuance.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Company does not intend to file further registration
statements for the sale or other disposition of Old Notes. Old Notes that are
not exchanged for New Notes will remain restricted securities within the
meaning of Rule 144 of the Securities Act. Consequently, following completion
of the Exchange Offer, Holders of Old Notes seeking liquidity in their
investment would have to rely on an exemption to the registration requirements
under applicable securities laws, including the Securities Act, with respect to
any sale or other disposition of the Old Notes.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the exchange of the
New Notes for the Old Notes pursuant to the Exchange Offer. As consideration
for issuing the New Notes offered hereby the Company will receive, in exchange,
Old Notes in like principal amount, which will be canceled and as such will not
result in any increase in indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes, after
deducting discounts and commissions and other estimated expenses of the
Offering, was approximately $110.7 million. The net proceeds from the Offering
have been used, together with the Equity Contribution, (i) to repay the entire
outstanding principal amount of, and accrued and unpaid interest on, the Bridge
Notes, which were issued to an affiliate of DLJMBII and the Initial Purchaser
in connection with the Acquisition and (ii) to fund working capital
requirements and for general corporate purposes, including funding the purchase
price of the 3M Acquisition. As of June 22, 1998, the interest rate on the
Bridge Notes was 11.75%. See "Certain Relationships and Related Transactions,"
"Description of Certain Indebtedness" and "Plan of Distribution."
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THE EXCHANGE OFFER
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on the Closing Date to the Initial
Purchaser, pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers within the
meaning of Rule 144A under the Securities Act and to non-U.S. persons pursuant
to Regulation S under the Securities Act. As a condition to the Purchase
Agreement, the Company and the Initial Purchasers entered into the Registration
Rights Agreement on June 25, 1998. The Registration Rights Agreement required
the Company to file with the Commission following the Closing, a registration
statement relating to an exchange offer pursuant to which notes that are
substantially identical to the Old Notes would be offered in exchange for the
then outstanding Old Notes tendered at the option of the Holders thereof. The
form and terms of the New Notes are identical in all material respects to the
form and terms of the Old Notes except (i) that the New Notes have been
registered under the Securities Act, (ii) that the New Notes are not entitled
to certain registration rights which are applicable to the Old Notes under the
Registration Rights Agreement, and (iii) that certain contingent interest rate
provisions applicable to the Old Notes are generally not applicable to the New
Notes. In the event that the applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, the Company
agreed to use its reasonable best efforts to cause to become effective a shelf
registration statement with respect to the resale of the Old Notes ("the Shelf
Registration Statement") and to keep such Shelf Registration Statement
effective for a period of up to three years. The Exchange Offer is being made
to satisfy the contractual obligations of the Company under the Registration
Rights Agreement. The Holders of any Old Notes not tendered in the Exchange
Offer will not be entitled to require the Company to file the Shelf
Registration Statement.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Company will use its reasonable best
efforts to have the Exchange Offer Registration Statement declared effective by
the Commission on or prior to 180 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its reasonable best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
New Notes in exchange for all Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its reasonable best efforts to file the Shelf Registration
Statement with the Commission on or prior to 45 days after such filing
obligation arises and to cause the Shelf Registration to be declared effective
by the Commission on or prior to 180 days after such obligation arises. If (a)
the Company 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 Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement 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 "Registration Default"), then the Company will pay liquidated damages
("Liquidated Damages") to each Holder of Notes, with respect to the first
90-day period immediately following the occurrence of the first Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
Notes held by such Holder. The amount of the Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.25 per week per
$1,000 principal amount of Notes. All accrued Liquidated Damages will be paid
by the Company on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of Certificated Notes by mailing checks to their registered addresses.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
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Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to unrelated third parties, the Company believes the
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by the Holders thereof
(other than a Restricted Holder) 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 holders' business and such
Holders are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate, in a distribution
of such New Notes. See "K-III Communications Corporation," SEC No-Action Letter
(available May 14, 1993); "Morgan Stanley & Co., Incorporated," SEC No-Action
Letter (available June 5, 1991); and "Exxon Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1998). Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any sale of such New Notes. See "Plan of Distribution."
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the preceding paragraph,
such person could not rely on the position of the staff of the Commission and
must comply with the Prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Therefore, each Holder of Old
Notes who accepts the Exchange Offer must represent in the Letter of
Transmittal that it meets the conditions described above.
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged New Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to such Exchange Offer and (ii) the Company having exchanged, pursuant
to such Exchange Offer, New Notes for all Old Notes that have been validly
tendered and not withdrawn on the Expiration Date. In such event, Holders of
Old Notes seeking liquidity in their investment would have to rely on
exemptions to registration requirements under applicable securities laws,
including the Securities Act.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange of New Notes for Old Notes will be made with
respect to all Old Notes validly tendered and not withdrawn on or prior to the
Expiration Date, promptly following the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered promptly following the
Expiration Date. The Company will issue $1,000 principal amount of New Notes in
exchange for $1,000 principal amount of outstanding Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer in denominations of $1,000 and integral multiples of $1,000
in excess thereof.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of the Old Notes is outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered Holders of Old Notes as of , 1998 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving New Notes from the Company and
delivering New Notes to such Holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company.
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The Company has agreed to pay, subject to the instructions in the Letter of
Transmittal, all transfer taxes, if any, relating to the sale or disposition of
such Holders' Old Notes pursuant to the Exchange Offer. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1998, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record Holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "--Conditions" shall have occurred and shall not have been waived
by the Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (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. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the Holders of the Old Notes of
such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to a financial news service.
INTEREST ON NEW NOTES
Interest will accrue on the New Notes from June 25, 1998, or from the most
recent interest payment date on the Old Notes surrendered in exchange therefor,
and will be payable semi-annually in cash and arrears on January 1 and July 1
of each year, commencing on January 1, 1999 at the rate of 10 1/2% per annum.
Holders of Old Notes whose Old Notes are accepted for exchange will be deemed
to have waived the right to receive any payment in respect of interest accrued
from June 25, 1998 to the date of issuance of the New Notes.
PROCEDURE FOR TENDERING
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver
such Letter of Transmittal or such facsimile, together with the Old Notes
(unless such tender is being effected pursuant to the procedure for book-entry
transfer described below) and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" as defined by Rule 17Ad-15
under the Exchange Act (any of the foregoing hereinafter referred to as 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.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange
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Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received or confirmed by
the Exchange Agent at its addresses set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a Holder of Old Notes will constitute an agreement between
such Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such Holders.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
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 Company or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Old Notes are held of record by DTC who desires to
deliver such Old Notes at DTC.
Any beneficial Holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender his Old Notes should contact the registered Holder promptly and
instruct such registered Holder to tender on his behalf. If such beneficial
Holder wishes to tender on his own behalf, such beneficial Holder 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 Holder's name or obtain a properly completed bond power from the
registered Holder. The transfer of record ownership may take considerable time.
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 appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed 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
a corporation or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not validly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Notes nor shall any of them incur any liability for failure to
23
<PAGE>
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 validly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent without cost to the tendering holder of such Old Notes
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such Holder's business, (ii) such Holder is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of such New
Notes, (iii) such Holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company and (iv) such Holder is not a broker-dealer
who acquired Old Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Early Exchange Date or the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed notice of guarantee
delivery (the "Notice of Guaranteed Delivery") (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder of the Old
Notes, the certificate number or numbers of such Old Notes and the principal
amount of Old Notes, the certificate number or numbers of such Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby, and guaranteeing that, within three business days after the date
of execution of the Notice of Guaranteed Delivery, the Letter of Transmittal
(or facsimile thereof), together with the certificate(s) representing the Old
Notes to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Old Notes delivered electronically)
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the date of execution of
the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date and prior to acceptance for exchange by the Company. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including required signature guarantees) or be
accompanied by documents of transfer sufficient to permit the trustee with
respect to the Old Notes to register the transfer of such Old Notes into the
name of the Depositor withdrawing the tender and (iv) specify the name in which
any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not
24
<PAGE>
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned by the Exchange Agent to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures described above
under "--Procedure for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be obligated to consummate the Exchange Offer if the New Notes to be received
will not be tradeable by the holder, other than in the case of Restricted
Holders, 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. Such condition will be
deemed to be satisfied unless a holder provides the Company with an opinion of
counsel reasonably satisfactory to the Company to the effect that the New Notes
received by such holder will not be tradeable without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
Blue Sky laws of substantially all of the states of the United States. The
Company may waive this condition.
If the condition described above exists, the Company will be entitled to
refuse to accept any Old Notes and, in the case of such refusal, will return
tendered Old Notes to exchanging holders of Old Notes. See "The Exchange
Offer."
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, 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 Hand and Overnight Delivery:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10044
Attn: Securities Processing Window,
Subcellar One (SC-1)
By Registered or
Certified mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attn: Reorganization Operations Department
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
(212) 858-2103 to confirm facsimile transmissions
25
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
facsimile or telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, 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 therewith.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company. The Company has agreed
to pay, subject to the instructions in the Letter of Transmittal, all transfer
taxes, if any, relating to the sale or disposition of such Holders' 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 imposed for any
reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the company over the term of the New Notes under generally
accepted accounting principles.
26
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and capitalization of the Company at March 31, 1998 (i) on an actual basis and
(ii) on a pro forma basis giving effect to the Refinancing and the 3M
Acquisition. This table should be read in conjunction with "Use of Proceeds,"
the Company's Consolidated Financial Statements and notes thereto and the
Company's Unaudited Pro Forma Condensed Consolidated Financial Data and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------
ACTUAL PRO FORMA
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents ................... $ 988 $ 3,462
========= ==========
Debt:
Bridge Notes (1) .......................... $ 123,500 $ --
Credit Agreement (2) ...................... 1,600 --
Notes offered hereby ...................... -- 115,000
Other (3) ................................. 3,679 3,679
--------- ----------
Total debt ............................... 128,779 118,679
--------- ----------
Stockholder's equity:
Common stock .............................. -- --
Additional paid-in capital ................ 78,363 100,862 (4)
Accumulated deficit ....................... (1,284) (2,938)(5)
Cumulative translation adjustment ......... (76) (76)
Carryover basis adjustment ................ (15,730) (15,730)
--------- ----------
Total stockholder's equity ............... 61,273 82,118
--------- ----------
Total capitalization ........................ $ 190,052 $ 200,797
========= ==========
</TABLE>
- ----------
(1) The Bridge Notes mature on December 15, 1998 and, therefore, are
classified on the Company's consolidated balance sheet as a current
liability in accordance with GAAP.
(2) At March 31, 1998, on a pro forma basis, after giving effect to the
Refinancing and the consummation of the 3M Acquisition, the Company
expects to have available borrowings of up to $19,400, which is net of
outstanding letters of credit, under the Credit Agreement for working
capital and general corporate purposes, subject to a borrowing base
calculation and the achievement of certain financial ratios and
compliance with certain conditions.
(3) Includes the Scent Seal Note in the amount of $1,438, which was issued in
connection with the Company's acquisition of Scent Seal, Inc. in 1995.
See "Description of Certain Indebtedness--Scent Seal Note." Also includes
capital lease obligations of $2,241.
(4) Reflects the Equity Contribution of the estimated $22,499 in net proceeds
from the Debenture Offering.
(5) Increase results from the write-off of the unamortized deferred financing
costs associated with the Bridge Notes, net of the related tax benefit.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below as of
June 30, 1993 and November 3, 1993 and for the fiscal year ended June 30, 1993
and the period from July 1, 1993 to November 3, 1993 have been derived from the
historical consolidated financial statements of the original predecessor of the
Company (the "Original Predecessor") prior to its acquisition by the
Predecessor. The selected historical consolidated financial data presented
below as of June 30, 1994, 1995, 1996 and 1997, March 31, 1997 and December 15,
1997, and for the fiscal years ended June 30, 1995, 1996 and 1997, the nine
months ended March 31, 1997 and the periods from November 4, 1993 to June 30,
1994 and from July 1, 1997 to December 15, 1997 have been derived from the
historical consolidated financial statements of the Predecessor. The selected
historical consolidated financial data presented below as of March 31, 1998 and
for the period from December 16, 1997 to March 31, 1998 have been derived from
the historical consolidated financial statements of the Company. The historical
financial data as of March 31, 1997 and 1998 and December 15, 1997 and for the
nine months ended March 31, 1997, the period from July 1, 1997 to December 15,
1997 and the period from December 16, 1997 to March 31, 1998 have been derived
from the unaudited consolidated financial statements of the Predecessor and the
Company, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations as of such
dates and for such periods. The information contained in this table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ORIGINAL PREDECESSOR PREDECESSOR
------------------------ ------------------------------------------------
FISCAL
YEAR JULY 1, NOVEMBER 4,
ENDED 1993 TO 1993 TO FISCAL YEAR ENDED JUNE 30,
JUNE 30, NOVEMBER 3, JUNE 30, ----------------------------------
1993 1993 1994 1995 1996 1997
---------- ------------- ------------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................... $ 42,674 $19,941 $ 18,213 $61,794 $ 73,486 $ 77,723
Cost of goods sold ................. 23,214 11,172 12,042 38,333 49,862 49,467
-------- ------- -------- ------- -------- ----------
Gross profit ....................... 19,460 8,769 6,171 23,461 23,624 28,256
Selling, general and
administrative expenses ........... 5,627 2,950 4,809 8,483 10,655 13,353
Amortization of goodwill ........... 224 78 723 1,113 1,214 1,214
-------- ------- -------- ------- -------- ----------
Income from operations ............. 13,609 5,741 639 13,865 11,755 13,689
Interest expense, net .............. 478 -- 3,718 6,170 6,762 6,203
Fees to stockholders ............... 300 102 197 470 470 470
Other, net ......................... (4,149) 2,462 2,754 (22) 244 (101)
Income tax expense
(benefit) ......................... 6,600 1,310 (1,946) 3,114 2,101 3,135
-------- ------- -------- ------- -------- ----------
Net income (loss) .................. $ 10,380 $ 1,867 $ (4,084) $ 4,133 $ 2,178 $ 3,982
======== ======= ======== ======= ======== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents .......... $ 1,425 $ 68 $ 3,728 $ 4,196 $ 626 $ 303
Working capital (deficit) .......... 5,324 2,288 3,593 39 (4,685) (36,957)
Total assets ....................... 23,520 28,320 72,754 85,695 82,395 77,142
Total debt and redeemable
preferred stock ................... -- 850 61,025 64,655 60,736 54,964
Total stockholder's equity ......... 19,416 16,940 2,927 6,572 7,932 11,225
OTHER DATA:
Capital expenditures ............... 2,769 1,109 1,184 1,325 2,051 2,462
Ratio of earnings to fixed
charges (2) ....................... n/m n/m -- 2.2x 1.6x 2.1x
</TABLE>
<PAGE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------------- -------------------
NINE
MONTHS JULY 1, 1997 DECEMBER 16,
ENDED TO 1997 TO
MARCH 31, DECEMBER 15, MARCH 31,
1997 1997 1998
----------- -------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................... $62,367 $ 35,186 $ 21,982
Cost of goods sold ................. 39,529 22,809 13,782
------- -------- ------------
Gross profit ....................... 22,838 12,377 8,200
Selling, general and
administrative expenses ........... 10,470 5,712 3,189
Amortization of goodwill ........... 911 559 1,125
------- -------- ------------
Income from operations ............. 11,457 6,106 3,886
Interest expense, net .............. 4,694 2,646 5,163
Fees to stockholders ............... 353 215 63
Other, net ......................... (266) 11 (15)
Income tax expense
(benefit) ......................... 2,852 1,441 (41)
------- -------- ------------
Net income (loss) .................. $ 3,824 $ 1,793 $ (1,284)
======= ======== ============
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents .......... $ 628 $ 4,481 $ 988
Working capital (deficit) .......... 2,417 (4,959) (107,821)(1)
Total assets ....................... 83,283 77,399 202,667
Total debt and redeemable
preferred stock ................... 60,092 55,408 128,779
Total stockholder's equity ......... 11,273 12,716 61,273
OTHER DATA:
Capital expenditures ............... 1,839 807 255
Ratio of earnings to fixed
charges (2) ....................... 2.4x 2.2x --
</TABLE>
28
<PAGE>
- ----------
(1) The Bridge Notes mature on December 15, 1998 and, therefore, are
classified on the Company's consolidated balance sheet as a current
liability in accordance with GAAP, the result of which is a substantial
working capital deficit.
(2) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness and
amortization of deferred financing costs. Earnings were not sufficient to
cover fixed charges by $6,030 and $1,325 for the periods from November 4,
1993 to June 30, 1994 and from December 16, 1997 to March 31, 1998,
respectively.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information and Consolidated Financial Statements of the Company
included elsewhere in this Prospectus.
GENERAL
The Company's sales are derived from the sale of sampling products to
cosmetics and consumer products companies. Substantially all of the Company's
sales are made directly to its customers while a small portion are made through
advertising agencies. Each customer's sampling program is unique and pricing is
negotiated based on estimated costs plus a margin. While the Company and its
customers do not enter into long-term contracts, the Company has had
long-standing relationships with the majority of its customer base.
Historically, the Company's sales have been derived from the Company's
traditional fragrance sampling products, while sales from several of the
Company's new products, such as BeautiSeal, PowdaTouch and LiquaTouch, are
included in the Company's results of operations for only a portion of the
periods discussed below or are included in such periods at initial levels of
sales that reflect only introductory product volumes.
The Company's sales are seasonal due to the timing of its customers' major
advertising campaigns, which have traditionally been concentrated prior to the
Christmas and spring holiday seasons. Sales are recognized when products are
shipped. As a result, a higher level of sales are reflected in the Company's
first two fiscal quarters ended December 31 when sales from such advertising
campaigns are principally recognized while the Company's fourth fiscal quarter
ended June 30 typically reflects the lowest sales level of the fiscal year.
Sampling programs are generally quoted to the Company's customers, based on
their specifications, four to six months prior to production and firm orders
are generally received by the Company one to two months prior to production.
See "Risk Factors--Dependence on Fragrance Industry; Seasonality."
Cost of goods sold, which represented 63.6% of net sales in Fiscal 1997,
consists principally of materials (paper, plastic, foil, ink, packaging
materials and outsourced materials), direct labor, depreciation and overhead
costs. Materials and direct labor are variable components while overhead is
principally fixed. Fixed overhead costs (excluding depreciation) represented
approximately 9.4% of net sales in Fiscal 1997 and include indirect
departmental compensation, occupancy costs and equipment maintenance.
Paper is the primary raw material utilized by the Company and accounted
for approximately one-third of cost of goods sold in Fiscal 1997. During the
10-month period from November 1994 to September 1995, paper prices to the
Company increased approximately 36.0%. The average price of paper was
approximately 14.8% greater in Fiscal 1996 than in Fiscal 1995 and had an
adverse impact on the Company's results of operations in Fiscal 1996. As a
result of the paper price increases in Fiscal 1996, the Company changed its
pricing policy for sampling program quotes to customers and made them subject
to paper price increases. However, since the change in such policy, the Company
has not sought to change quoted prices to a customer based on paper price
increases and there can be no assurance that a customer would accept such
change. Accordingly, the Company seeks to reduce its exposure to changes in
paper prices by managing its paper inventory and the time between the quoting
and actual production of sampling campaigns while still attempting to preserve
the ability to adjust quoted pricing based on paper price increases. See "Risk
Factors--Raw Materials--Paper."
Selling, general & administrative expenses, which represented 17.2% of net
sales in Fiscal 1997, consist mainly of employee compensation, marketing and
advertising expenses, professional and legal fees and occupancy costs of the
sales and laboratory facilities.
The cosmetics industry has experienced, and is continuing to experience,
significant consolidation. Management believes that such consolidation
positively impacts the sampling market, since larger cosmetics companies tend
to spend more on product sampling to support their brands throughout the
product life cycle, compared with smaller cosmetics companies, which tend to
use sampling primarily in
30
<PAGE>
new product launches. However, industry consolidation has also negatively
impacted the sampling market by temporarily decreasing the amount that smaller
companies, which are targets of consolidation, spend on sampling products in
anticipation of, and during, the consolidation process.
COST REDUCTION PROGRAM
The Company is implementing a comprehensive program to reduce annual
operating costs by approximately $4.0 million. The comprehensive cost reduction
program was developed by the Company in connection with an evaluation of its
operations conducted by manufacturing consultants with significant experience
in the printing industry and is designed to improve the Company's operating
efficiency through (i) reduced materials cost derived from scrap/waste
reduction and from more effective purchasing, (ii) streamlined manufacturing
processes that reduce the amount of time required to prepare for successive
production runs utilizing the same equipment and that reduce the amount of time
equipment is under utilized by improved scheduling of production runs and (iii)
rationalized staffing in the product support area. Management expects the
benefit of the materials cost reductions and rationalized staffing will begin
to be realized in the short term, while the benefits of a streamlined
manufacturing process are expected to be realized incrementally through June
1999.
RESULTS OF OPERATIONS
Interim 1998 Period Compared to Interim 1997 Period
Net Sales. Net sales for the Interim 1998 Period decreased $5.2 million,
or 8.3%, to $57.2 million as compared to $62.4 million for the Interim 1997
Period. The majority of this decrease was attributable to three core customers'
advertising decreases on new product launches and existing products as a result
of a management restructuring at two of these customers and the sale of one of
them. This decrease was partially offset by increased sales of sampling
products to other categories of the cosmetics industry as well as increased
sales to the consumer products market. In addition, the Company expanded its
sales of sampling products in Europe.
Gross Profit. Gross profit for the Interim 1998 Period decreased $2.2
million, or 9.6%, to $20.6 million as compared to $22.8 million for the Interim
1997 Period. Gross profit as a percentage of net sales decreased to 36.0% in
the Interim 1998 Period from 36.5% in the Interim 1997 Period. The gross profit
decline was primarily attributable to the absorption of fixed overhead,
depreciation costs and equipment reconfiguration costs created by shorter
production runs due to lower volume.
Selling, General & Administrative Expenses. Selling, general &
administrative expenses for the Interim 1998 Period decreased $1.6 million, or
15.2%, to $8.9 million as compared to $10.5 million for the Interim 1997
Period. The decrease in selling, general & administrative expenses was
primarily attributable to a decrease in sales commissions resulting from the
decreased level of sales and a decrease in legal costs related to the Company's
pursuit of a patent infringement claim in the Interim 1997 Period. In addition,
the Company also had decreased expenses in the Interim 1998 Period versus the
Interim 1997 Period related to the consolidation of certain acquired
technologies and certain expenses relating to reorganizing the management
structure at the Company's European subsidiary. As a result of these factors,
selling, general & administrative expenses as a percentage of net sales
decreased to 15.6% in the Interim 1998 Period from 16.8% in the Interim 1997
Period.
Income from Operations. Income from operations for the Interim 1998 Period
decreased $1.5 million, or 13.0%, to $10.0 million as compared to $11.5 million
for the Interim 1997 Period. Income from operations as a percentage of net
sales decreased to 17.5% in the Interim 1998 Period from 18.4% in the Interim
1997 Period principally as a result of the factors described above and the
increase in amortization of goodwill resulting from the Acquisition.
EBITDA. EBITDA for the Interim 1998 Period decreased $0.8 million, or
5.2%, to $14.5 million as compared to $15.3 million for the Interim 1997
Period. EBITDA as a percentage of net sales increased to 25.3% in the Interim
1998 Period from 24.5% in the Interim 1997 Period principally as a result of
the factors described above.
31
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales for Fiscal 1997 increased $4.2 million, or 5.7%, to
$77.7 million as compared to $73.5 million in Fiscal 1996. The increase is
primarily attributable to volume increases related to core customers'
advertising expenditure increases on new product launches and existing
products.
Gross Profit. Gross profit for Fiscal 1997 increased $4.7 million, or
19.9%, to $28.3 million, as compared to $23.6 million in Fiscal 1996. Gross
profit as a percentage of net sales improved to 36.4% in Fiscal 1997 from 32.1%
in Fiscal 1996. Gross profit improvements reflected decreased materials costs
as a result of paper price decreases and increased operating efficiency gained
from moving the production of an acquired business from outside sources to
internal facilities.
Selling, General & Administrative Expenses. Selling, general &
administrative expenses for Fiscal 1997 increased $2.7 million, or 25.2%, to
$13.4 million as compared to $10.7 million in Fiscal 1996. The increase in
selling, general & administrative expenses was primarily attributable to an
increase in legal costs as the Company pursued a patent infringement claim
against a competitor. Additional increases were related to reorganizing the
management structure of the Company's European subsidiary, increases in
customer service and sales staffing and increased commissions related to sales
volume increases. As a result of these factors, selling, general &
administrative expenses as a percentage of net sales increased to 17.2% in
Fiscal 1997 from 14.6% in Fiscal 1996.
Income from Operations. Income from operations for Fiscal 1997 increased
$1.9 million, or 16.1%, to $13.7 million as compared to $11.8 million in Fiscal
1996. Income from operations as a percentage of net sales increased to 17.6% in
Fiscal 1997 from 16.1% in Fiscal 1996 principally as a result of the factors
described above.
EBITDA. EBITDA for Fiscal 1997 increased $2.6 million, or 16.0% to $18.8
million as compared to $16.2 million in Fiscal 1996. EBITDA as a percentage of
net sales increased to 24.2% in Fiscal 1997 from 22.0% in Fiscal 1996
principally as a result of the factors described above.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales for Fiscal 1996 increased $11.7 million, or 18.9%, to
$73.5 million as compared to $61.8 million in Fiscal 1995. The Company acquired
a new product technology at the end of Fiscal 1995, which was marketed and sold
to the Company's customers and accounted for approximately $9.7 million of the
increase in net sales. The remaining increase was attributable to sales of
another new product in the first year subsequent to its introduction.
Gross Profit. Gross profit for Fiscal 1996 increased $0.1 million, or
0.4%, to $23.6 million, as compared to $23.5 million in Fiscal 1995. Gross
profit as a percentage of net sales decreased to 32.1% in Fiscal 1996 from
38.0% in Fiscal 1995. The decline in the gross profit percentage was primarily
attributable to increases in paper prices and the higher cost of temporarily
outsourcing production of product technologies acquired at the end of Fiscal
1995 as compared to the cost of internal production. In addition, plant
overhead costs increased primarily as a result of additional plant management
personnel and quality control staff required to serve the increased sales
volume; shipping costs also increased as new products were sent from U.S.
production facilities to the European market.
Selling, General & Administrative Expenses. Selling, general &
administrative expenses for Fiscal 1996 increased $2.2 million, or 25.9%, to
$10.7 million as compared to $8.5 million in Fiscal 1995. The increase was
primarily attributable to the acquisition of a new product technology,
restructuring costs following the reacquisition of the Company's European
license and increased staff and consultant costs related to product improvement
and development. As a result of these factors, selling, general &
administrative expenses as a percentage of net sales increased to 14.6% in
Fiscal 1996 from 13.8% in Fiscal 1995.
Income from Operations. Income from operations for Fiscal 1996 decreased
$2.1 million, or 15.1%, to $11.8 million as compared to $13.9 million in Fiscal
1995. Income from operations as a percentage of net sales decreased to 16.1% in
Fiscal 1996 from 22.4% in Fiscal 1995 principally as a result of the factors
described above.
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EBITDA. EBITDA for Fiscal 1996 decreased $1.3 million, or 7.4% to $16.2
million as compared to $17.5 million in Fiscal 1995. EBITDA as percentage of
net sales decreased to 22.0% in Fiscal 1996 from 28.3% in Fiscal 1995
principally as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has substantial indebtedness and significant debt service
obligations. As of March 31, 1998, on a pro forma basis after giving effect to
the Refinancing and the 3M Acquisition, the Company would have had consolidated
indebtedness in an aggregate amount of $118.7 million. For certain information
regarding the Company's outstanding indebtedness, see "Description of Certain
Indebtedness" and "Description of New Notes." The Indenture under which the Old
Notes were and the New Notes will be issued and the Credit Agreement referred
to below permit the Company and its Restricted Subsidiaries to incur additional
indebtedness, subject to certain limitations.
In addition, the Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries to:
(i) pay dividends or make certain restricted payments; (ii) incur additional
indebtedness and issue preferred stock; (iii) create liens; (iv) incur dividend
and other payment restrictions affecting subsidiaries; (v) enter into mergers,
consolidations or sales of all or substantially all of the assets of the
Company; (vi) enter into certain transactions with affiliates; and (vii) sell
certain assets. In addition, the Credit Agreement requires the Company to
maintain specified financial ratios and satisfy certain financial condition
tests. See "Description of Certain Indebtedness" and "Description of New
Notes--Certain Covenants."
Borrowings under the Credit Agreement are limited to a maximum amount
equal to $20.0 million ($19.4 million as of March 31, 1998, on a pro forma
basis, after giving effect to the Refinancing and the consummation of the 3M
Acquisition), subject to a borrowing base calculation and the achievement of
certain financial ratios and compliance with certain conditions. The interest
rate for borrowings under the Credit Agreement are determined from time to time
based on the Company's choice of formulas, plus a margin. The Credit Agreement
will mature on December 31, 2002. See "Description of Certain
Indebtedness--Credit Agreement."
The Company's principal liquidity requirements are for (i) debt service
requirements under the Notes, the Credit Agreement and the Scent Seal Note,
(ii) obligations under the Company's capital leases, (iii) working capital
needs and capital expenditures and (iv) certain royalty payments. Historically,
the Company has funded its capital, debt service and operating requirements
with a combination of net cash provided by operating activities, which were
$5.3 million, $8.9 million for Fiscal 1996 and Fiscal 1997, respectively,
together with borrowings under revolving credit facilities. In the case of the
Interim 1998 Period, cash totaling $4.8 million was used by operating
activities as a result of the funding of the costs of the Acquisition.
Net cash generated by operating activities in Fiscal 1997 resulted mainly
from net income before depreciation and amortization. Key elements of changes
in net cash from operating activities were decreases in trade accounts
receivable that were principally offset by decreases in income taxes, accounts
payable and accrued expenses.
In Fiscal 1997, the Company had capital expenditures of approximately $2.5
million. The Company has budgeted approximately $2.0 million for capital
expenditures in the fiscal year ended June 30, 1998, $1.1 million of which has
been spent as of March 31, 1998. The Company expects to fund capital
expenditures budgeted for the remainder of fiscal year 1998 through a
combination of borrowings under the Credit Agreement and cash generated from
operations.
On June 22, 1998, the Company closed the 3M Acquisition, pursuant to which
the Company acquired the fragrance sampling business of the Industrial and
Consumer Products division of 3M for approximately $7.25 million in cash and
the assumption of certain liabilities. The Company intends to relocate all of
the business operations acquired in the 3M Acquisition to its existing
facilities to utilize current excess capacity at such facilities. See "The
Transactions."
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The Company may from time to time evaluate other potential acquisitions.
The Company expects that funding for future acquisitions may come from a
variety of sources, depending on the size and nature of any such acquisition.
Potential sources of capital include cash generated from operations, borrowings
under the Credit Agreement, additional equity investments or other external
debt or equity financings. There can be no assurance that such additional
capital sources will be available to the Company on terms that the Company
finds acceptable, or at all.
The Company believes that, in the absence of future acquisitions, its
liquidity, capital resources and cash flows from existing operations will be
sufficient to fund budgeted capital expenditures, working capital requirements
and interest and principal payments on its indebtedness, including the Notes.
INFLATION
Inflation has not had nor is it expected to have a significant effect on
the Company's business or operations.
SEASONALITY
Historically, the Company's sales and operating results have reflected
seasonal variations. The seasonality of the Company's sales and operating
results is significantly influenced by the timing of its customers' advertising
campaigns, which have traditionally been concentrated prior to the Christmas
and spring holiday seasons. See "Risk Factors--Dependence on Fragrance
Industry; Seasonality."
YEAR 2000 ISSUES
The Company has reviewed its computer systems in order to assess its
exposure to Year 2000 issues. The Company expects to make the necessary
modifications or changes to its computer information systems to enable proper
processing of transactions relating to the Year 2000 and beyond. Management
does not expect that such modifications will require material expenditures on
the part of the Company. The Company has and will continue to evaluate
appropriate courses of action, including replacement of certain systems whose
associated costs would be recorded as assets and subsequently amortized.
However, there can be no assurance that costs and expenses or other matters
relating to Year 2000 issues will not have a material impact on the Company's
financial condition or results of operations.
EUROPEAN MONETARY UNIT
The Company has not implemented a strategy to address European monetary
unit issues related to its computer system. Management does not expect that any
costs related to such strategy will require material expenditures on the part
of the Company.
ENVIRONMENTAL AND SAFETY REGULATION
The Company's operations are subject to extensive laws and regulations
relating to the storage, handling, emission, transportation and discharge of
materials into the environment and the maintenance of safe conditions in the
workplace. The Company's policy is to comply with all legal requirements of
applicable environmental, health and safety laws and regulations, and the
Company believes it is in general compliance with such requirements and has
adequate professional staff and systems in place to remain in compliance,
although there can be no assurances that this is the case. The Company
considers costs for environmental compliance to be a normal cost of doing
business, and includes such costs in pricing decisions.
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<PAGE>
BUSINESS
THE COMPANY
The Company is the leading global marketer and manufacturer of cosmetics
sampling products, including fragrance, skin care and makeup samplers. The
Company produces a range of proprietary and patented product samplers that can
be incorporated into various print media principally designed to reach the
consumer in the home, such as magazine inserts, catalog inserts, remittance
envelopes, statement enclosures and blow-ins. The Company is the only sampling
company positioned to provide complete marketing and sampling programs to its
customers, including creative content and sample production and distribution.
The Company's customers include most of the world's largest cosmetics
companies, such as Calvin Klein Cosmetics (Unilever Plc), Chanel, Inc.,
Christian Dior Perfumes Inc., Coty Inc., Elizabeth Arden (Unilever Plc), Estee
Lauder, Inc., Giorgio Beverly Hills (The Procter & Gamble Company), L'Oreal
S.A./Cosmair, Inc., Revlon, Inc. and Sanofi Beaute, Inc.
Sampling is one of the most effective and widely used promotional
practices for consumer products. Product sampling expenditures have increased
faster than any other form of consumer promotional expenditure from 1992 to
1996, the last year for which data is available. Product sampling is
particularly critical to the cosmetics industries, where consumers generally
must try products prior to purchase because of their uniquely personal nature.
The Company's introduction in 1979 of the ScentStrip (Registered Trademark)
sampler, the first pull-apart microencapsulated fragrance sampler, transformed
the fragrance industry by providing the first cost-effective means to reach
consumers in their homes on a mass scale by combining advertising and product
sampling. All of the Company's sampling products are approved by the U.S.
Postal Service for inclusion in subscription magazines at periodical postage
rates, which is a more cost-effective means of reaching consumers than
alternatives such as direct mail or newsstand magazine distribution. While the
Company's ScentStrip sampler remains the most widely used technology in the
sampling industry, the Company continues to be the leading innovator in the
sampling industry through its development of alternative sampling technologies,
all of which are designed for cost-effective mass distribution.
In recent years, the Company has complemented its fragrance sampling
business by focusing its research and development efforts on new product
technologies and sampling solutions for the skin care, makeup and consumer
products markets. While product sampling is critical to the success of these
products, sampling programs for these products have been constrained
historically by the characteristics of the available sampling alternatives.
Most sampling programs have consisted of relatively limited in-store or direct
mail efforts because existing samples have been too costly to produce in mass
quantities and have been incapable of being efficiently incorporated into
magazines, catalogs and other print advertising. Since June 1997, the Company
has introduced three innovative product sampling technologies to address this
need, providing the first cost-effective means to reach consumers in their
homes on a mass scale with samples of these products. Management believes these
new technologies have fundamentally altered the economics and efficiencies of
product sampling in these markets. Existing customers such as Chanel, Christian
Dior, Estee Lauder, L'Oreal/Cosmair and Revlon have utilized these new
technologies in sampling programs for their cosmetics products, such as skin
care and liquid makeup. The Company has also created and produced initial
sampling programs for new consumer products customers.
On June 22, 1998, the Company closed the 3M Acquisition, pursuant to which
the Company acquired the fragrance sampling business of the Industrial and
Consumer Products division of 3M for approximately $7.25 million in cash and
the assumption of certain liabilities. See "The Transactions."
COMPETITIVE ADVANTAGES
Founded in 1902 as a printing company, the Company has been the market
leader in fragrance sampling since its introduction of the ScentStrip sampler
almost two decades ago and has recently expanded the application of its
sampling technologies to new markets. Management believes that the Company has
significant competitive advantages compared to other sampling companies:
o Full product line. The Company is unique in the breadth of its product
line, which includes a full range of fragrance sampling products and
innovative new technologies for sampling skin care and
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makeup products. The Company offers nine distinct sampling products,
while none of the Company's major competitors offers more than three
sampling technologies. Although most major cosmetics companies generate
significant revenues in each of the fragrance, makeup and skin care
categories, the Company is the only sampling provider that offers
sampling products for all such categories of products.
o Technological leadership. The Company is the technological leader in the
cosmetics sampling industry, and has introduced almost every major
fragrance sampling technology to the market since its introduction of
the ScentStrip sampler in 1979. Management believes that its product
development program is the largest and most effective in the cosmetics
sampling industry. Over the past three years, the Company's increased
emphasis on new product research and development has expanded the size
of the potential sampling market through the introduction of new
technologies, such as BeautiSeal (Trade Mark) , LiquaTouch (Trade Mark)
and PowdaTouch (Trade Mark) samplers, which target the skin care and
makeup categories. Seven of the Company's nine major sampling
technologies are patented or have patents pending, and all are approved
by the U.S. Postal Service for inclusion in subscription magazines.
Competing sampling technologies that are not approved for inclusion in
subscription magazines are more expensive to mass distribute. In
addition, the Company has developed certain proprietary manufacturing
techniques that management believes provide the Company with a
competitive advantage.
o Low cost, highest quality producer. The Company is the most vertically
integrated manufacturing company in the sampling industry as all of its
major competitors source all or part of their products from third-party
manufacturers. Management believes that the Company's high degree of
vertical integration, together with the high volume resulting from the
Company's market share position, provides the Company with certain cost
and quality advantages. In addition, unlike some of its major
competitors, which are divisions of large companies, management believes
that the Company's focus on the product sampling industry allows it to
produce the highest quality product offering in the industry. Management
believes this focus on quality is a competitive advantage because the
Company's customers are reluctant to jeopardize an expensive product
launch by using an unproven sampling source that may not provide
consumers with an accurate first exposure to a sampled product.
o Strong customer relationships. More than 75% of Fiscal 1997 net sales
were generated by sales to customers that have been doing business with
the Company for the past five years or longer. The Company is proactive
in proposing innovative campaigns and sampling solutions, which result
in strong relationships with its customers. The Company has
long-standing relationships with the key marketing, purchasing and
technical executives at most of the world's leading cosmetics companies.
It has also developed relationships with flavor and fragrance companies,
media companies and leading retailers servicing the cosmetics industry.
o Superior customer service. Managing sampling programs is highly service
intensive and the Company has the most experienced customer service
representatives in the industry. As cosmetics companies seek to
streamline their purchasing operations, the Company's ability to provide
complete marketing and sampling programs is becoming increasingly
important. Management believes that the Company's ability to provide
excellent customer service is a competitive advantage for the Company,
particularly with regard to department store sampling programs, such as
catalog inserts, billing enclosures and remittance envelopes, which
require significant coordination with individual retailers.
o Sole global provider. The Company is the only sampling company to
provide local sales, service and production capabilities on a global
basis. The major cosmetics companies are increasingly global, and the
Company's ability to service these customers in Europe, the United
States and Southeast Asia is becoming increasingly important. The
Company currently has sales offices in New York, San Francisco, Paris,
France and London, England and sales agents in Sydney, Australia and
Caracas, Venezuela. In addition, the Company has third-party
manufacturing capabilities in Europe and Australia to complement its
established domestic manufacturing operations.
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BUSINESS STRATEGY
Management's goal is to enhance the Company's position as the leading
global marketer and manufacturer of cosmetics sampling products and position
itself for growth in the consumer products sampling market, while increasing
its profitability. To achieve this goal, management is pursuing a strategy
based on the following elements:
o Leverage existing customer relationships to expand into new cosmetics
categories. Almost all of the Company's sales have historically been in
the fragrance category, but for many of the Company's cosmetics
customers, fragrance represents a small portion of their total sales.
Management estimates that skin care and makeup sales account for
approximately two-thirds of all cosmetics industry sales, while sampling
for such products accounts for less than one-fourth of all cosmetics
sampling units. Historically, most skin care and makeup sampling
programs have consisted of relatively limited in-store or direct mail
efforts because existing samples have been too costly to produce in mass
quantities and too expensive to incorporate into subscription magazines
and other forms of distribution. Since June 1997, the Company has
introduced three innovative product sampling technologies for the makeup
and skin care categories, which provide a cost effective means to reach
consumers in their homes. Management believes that these innovative new
technologies, together with its established cosmetics industry customer
relationships, position the Company for future growth in this area.
o Penetrate the consumer products market. Management believes that the
Company has significant opportunities to increase its existing sampling
business by applying its cost-effective sampling technologies to new
end-user categories within the consumer products market. The consumer
products market is significantly larger than the Company's traditional
fragrance market.
o Continue implementation of cost reduction program. The Company is
implementing a comprehensive program to reduce annual operating costs by
approximately $4.0 million. The comprehensive cost reduction program was
developed by the Company in connection with an evaluation of its
operations conducted by manufacturing consultants with significant
experience in the printing industry and is designed to improve the
Company's operating efficiency through (i) reduced materials cost
derived from scrap/waste reduction and from more effective purchasing,
(ii) streamlined manufacturing processes that reduce the amount of time
required to prepare for successive manufacturing jobs utilizing the same
equipment and (iii) rationalized staffing in the product support area.
Management expects the benefit of the materials cost reductions and
rationalized staffing will begin to be realized in the short term, while
the benefits of a streamlined manufacturing process are expected to be
realized incrementally through June 1999.
o Increase international sales. Since reacquiring its European license
with respect to its sampling technologies in August 1994, the Company
has significantly increased revenues from European customers and is the
leading fragrance sampling company in Europe. Management estimates that
the fragrance sampling industry in Europe is only approximately 20% of
the size of the fragrance sampling industry in the United States, even
though the size of the fragrance markets in Europe and the United States
are comparable. Management believes that European cosmetics companies
have preferred fragrance renditions that contain alcohol rather than
microencapsulated renditions. Given product innovations such as the
Company's Scent Seal (Registered Trademark) and LiquaTouch samplers
(which are alcohol-based sampling systems), the increasing globalization
of the cosmetics industry and the success of sampling techniques in the
U.S. market, management believes that the use of sampling will continue
to become more widespread in Europe.
SAMPLING INDUSTRY
Market and industry data used throughout this section were obtained from
internal surveys and industry publications. Industry publications generally
indicate that the information contained therein has been obtained from sources
believed by the Company to be reliable, but that the accuracy and completeness
of such information is not guaranteed. The Company has not independently
verified such market data. Similarly, internal surveys, while believed by the
Company to be reliable, have not been verified by any independent source.
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Sampling is utilized by 90% of packaged goods manufacturers in their
consumer promotion mix in support of both established and new products. Product
sampling expenditures have increased faster than any other form of consumer
promotional expenditure from 1992 to 1996, the last year for which data is
available, and is particularly important in the fragrance and cosmetics
industries, where consumers generally try products prior to purchase because of
the uniquely personal nature of such products.
Management believes that the fundamentals of the sampling industry are
attractive. Declining store traffic has made the distribution of samples to
consumers' homes increasingly important. In addition, cosmetics products have
been characterized by shorter product life cycles and increased dependence on
new products for growth, both of which tend to increase manufacturer demand for
product samples to generate initial product trials. The cosmetics industry has
experienced, and is continuing to experience, significant consolidation.
Management believes that such consolidation positively impacts the sampling
market, since larger cosmetics companies tend to spend more on product sampling
to support their brands throughout the product life cycle, compared with
smaller cosmetics companies, which tend to use sampling primarily in new
product launches. However, industry consolidation has also negatively impacted
the sampling market by temporarily decreasing the amount that smaller
companies, which are targets of consolidation, spend on sampling products in
anticipation of, and during, the consolidation process.
Fragrance sampling market. The introduction in 1979 of the ScentStrip
sampler, the first pull-apart microencapsulated fragrance sampler, had a
significant impact on the fragrance category of the cosmetics industry by
providing the first cost-effective means to reach the consumer on a mass scale
throughsubscription magazines or direct mail, rather than relying on store
traffic to hand out vials or scented blotter cards. This development
contributed to significant growth in the U.S. fragrance category from
approximately $2.0 billion in 1980 to approximately $6.0 billion in 1996.
Shorter product lives and increased reliance on large product launches
require more promotional spending by manufacturers in order to distinguish new
fragrances. Between approximately $10.0 million and $25.0 million are spent to
launch a major new fragrance, with approximately 20% to 30% of the budget
allocated to sampling programs.
Skin care and makeup sampling market. The skin care category generated
approximately $4.5 billion in sales in the United States during 1996 and is the
fastest growing category in the cosmetics industry. Such growth is based
primarily on changing consumer demographics, as aging baby boomers look for
ways to maintain a youthful appearance, and the fast pace of product
innovation. Cosmetics companies launched more than 700 new skin care products
in 1996, approximately ten times the number of fragrances introduced that year.
The makeup category accounted for approximately $3.8 billion in annual sales in
the United States in 1997. The skin care category generally includes skin
lotions, treatments, toners and astringents, and the makeup category generally
includes liquid and powder makeup.
Historically, most cosmetic sampling programs have consisted of relatively
limited in-store or direct-mail efforts because traditional sampling
alternatives including miniatures, vials, packettes, sachets and blisterpacks,
have been too costly to produce in mass quantities and too inefficient to
incorporate into magazines, catalogs and other print advertising. Management
estimates that skin care and makeup sales account for approximately two-thirds
of all cosmetics industry sales, while sampling for such products account for
less than one-fourth of all cosmetics sampling units.
The Company's new product sampling technologies allow marketers for the
first time to cost-effectively reach consumers in their homes through
subscription magazines. Home sampling for skin care products and makeup is
important because such products are ideally sampled on clean skin in the
morning or evening. In addition, mass marketers have had limited opportunities
to sample their products in-store because there is generally no in-store
service person and most current methods of in-store sampling are viewed by
consumers as unsanitary. By providing cost-effective sampling technologies that
can be delivered on a mass scale to consumers' homes in a sanitary manner,
management believes that the Company's new sampling technologies will rapidly
become the industry standard for skin care and makeup sampling.
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Consumer products sampling market. The consumer products market is
significantly larger than the Company's traditional fragrance market. The
Company believes the household and personal care products industry alone is
approximately $75.0 billion, or approximately 12 times the size of the
Company's traditional fragrance market. By comparison, the U.S. fragrance
market is approximately $6.0 billion, and the entire U.S. cosmetics and
toiletries market is approximately $29.0 billion. The Company has a significant
opportunity to apply its technology to the food, beverage, household and
personal care markets.
International sampling market. The fragrance sampling industry in Europe
is only approximately 20% of the fragrance sampling industry in the United
States, although the size of the fragrance markets in Europe and the United
States are comparable in size. Management believes that European cosmetics
companies have preferred fragrance renditions that contain alcohol rather than
traditional microencapsulated renditions, and the Company's alcohol-based
sampling systems, such as Scent Seal samplers and LiquaTouch samplers have been
very successful as a result. Scent Seal technology is the leading fragrance
sampling product in Europe, and the LiquaTouch technology is being well
received as a cost-effective alternative to fragrance vials and miniatures.
Management believes that this market will grow as sampling formats successfully
used in the United States are adopted in Europe.
PRODUCTS
The Company offers a broad and unique line of sampling product
technologies for the fragrance, skin care, makeup and consumer products
markets. The Company's major technologies are described below, including a
description of the patent protection of each such product technologies. See
"Risk Factors--Competition" and "--Patents and Proprietary Technology."
<TABLE>
<CAPTION>
YEAR OF PATENT TARGET
PRODUCT INTRODUCTION ORIGIN PROTECTION MARKET
- -------------------------------- -------------- ---------------------- ---------------- -------------------------------------
<S> <C> <C> <C> <C>
Fragrance Samplers:
ScentStrip .................... 1979 internally developed -- fragrance, consumer products
ScentStrip Plus ............... mid 1980's internally developed -- fragrance
DiscCover ..................... 1994 licensed patented fragrance, consumer products
Scent Seal .................... 1995 acquired patented fragrance
Resealable ScentStrip ......... 1997 internally developed patent pending fragrance, consumer products
New Products:
BeautiSeal .................... 1997 internally developed patent pending liquid makeup, skin care (lotions,
treatments)
PowdaTouch .................... 1997 internally developed patent pending powder cosmetics
LiquaTouch .................... 1997 internally developed patent pending liquid fragrance, skin care (toners,
astringents)
LipSeal ....................... pending internally developed patent pending lipstick
</TABLE>
Fragrance samplers. The Company has five different traditional fragrance
sampling products, which have historically accounted for substantially all of
the Company's sales. While the ScentStrip product technology continues to be
the most widely used technology in the fragrance sampling industry, management
believes that the Company's new fragrance sampling technologies have maintained
the Company's competitive position as an innovator in the industry. As a
result, the Company has played a sampling role in most major fragrance launches
in recent years, including such high-profile campaigns as Calvin Klein
Cosmetics' launch of CK One in 1994, Estee Lauder's launches of Pleasures in
1996 and Pleasures for Men in 1997, and Tommy Hilfiger's launch of Tommy in
1996 and Tommy Girl in 1997. Other examples of the Company's diverse experience
in the fragrance industry include successful sampling programs for (i) private
label retailers, including The Gap and Victoria's Secret, (ii) Donna Karan to
introduce its home fragrance line and (iii) Coty to introduce its aromatherapy
products with an innovative combination of Resealable ScentStrip Plus and Scent
Seal samplers.
o ScentStrip: The Company's original pull-apart microencapsulated
fragrance sampler. ScentStrip delivers to the consumer the most
cost-effective rendition of a fragrance.
o ScentStrip Plus: Adds a powdery texture to the microencapsulated
fragrance of ScentStrip.
o Resealable ScentStrip: Adds an innovative closure to ScentStrip that
opens and reseals up to 25 times.
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o DiscCover: A "peel and reveal," non-encapsulated fragrance label
sampling technology that opens and reseals up to 25 times, which is
versatile and color printable and can be die-cut to nearly any shape and
size.
o Scent Seal: A heat-sealed, pouch-like label technology that peels open
to reveal a moist, wearable gel sample that consumers can actually
experience on skin. Scent Seal samplers are the leading fragrance
sampling technology in the European market.
New products. The Company has recently introduced three innovative new
products, which management expects to account for a significant portion of the
Company's sales in the future. The Company is also in the final stages of
developing LipSeal, a lipstick sampler, which management expects to market in
mid-1998. All of these new sampling technologies have been approved by the U.S.
Postal Service for inclusion in subscription magazines at periodical postage
rates.
o BeautiSeal: A heat-sealed, pouch-like label technology that peels open
to deliver cream and lotion treatments, liquid makeup and lipstick
directly into the hands of consumers in an inexpensive, spill-proof
format. The BeautiSeal sampler is less expensive and more versatile than
existing skin care sampling alternatives. For example, a two-sided,
printed insert incorporating a BeautiSeal sampler generally costs less
than half the cost to manufacture and distribute in magazines than an
equivalent sample packette. This product is the only skin treatment and
liquid makeup sampling technology approved by the U.S. Postal Service
for inclusion in subscription magazines at periodical postage rates.
Because of these advantages, management believes that the BeautiSeal
technology has been extremely well received in the market to date and is
a particularly attractive sampling vehicle for mass-cosmetic marketers
who have very few cost-effective alternatives to mass sample their
products. The product was introduced in featured advertisements for
Estee Lauder's flagship skin care product, Fruition Extra, in the August
1997 editions of several magazines. Though the BeautiSeal technology was
at the time untested, management believes that Estee Lauder's BeautiSeal
campaign was the largest skin treatment sampling program in the history
of Estee Lauder.
o PowdaTouch: Offers color marketers a superior rendition of the actual
powder shade, texture, application and finish of their products.
PowdaTouch applies up to four different shades to sample a single item
shade range or a complete color line at a much lower cost than competing
technologies. Management estimates that PowdaTouch samplers can be
produced at a rate that is approximately ten times faster than competing
products and at a reduced production cost.
o LiquaTouch: The only sampling technology containing an
alcohol-formulated fragrance with an applicator that is approved by the
U.S. Postal Service for inclusion in subscription magazines at
periodical postage rates. LiquaTouch is a finalist of the Fragrance
Foundation's prestigious award for "Innovation of the Year" for 1997.
Equally appropriate for liquid skin care treatment products, LiquaTouch
samplers allow consumers to experience product texture, application and
benefit in a format that can be die-cut to nearly any shape or bottle
replica. Management believes that this new form of sampling will compete
very favorably with fragrance sampling in vials and sachets, in-store
handouts and direct-mail pieces in addition to providing a new
opportunity for subscription magazines. Management expects to generate
additional fragrance and skin treatment sales from its LiquaTouch
technology. While BeautiSeal samplers are ideally suited for treatment
creams, LiquaTouch samplers are expected to be very attractive for clear
liquid products, such as cleansers, astringents and toners.
FORMATS
The Company's products are versatile and can be incorporated into
virtually any print media. All of the Company's sampling products are currently
approved by the U.S. Postal Service for inclusion in subscription magazines at
periodical postage rates. The most common formats for the Company's products
are described below.
40
<PAGE>
Magazine Inserts. Magazine inserts are available in half-, full-, two- and
four-page formats, can be die-cut and can contain any of the Company's product
sampling technologies. Magazine inserts are the most common format for the
Company's products, accounting for approximately 45% of Fiscal 1997 sales.
Catalog Inserts. This format consists of full color inserts available in a
variety of sizes for insertion into catalogs. They are produced with or without
built-in return envelopes, which are generally used to order products from the
catalog as well as the advertised fragrance or other cosmetics product. Inserts
may also be custom imprinted with retail store information. The Company has the
capability to develop and fill catalog insert orders for complicated designs
and formats.
Remittance Envelopes. The Company is the only sampling company to produce
remittance envelopes in-house. This is a highly customized service business,
which reinforces the Company's position as the only full-service supplier of
samplers. The Company can incorporate each of its product technologies (other
than BeautiSeal) into this format. Remittance envelopes are inserted into store
statement mailings and are customized with the store logo. The Company also
provides unscented envelopes.
Statement Enclosures. Statement enclosures are available in various
formats and sizes. For fragrance sampling, enclosures may contain a single
scent in their fold, one or two scents under the fragrance panel, or they may
be die-cut so that the fragrance can be sampled by removing the desired die
shape. Enclosures are normally imprinted with the individual store logos and
product pricing information. The six-inch enclosure is the Company's design and
has become the industry's standard size.
Blow-Ins. Blow-ins incorporating all of the Company's sampling
technologies have become popular in the past two years. These pieces are
loosely inserted into store catalogs and newspaper or magazine formats instead
of being bound in and are available in all formats and sizes.
In-Store Handouts. The Company has made significant inroads into replacing
and expanding current methods of in-store cosmetic and fragrance sampling.
Because of the lower cost and design flexibility of the Company's products
relative to other sampling technologies, marketers of cosmetics and fragrances
have greatly expanded the number and type of in-store samples. New and creative
formats that the Company has originated in cooperation with its customers
include scented postcards, scented stickers, scented wristbands, scented
bookmarks and scented CD inserts. Management expects a significant in-store
handout business for the BeautiSeal and PowdaTouch technologies (to sample
shade ranges and formulae) and for the LiquaTouch technology as an alternative
to fragrance vials.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company currently holds patents covering the proprietary manufacturing
processes used to produce two of its products and has submitted applications
for patents covering six additional manufacturing processes. The Company has
ongoing research efforts and expects to seek additional patents in the future
covering patentable results of such research. There can be no assurance that
any pending patent applications filed by the Company will result in patents
being issued or that any patents now or hereafter owned by the Company will
afford protection against competitors with similar technology, will not be
infringed upon or designed around by others or will not be challenged by others
and held to be invalid or unenforceable. In addition, many of the Company's
manufacturing processes are not covered by any patent or patent application. As
a result, the business of the Company may be adversely affected by competitors
who independently develop technologies substantially equivalent to those
employed by the Company. See "Risk Factors--Competition."
CUSTOMERS
The Company sells its products to prestige and mass cosmetics companies,
consumer product companies, department stores and specialty retailers including
Calvin Klein Cosmetics (Unilever Plc), Chanel, Inc., Christian Dior Perfumes,
Inc., Coty, Inc., Elizabeth Arden (Unilever Plc), Estee Lauder, Inc., Giorgio
Beverly Hills (The Procter & Gamble Company), L'Oreal S.A./Cosmair, Inc.,
Revlon, Inc. and Sanofi Beaute, Inc.. The Company's top ten customers accounted
for approximately 61% of total sales
41
<PAGE>
in Fiscal 1997 and each of Estee Lauder and The Procter & Gamble Company
accounted for in excess of 10% of the Company's net sales in Fiscal 1997. The
Company believes that its technical expertise, manufacturing reliability and
customer support capabilities have enabled it to develop strong relationships
with its customers. The Company employs sales and marketing personnel who
possess the requisite technical backgrounds to communicate effectively with
both prospective customers and the Company's manufacturing personnel.
Historically, the Company has had long-term relationships with its major
customers. See "Risk Factors--Reliance Upon Significant Customers."
SALES AND MARKETING
The Company's President and Chief Executive Officer and the Company's
Senior Vice President of Sales and Marketing closely supervise the Company's
sales and marketing efforts, which are organized geographically. The U.S. sales
and marketing group includes five senior officers, six senior account
executives and three sales support staff. In Europe, the sales and marketing
group consists of two senior officers, two senior account representatives and
three sales support staff. In addition, the Company has ten customer service
representatives who manage production details and magazine and store approvals.
All sales are organized geographically and by account, with each major account
being serviced by one account representative and two customer service
representatives. All Company sales representatives and a portion of the
Company's customer service representatives are compensated on a commission
basis in addition to a base level of compensation.
The Company's marketing activities include direct contact with senior
executives in the cosmetic and fragrance industry, major support of industry
events, extensive joint marketing programs with magazines, retailers and oil
houses, press coverage in industry trade publications, trade shows and
seminars, advertising in trade publications and promotional pieces. In
addition, the Company focuses its sales efforts toward three principal groups
within its customer's organization that management believes influence the
customer's purchasing decision: (i) marketing, which selects the sampling
technology and controls the promotional budget; (ii) product development, which
approves the Company's sampling rendition and approves stability testing; and
(iii) purchasing, the group responsible for buying the sampling pieces and
controlling quality. Management believes that as the pressure for creativity
increases with each new product introduction, fragrance marketers are
increasingly looking for their vendors to contribute to the overall
strategy-building effort for a new fragrance. The Company's executives
routinely introduce new sampling formats and ideas based on the Company's
technologies to the marketing departments of its customers. The Company's
in-house creative and marketing expertise and complete product line provides
customers with maximum flexibility in designing promotional programs.
MANUFACTURING
The Company's manufacturing processes are highly technical and largely
proprietary. The Company's sampling products must meet demanding performance
specifications regarding fidelity to the product being sampled, shelf-life,
resistance to pressure and temperature variations and various other
requirements. The manufacturing processes can be broken into three phases: (i)
formulation of cosmetic and fragrance bulk in the Company's slurry laboratories
for use in sampling products; (ii) manufacturing the sampler, which consists of
either printing an encapsulated slurry onto paper or producing sampling labels
that contain fragrance or other cosmetic bulk; and (iii) for labeling
technologies (DiscCover, Scent Seal, BeautiSeal, LiquaTouch), affixing the
labels onto a piece preprinted by the Company or a third party contract
supplier.
Management believes that the Company's formulation capabilities are the
best in the cosmetics sampling industry. The formulation process is highly
complex because the Company is trying to replicate the fragrance of a product
in a bottle containing an alcohol solution using primarily essential oils and
paper. This translation process is very difficult to achieve particularly as
the Company's customers have become much more demanding about which particular
notes of fragrance they wish the Company to emphasize in its fragrance
formulations. Formulation approval is an iterative process between the Company
and its customers that can take up to 75 submissions, as the Company uses
different formulations to replicate the overall smell of the fragrance and
emphasize those fragrance notes which are
42
<PAGE>
most important to the customer. The Company has more than 50 different,
proprietary formulations that it utilizes in replicating different
characteristics of the fragrance to obtain a customer-approved rendition.
Certain of these formulations are patented and the majority of the formulation
process is based on unique and proprietary methods. Because a supplier of
fragrance samples must have its formulation approved before it can be
considered for a sampling program, the Company's formulation expertise
typically allows it to become the first fragrance sampler manufacturer approved
on a new fragrance. Formulation of the fragrance and cosmetic bulk is performed
under very strict tolerances and in complete conformity to the formula that the
customer has preapproved. Formulation is conducted in the Company's specially
designed formulation laboratories by trained specialists.
The Company has two different sampling component manufacturing processes:
(i) for its formulated paper samplers (ScentStrip, ScentStrip Plus, PowdaTouch)
and (ii) for its formulated label samplers (DiscCover, Scent Seal, BeautiSeal,
LiquaTouch). Formulated paper samplers are produced in the Company's primary
facility where the Company carefully applies microencapsulated slurry onto the
paper during the printing process and, in a continuous in-line operation,
folds, cuts and trims the samplers for packing. The Company's manufacturing
line consists of printing equipment that has been specially modified to apply
fragrance or powder in a controllable form. The Company has 24-hour quality
control personnel who check the application of the sampling formulation every
hour on every press to ensure conformity and rendition with the original,
customer-approved formula. This quality control function and hourly
accountability provide significant value to the product development personnel
at the Company's customers, who are responsible for sample quality.
All sampling in a label form is produced on specially modified label and
finishing equipment in the Company's second facility. In addition to the
patents pending on certain of its manufacturing processes, the Company uses a
number of proprietary techniques in producing label samplers. Similar to the
formulated paper operation, sampling quality control personnel evaluate all
samples by roll and provide full accountability for the Company's production.
The artwork for all printed pieces is typically furnished by the customer
or its advertising agency. The Company's prepress department has a camera and
plate-making department that follows extensive quality control procedures. The
Company has the capability to produce printed materials of the highest quality,
including the covers of major fashion magazines in connection with fragrance
samplers on the inside.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Historically, the raw materials used by the Company in the manufacturing
of its products have been readily available from numerous suppliers and have
been purchased by the Company at prices that the Company believes are
competitive. Substantially all of the Company's encapsulated paper products for
the domestic market products utilize specific grades of paper that are produced
exclusively for the Company by one supplier. The Company has not experienced
any material supply shortages nor are any anticipated. See "Risk Factors--Raw
Materials--Paper."
COMPETITION
The Company's competitors, some of whom have substantially greater capital
resources than the Company, are actively engaged in manufacturing certain
products similar to, or in competition with, those of the Company. Competition
in the Company's markets is based upon product quality, product technologies,
customer relationships, price and customer service. Upon consummation of the 3M
Acquisition, the Company's principal competitors in the printed fragrance
sampler market will be Webcraft, a subsidiary of Big Flower Holdings, Inc.,
Orlandi Inc., Retail Communications Corp. and Quebecor Printing (USA) Corp. The
Company's fragrance sampler products also compete with other forms of fragrance
sampling, including miniatures, vials, packettes, sachets, blisterpacks and
scratch and sniff. Such additional forms of fragrance sampling are marketed and
manufactured by many different companies including cosmetics companies
producing such products for its own fragrance products. The Company's principal
competitors in the makeup sampler market are Color Prelude Inc. and Retail
Communications Corp. Management believes that the Company currently has no
direct competition in
43
<PAGE>
the subscription advertising, skin care and liquid makeup sampling market,
which has traditionally used packettes that are more costly and less versatile
than the Company's product sampling technologies. However, there can be no
assurance that competitors will not develop makeup sampling technologies
superior to the Company's or introduce attractive alternatives for cosmetics
companies to utilize for makeup sampling programs. See "Risk
Factors--Competition" and "--The Company."
ENVIRONMENTAL AND SAFETY REGULATION
The Company's operations are subject to extensive laws and regulations
relating to the storage, handling, emission, transportation and discharge of
materials into the environment and the maintenance of safe conditions in the
workplace. The Company's policy is to comply with all legal requirements of
applicable environmental, health and safety laws and regulations, and the
Company believes it is in general compliance with such requirements and has
adequate professional staff and systems in place to remain in compliance,
although there can be no assurances that this is the case. The Company
considers costs for environmental compliance to be a normal cost of doing
business, and includes such costs in pricing decisions.
FACILITIES
The Company owns the land and buildings in Chattanooga, Tennessee that are
used for production, administration and warehousing. The Company's executive
offices and primary facility at 1815 East Main Street are located on 2.55 acres
and encloses approximately 67,900 square feet. A second facility housing
product development and additional manufacturing areas at 1600 East Main Street
is located three blocks away on 2.49 acres and encloses approximately 36,700
square feet.
The Company currently has a number of web printing presses with
multi-color capability as well as envelope-converting machines and other
ancillary equipment. The Company operates a fully equipped production lab for
the manufacture of microcapsules and slurry and separate laboratories for the
Company's Encapsulated Products Division and the Company's research and
development facility. The Company also has a fully staffed and equipped label
manufacturing facility, which includes state-of-the-art label manufacturing
machines that have been specially modified to produce the Company's products
and a complete label attaching operation. The Company also maintains sales
offices in New York, San Francisco, Paris, France and London, England.
EMPLOYEES
As of June 30, 1998, the Company employed 331 persons, which includes 204
hourly and 127 salaried and management personnel. Substantially all of the
Company's hourly employees are represented by the Graphics Communications
International Union (GCIU) local 197M. Management considers its relations with
the union to be good. The current union contract was signed in 1996 and will be
in effect through April 1, 1999.
LEGAL PROCEEDINGS
The Company does not believe that there are any pending legal proceedings
that, if adversely determined, would have a material adverse effect on the
financial condition or results of operations of the Company, taken as a whole.
44
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
DLJMBII and certain members of the Company's management organized
Acquisition Corp. in connection with the Acquisition. The total cost of the
Acquisition (including related fees and expenses) was approximately $205.7
million. Non-cash costs of the Acquisition totaling approximately $6.2 million
were funded by (i) the assumption of the Scent Seal Note and certain capital
lease obligations and (ii) the rollover of equity interests in the Company by
the Company's Chief Executive Officer. See "Description of Certain
Indebtedness." To provide the cash necessary to fund the Acquisition, including
the equity purchase price and the retirement of all existing preferred stock
and debt of the Company not assumed, (i) the Company issued $123.5 million in
Bridge Notes to an affiliate of DLJMBII and the Initial Purchaser and (ii)
Acquisition Corp. received $76.0 million from debt and equity (common and
preferred) financings, including equity investments by the Company's Chief
Executive Officer and certain other prior stockholders. As of June 22, 1998,
(i) DLJMBII held an aggregate of approximately 81.3% of the outstanding common
stock of Acquisition Corp. and (ii) the Company's Chief Executive Officer held
an aggregate of approximately 12.1% of the outstanding common stock of
Acquisition Corp. See "Risk Factors--Control by DLJMBII" and "Security
Ownership of Certain Beneficial Owners and Management." Acquisition Corp. has
adopted a stock option plan for management of Acquisition Corp., Holding and
the Company and granted options thereunder to the Company's Chief Executive
Officer. See "Management--Equity-Based Compensation."
3M ACQUISITION
On June 22, 1998, the Company closed the 3M Acquisition. The Company
intends to relocate all of the business operations acquired in the 3M
Acquisition to its existing facilities to utilize current excess capacity at
such facilities. Management believes that in order to properly service the
incremental sales volume associated with the 3M Acquisition, several additional
sales, marketing and administrative employees will be hired. However, the
Company believes that due to the similarity of its existing customers and 3M's
existing customers, no other additional employee hiring will be required as a
result of the 3M Acquisition.
THE OFFERINGS
On June 25, 1998, the Company consummated the Note Offering. The Old Notes
were sold pursuant to exemptions from or in transactions not subject to, the
registration requirements of the Securities Act. In addition, on June 25, 1998,
Holding consummated the Debenture Offering. The Debentures were sold pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act. The consummation of the Note Offering
occurred concurrently with and was conditioned upon, the consummation of the
Debenture Offering.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----- ------------------------------------------------
<S> <C> <C>
Thompson Dean ................ 40 Chairman of the Board and Director
Roger L. Barnett ............. 33 President, Chief Executive Officer and Director
Barry W. Miller .............. 46 Chief Operating Officer
Kenneth A. Budde ............. 49 Chief Financial Officer
Hugh R. Kirkpatrick .......... 61 Director
Mark Michaels ................ 38 Director
David M. Wittels ............. 33 Director
</TABLE>
THOMPSON DEAN has served as Chairman of the Board and director of the
Company since December 1997. Mr. Dean is the Managing Partner of DLJ Merchant
Banking II, Inc. ("DLJ Merchant Banking"), the general partner of DLJ Merchant
Banking Partners II, L.P. and an affiliate of the Initial Purchaser. Mr. Dean
serves as a director of Commvault Inc., Von Hoffman Press, Inc., Manufacturers'
Services Limited and Phase Metrics, Inc.
ROGER L. BARNETT has served as President of the Company since 1995 and
director of the Company since November 1993. From 1994 to 1995, Mr. Barnett
served as Senior Vice President and Vice President of the Company. From 1991
until his employment by the Company, Mr. Barnett was a member of the banking
group at Lazard Freres & Company, an investment banking firm.
BARRY W. MILLER has served as Chief Operating Officer of the Company since
May 1998. From 1994 to 1997, Mr. Miller served as President of Precision
Printing and Packaging, Inc., a subsidiary of Anheuser-Busch Companies, Inc.
Prior to that, Mr. Miller served as Chief Executive Officer of International
Label from 1987 to 1993.
KENNETH A. BUDDE has served as Chief Financial Officer of the Company
since November 1994. From October 1988 to June 1994, Mr. Budde served as
Controller and Chief Financial Officer of Southwestern Publishing Company.
Prior to that, Mr. Budde spent 12 years with KPMG Peat Marwick.
HUGH R. KIRKPATRICK has served as a director of the Company since June
1998. Mr. Kirkpatrick is a former director of International Flavors &
Fragrances, Inc. where he served as Senior Vice President and President,
Worldwide Fragrance Division, from 1991 through his retirement in 1996.
MARK MICHAELS has served as director of the Company since June 1998. Mr.
Michaels has been a Principal of DLJ Merchant Banking since 1997. Prior
thereto, Mr. Michaels was a consultant with McKinsey & Company, Inc. from 1987
to 1996.
DAVID M. WITTELS has served as a director of the Company since December
1997. Mr. Wittels is a Principal of DLJ Merchant Banking and has served in
various capacities with DLJ Merchant Banking since 1986. Mr. Wittels serves as
a director of McCulloch Corp. and Wilson Greatbatch Limited.
COMPENSATION OF DIRECTORS
Except for Hugh R. Kirkpatrick, directors of the Company will not receive
compensation for services rendered in that capacity, but will be reimbursed for
out-of-pocket expenses incurred by them in connection with their travel to and
attendance at board meetings and committees thereof. Mr. Kirkpatrick will
receive an annual fee of $20,000 per year plus reasonable out-of-pocket
expenses in connection with his travel to and attendance at meetings of the
Board of Directors and committees thereof. In addition, it is expected Mr.
Kirkpatrick will be granted options to purchase shares of common stock, par
value $.01 per share, of Acquisition Corp. ("Acquisition Corp. Common Stock")
under the Option Plan (as defined) on terms to be established by the Board of
Directors.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information for the three most
recently completed fiscal years with respect to the compensation of the
Company's Chief Executive Officer and its other most highly compensated
executive officers (collectively, the "named executive officers") whose total
annual compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ----------------------------------- -------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Roger L. Barnett .................. 1998 $367,083 $ -- $3,670
President, Chief Executive Officer 1997 210,000 275,000 5,700
and Director 1996 210,000 225,000 6,856
Hugh F. Brown (2) ................. 1998 145,000 100,000 3,384
Executive Vice President 1997 145,000 100,000 5,700
Manufacturing 1996 145,000 100,000 5,636
Kenneth A. Budde .................. 1998 120,000 50,000 --
Chief Financial Officer 1997 100,000 50,000 --
1996 100,000 20,000 --
</TABLE>
- ----------
(1) Represents amounts contributed on behalf of the named executive to the
Company's 401(k) retirement savings plan.
(2) Mr. Brown resigned from the Company in July 1998. Effective September
1998, Mr. Brown is expected to become a consultant to the Company.
EMPLOYMENT AGREEMENTS
Barnett Agreement
The Company entered into an employment agreement with Mr. Barnett dated as
of June 17, 1998 (the "Barnett Agreement"). Pursuant to the Barnett Agreement,
Mr. Barnett will serve as President and Chief Executive Officer of the Company
for a term of three years. Mr. Barnett will receive an annual base salary of
$500,000 plus an annual bonus of up to 100% of his base salary contingent upon
the Company achieving certain financial performance targets set forth in the
Barnett Agreement. Mr. Barnett is also entitled to receive certain perquisites
commensurate with his position with the Company.
In the event of Mr. Barnett's resignation with "good reason" or
termination by the Company for any reason other than "cause" (each as defined
in the Barnett Agreement) or Mr. Barnett's death or disability, Mr. Barnett
will be entitled to certain severance payments. The Barnett Agreement also
includes a non-competition provision pursuant to which Mr. Barnett may be
prohibited for a period of two years following his termination or resignation
from engaging in certain activities that are competitive with the Company's
business.
In connection with the execution of the Barnett Agreement, Mr. Barnett
entered into a put option agreement with Acquisition Corp. and DLJMBII dated
June 17, 1998 (the "Put Option Agreement"). Pursuant to the Put Option
Agreement, Acquisition Corp. granted Mr. Barnett an irrevocable option (the
"Put Option") to require Acquisition Corp. to purchase certain preferred equity
interests of Mr. Barnett representing 80,000 shares of preferred stock of
Acquisition Corp. for $2.0 million in cash. Mr. Barnett exercised the Put
Option on July 30, 1998.
Miller Agreement
Mr. Miller is presently retained as Chief Operating Officer pursuant to an
employment agreement that provides for an annual base salary of $220,000 and an
annual bonus of up to 100% of his base salary upon achievement by the Company
of certain financial performance targets. The Company also supplies
47
<PAGE>
Mr. Miller with other customary benefits and perquisites as generally made
available to other senior executives of the Company. The term of the employment
agreement, which expires on June 30, 2001, automatically renews for additional
twelve-month terms, unless either Mr. Miller or the Company elects otherwise.
EQUITY-BASED COMPENSATION
Acquisition Corp. has adopted a 1998 Stock Option Plan (the "Option Plan")
for certain key employees and directors of Acquisition Corp. and any parent or
subsidiary corporation of Acquisition Corp. The objectives of the Option Plan
are (i) to retain the services of persons holding key positions and to secure
the services of persons capable of filling such positions and (ii) to provide
persons responsible for the future growth of Acquisition Corp. an opportunity
to acquire a proprietary interest in the Company and thus create in such key
employees an increased interest in and a greater concern for the welfare of the
Company.
The Option Plan authorizes the issuance of options to acquire up to 80,000
shares of Acquisition Corp. Common Stock. The Option Plan will be administered
by the Board of Directors or the Compensation Committee thereof designated by
the Board of Directors (the "Committee"). Pursuant to the Option Plan,
Acquisition Corp. may grant options, including options that become exercisable
as performance standards determined by the Committee are met, to key employees
and directors of Acquisition Corp. and any parent or subsidiary corporation.
The terms of any such grant will be determined by the Committee and set forth
in a separate grant agreement. The exercise price will be at least equal to the
fair market value per share of Acquisition Corp. Common Stock on the date of
grant, provided that the exercise price shall not be less than $1.00 per share.
Options may be exercisable for up to ten years. The Committee has the right to
accelerate the right to exercise any option granted under the Option Plan
without effecting the expiration date thereof. Upon the occurrence of a change
in control (as defined therein) of Acquisition Corp., each option may, at the
discretion of the Committee, be terminated upon notice to the holder thereof
and each such holder will receive, in respect of each share of Acquisition
Corp. Common Stock for which such option is then exercisable, an amount equal
to the excess of the then fair market value of such share of Acquisition Corp.
Common Stock over the per share exercise price.
On June 17, 1998, Acquisition Corp. granted to Mr. Barnett options to
purchase 32,500 shares of Acquisition Corp. Common Stock under the Option Plan,
pursuant to option letter agreements between Acquisition Corp. and Mr. Barnett
(the "Option Agreements"). Under the terms of the Option Agreements, 16,250 of
the options granted to Mr. Barnett are designated as "time-vesting" options
(the "Time-Vesting Options") and 16,250 of the options granted to Mr. Barnett
are designated as "standard" options (the "Standard Options"). All of the
Time-Vesting and Standard Options have an exercise price of $1.00 per share.
The Time-Vesting Options become exercisable as to one-third of the
Acquisition Corp. Common Shares subject thereto on June 30, 1999, and are
thereafter exercisable as to an additional one-third of such Acquisition Corp.
Common Shares on June 30, 2000 and 2001, respectively. To the extent not
previously exercised or exercisable, upon a Change In Control (as defined in
the Option Agreements), the Time-Vesting Options shall immediately become
exercisable to purchase 100% of the Acquisition Corp. Common Shares subject
thereto.
The Standard Options become exercisable as to various percentages of the
Acquisition Corp. Common Shares subject thereto beginning June 30, 1999 and on
June 30, 2000 and June 30, 2001, based on the achievement of certain
established financial performance targets for the years then ended; provided
that the Standard Options become exercisable as to 100% of the Shares subject
thereto on June 16, 2006. Upon a Change In Control, 100% of the Standard
Options eligible to become vested on the date of such Change In Control shall
automatically vest and become exercisable if DLJMBII shall have realized
certain returns on their equity investment in Acquisition Corp.
While no final determinations have been made, it is expected that Mr.
Miller and certain other members of management will be granted options under
the Option Plan to purchase shares of Acquisition Corp. Common Stock. It is
expected that a portion of these options will be Time-Vesting Options and the
remainder will be Standard Options.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
All of the Company's issued and outstanding capital stock is owned by
Holding. All of Holding's issued and outstanding capital stock is owned by
Acquisition Corp. The following table sets forth certain information as of the
date of this Prospectus with respect to the beneficial ownership of Acquisition
Corp. Common Stock by (i) owners of more than five percent of such Acquisition
Corp. Common Stock, (ii) each director and named executive officer of the
Company and (iii) all directors and executive officers of Acquisition Corp.,
Holding and the Company, as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES ACQUISITION CORP.
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------------------------------------------------------------ -------------------- ------------------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors (1) (2).... 903,111 81.3%
Thompson Dean (3) ...................................................... -- --
Roger L. Barnett (2) ................................................... 134,325 12.1
Hugh R. Kirpatrick ..................................................... -- --
Mark Michaels (3) ...................................................... -- --
David M. Wittels (3) ................................................... -- --
Barry W. Miller ........................................................ -- --
Kenneth A. Budde ....................................................... -- --
All directors and executive officers as a group (2) (3) ................ 136,950 12.1
</TABLE>
- ----------
(1) Consists of shares held directly by the following affiliated investors:
DLJ Merchant Banking Partners II, L.P.; DLJ Merchant Banking Partners
II-A, L.P. ("DLJMBII-A"); DLJ Offshore Partners II, C.V. ("Offshore
Partners II"); DLJ Diversified Partners, L.P. ("Diversified Partners");
DLJ Diversified Partners-A, L.P. ("Diversified Partners-A"); DLJMB
Funding II, Inc. ("DLJ Funding II"); DLJ Millennium Partners, L.P.
("Millennium Partners"); DLJ Millennium Partners-A, L.P., ("Millennium
Partners-A"); DLJ EAB Partners, L.P. ("EAB Partners"); UK Investment Plan
1997 Partners ("UK Partners"); and DLJ First ESC L.P. ("First ESC"). See
"Certain Relationships and Related Transactions--Transactions with
DLJMBII and their Affiliates" and "Plan of Distribution." The address of
each of DLJMBII, DLJMBII-A, Diversified Partners, Diversified Partners-A,
DLJ Funding II, Millennium Partners, Millennium Partners-A, EAB Partners
and First ESC is 277 Park Avenue, New York, New York 10172. The address
of Offshore Partners II is John B. Gorsiraweg 14, Willemstad, Curacao,
Netherlands Antilles. The address of UK Partners is 2121 Avenue of the
Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. Does not
include 18,000 shares of Acquisition Corp. Common Stock held directly by
the Bridge Lender, an affiliate of DLJMBII and the Initial Purchaser.
(2) See "Certain Relationships and Related Transactions."
(3) Messrs. Dean, Michaels and Wittels are officers of DLJ Merchant Banking,
an affiliate of DLJMBII and the Initial Purchaser. Share data shown for
such individuals excludes shares shown as held by DLJMBII, as to which
such individuals disclaim beneficial ownership. The address of each of
Messrs. Dean, Michaels and Wittels is 277 Park Avenue, New York, New York
10172.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DLJMBII AND THEIR AFFILIATES
Messrs. Dean, Michaels and Wittels, who are directors of the Company and
officers and directors of Holding and Acquisition Corp., are officers of DLJ
Merchant Banking. DLJ Merchant Banking, together with DLJMBII, beneficially
own, in the aggregate, approximately 81.3% of the outstanding Acquisition Corp.
Common Stock. See "Risk Factors--Control by DLJMBII."
The Initial Purchaser is also an affiliate of DLJ Merchant Banking and
DLJMBII and has acted as financial advisor to the Company in connection with
the structuring of the Acquisition. For these financial advisory services, the
Initial Purchaser received a customary fee and was reimbursed for its
out-of-pocket expenses. In addition, pursuant to an agreement between the
Initial Purchaser and Acquisition Corp., the Initial Purchaser will receive a
customary annual fee for acting as the exclusive financial and investment
banking advisor to the Company ending December 31, 2002. The Company has agreed
to indemnify the Initial Purchaser in connection with its acting as Initial
Purchaser and as financial advisor. In addition, the Initial Purchaser will
receive the discounts and commissions set forth on the cover page of this
Prospectus. See "Plan of Distribution."
The Bridge Lender, an affiliate of DLJ Merchant Banking, DLJMBII and the
Initial Purchaser, is the holder of all of the Bridge Notes, all of which were
repaid by the Company with the net proceeds of the Offering and the Equity
Contribution. See "Use of Proceeds," "Description of Certain Indebtedness--
Bridge Notes" and "Plan of Distribution."
STOCKHOLDERS AGREEMENT
In connection with the Acquisition, Acquisition Corp., DLJMBII, certain
former investors in the Company prior to the Acquisition, including Roger L.
Barnett and Hugh F. Brown (the "Prior Investors") and certain other signatories
thereto, entered into a Stockholders Agreement, dated as of December 15, 1997
(the "Stockholders Agreement"), that sets forth certain rights and restrictions
relating to the ownership of the capital stock of Acquisition Corp. (including
securities exercisable for or convertible or exchangeable into capital stock of
Acquisition Corp.) and agreements among the parties thereto as to the
governance of Acquisition Corp. and, indirectly, Holding and the Company.
Pursuant to the Stockholders Agreement, the Board of Directors of
Acquisition Corp. consists of six members. DLJMBII has the right to nominate
four of the Directors of Acquisition Corp. and the Prior Investors have the
right to nominate one Director of Acquisition Corp., provided that DLJMBII and
the Prior Investors maintain a specified minimum level of equity investment in
Acquisition Corp. In addition, the Stockholders Agreement provides that the
Chief Executive Officer of Acquisition Corp. be nominated as a Director of
Acquisition Corp.
The Stockholders Agreement contains provisions that, among other things,
and subject to certain exceptions, (i) significantly restrict the ability of
the holders of capital stock of Acquisition Corp. to transfer their respective
ownership interests, (ii) grant certain preemptive rights to the holders of
capital stock of Acquisition Corp., (iii) grant certain "drag along" rights to
DLJMBII to require the remaining holders of capital stock of Acquisition Corp.
to sell a percentage of their ownership and (iv) grant certain "tag along"
rights to the holders of Acquisition Corp. Common Stock, other than DLJMBII,
with respect to sales of Acquisition Corp. Common Stock by DLJMBII.
Pursuant to the Stockholders Agreement, DLJMBII was granted certain
customary "demand" registration rights and all stockholders of Acquisition
Corp. were granted certain customary "piggyback" registration rights.
THE ACQUISITION
In connection with the Acquisition, certain current executive officers and
directors of the Company sold certain of their options to purchase common stock
of the Company to Acquisition Corp. for approximately $12.1 million in cash.
Such amount does not include any consideration indirectly attributable to such
executive officers and directors.
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Further, Roger L. Barnett purchased an aggregate of 134,325 shares of
Acquisition Corp. Common Stock at the same per share price paid by DLJMBII in
connection with the formation of Acquisition Corp. In addition to his purchase
of Acquisition Corp. Common Stock, Mr. Barnett exchanged certain options to
acquire common stock of the Company for options to acquire preferred stock of
Acquisition Corp. On July 30, 1998, Mr. Barnett exercised his option to acquire
such shares of preferred stock of Acquisition Corp. See "--Employment
Arrangements."
Mr. Barnett and DLJMBII also entered into an arrangement pursuant to which
certain of the equity interests held by Mr. Barnett could be purchased by
DLJMBII at a specified price upon notice from DLJMBII prior to June 30, 1998.
Alternatively, Mr. Barnett was given the right to compel DLJMBII to purchase
such equity interests at the same price upon notice to DLJMBII prior to June
30, 1998. Such arrangement was terminated in connection with the Barnett
Agreement. See "Management--Employment Agreements."
PRIOR STOCKHOLDER TRANSACTIONS
During Fiscal 1997 and prior to the Acquisition, the Company made payments
of approximately $612,000 to a company controlled by a significant prior
stockholder for management fees, bonuses and expense reimbursements. In
addition, the Company made payments totaling $120,000 to another significant
prior stockholder for management fees in Fiscal 1997.
EMPLOYMENT ARRANGEMENTS
Mr. Barnett is retained as President and Chief Executive Officer of the
Company pursuant to the Barnett Agreement which provides for an annual salary
of $500,000 per year. Mr. Barnett, Acquisition Corp. and DLJMBII have also
entered into the Put Option Agreement pursuant to which Mr. Barnett was granted
an irrevocable option to require Acquisition Corp. (or DLJMBII under certain
circumstances) to purchase certain preferred equity interests of Mr. Barnett
representing 80,000 shares of preferred stock of Acquisition Corp. for $2.0
million in cash. On July 30, 1998, Mr. Barnett exercised such option. See
"Management--Employment Agreements."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
On April 30, 1996, the Company entered into the Credit Agreement, which
was amended on December 12, 1997, in connection with the Acquisition (the
"Credit Agreement"). The Credit Agreement provides for a revolving loan
commitment up to a maximum of $20.0 million (subject to a borrowing base
calculation), which commitment shall expire on December 31, 2002 or earlier
under certain circumstances. In connection with the Refinancing, the Company
intends to seek an amendment to certain provisions of the Credit Agreement,
including those related to certain financial covenants. There can be no
assurance, however, that the Company will obtain any such amendment on the
terms it intends to seek. The following description of certain provisions of
the Credit Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of the Credit Agreement.
Borrowings under the Credit Agreement will bear interest at a variable
rate of interest per annum equal to, at the Company's option, prime plus 0.75%
per annum or LIBOR plus 2.50% per annum. The Company is required to pay
commitment fees on the unused portion of the revolving loan commitment at a
rate of approximately 0.5% per annum. In addition, the Company is required to
pay fees equal to 2.5% of the average daily outstanding amount of lender
guarantees.
The Credit Agreement contains customary restrictive covenants, which,
among other things and with certain exceptions, limit the ability of the
Company to incur additional indebtedness and liens in connection therewith,
enter into certain transactions with affiliates, pay dividends, consolidate,
merge or effect certain asset sales and enter into new lines of business. Under
the Credit Agreement, the Company is also required to satisfy certain financial
covenants, which require it to maintain certain financial ratios and to comply
with certain financial tests.
The Credit Agreement contains certain events of default, including, among
others, those relating to failure to make payments when due, default as to
certain other indebtedness of the Company, non-performance of certain
covenants, bankruptcy or insolvency, judgments in excess of specified amounts,
any dissolution of the Company and certain "changes in control" (as defined in
the Credit Agreement).
SCENT SEAL NOTE
In connection with the acquisition of Scent Seal, Inc. in 1995, the
Company executed a Conditional Promissory Note (the "Scent Seal Note") in the
principal amount of $1.75 million in favor of the former stockholder of Scent
Seal, Inc. The Scent Seal Note did not bear interest. The principal amount of
the Scent Seal Note was amortized by quarterly principal payments in the amount
of $25,000 and the remaining unpaid principal amount on July 1, 1998 ($1.45
million) was due and was paid at such time. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The Scent Seal Note was secured by the Company's "Scent
Seal" trademark.
BRIDGE NOTES
Simultaneously with the Acquisition, the Company entered into a Securities
Purchase Agreement with the Bridge Lender, an affiliate of DLJMBII and the
Initial Purchaser, pursuant to which the Company issued $123.5 million
principal amount of Bridge Notes to the Bridge Lender. In connection with the
issuance of the Bridge Notes for the financing of the Acquisition, the Bridge
Lender received certain reasonable and customary fees and reimbursements.
Messrs. Dean, Michaels and Wittels are officers of DLJ Merchant Banking, an
affiliate of the Initial Purchaser and the Bridge Lender. The entire
outstanding principal amount of, and accrued and unpaid interest on the Bridge
Notes were repaid with the net proceeds of the Offering. See "Use of Proceeds."
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DESCRIPTION OF NEW NOTES
GENERAL
The Old Notes were issued and the New Notes will be issued pursuant to an
indenture (the "Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Copies of the proposed form of Indenture and Registration Rights Agreement are
available as set forth below under "--Additional Information." The definitions
of certain terms used in the following summary are set forth below under
"--Certain Definitions."
The New Notes will be general unsecured obligations of the Company, will
rank pari passu in right of payment with all existing and future senior
unsecured Indebtedness of the Company and will rank senior in right of payment
to all existing and future subordinated Indebtedness of the Company. The Notes,
however, will be effectively subordinated to all secured obligations of the
Company, including borrowings under the Credit Agreement, to the extent of the
assets securing such obligations. As of March 31, 1998, on a pro forma basis,
after giving effect to the Refinancing and the consummation of the 3M
Acquisition, there would have been no outstanding secured obligations of the
Company under the Credit Agreement. The Indenture will permit the incurrence of
additional secured Indebtedness in the future.
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company 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.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $115.0 million and
will mature on July 1, 2008. Interest on the Notes will accrue at the rate of
10 1/2% per annum from June 25, 1998 and will be payable semi-annually in
arrears on January 1 and July 1 of each year, commencing on January 1, 1999, to
Holders of record on the immediately preceding June 15 and December 15.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium and Liquidated Damages, if any, and
interest on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, premium and Liquidated Damages, if any, and interest
with respect to Notes represented by one or more permanent global Notes will be
paid by wire transfer of immediately available funds to the account of The
Depository Trust Company or any successor thereto. Until otherwise designated
by the Company, the Company'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.
OPTIONAL REDEMPTION
Except as provided below, the Notes will not be redeemable at the
Company's option prior to July 1, 2003. Thereafter, the Notes will be subject
to redemption at any time at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 1
of the years indicated below:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ------------
<S> <C>
2003 ........................ 105.250%
2004 ........................ 102.625%
2005 and thereafter ......... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to July 1, 2001, the
Company may on one or more occasions redeem up to 35% of the original aggregate
principal amount of Notes at a redemption price of 110.5% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the redemption date, with the net cash proceeds of one or
ast 65% of the original aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption; and provided, further,
that such redemption shall occur within 90 days of the date of the closing of
such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any Note
is to be redeemed in part only, the notice of redemption that relates to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. Notes called for redemption become due on the date fixed for redemption.
On and after the redemption date, interest ceases to accrue on Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 60 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days 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 Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Indenture relating to such
Change of Control Offer, the Company will comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2)
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deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Notes or portions thereof so tendered and (3) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Paying Agent will promptly
mail to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
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 the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The 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 Company 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 that phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash or Cash Equivalents within 180 days (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision; and provided further that the 75% limitation referred to in
clause (ii) above will not apply to any Asset Sale in which the cash or Cash
Equivalents portion of the consideration received therefrom, determined in
accordance with the foregoing proviso, is equal to or greater than what the
after-tax proceeds would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any such Restricted Subsidiary may apply such Net Proceeds, at
its option, (a) to repay or repurchase pari passu Indebtedness of the Company
or any Indebtedness of any Restricted Subsidiary or (b) to the acquisition of a
controlling interest in another business, the making of a capital expenditure
or the acquisition of other long-term assets, in each case, in a Permitted
Business. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce the revolving Indebtedness under the Credit Agreement or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net
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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 $10.0 million,
the Company will be required to make an offer to all Holders of Notes (an
"Asset Sale Offer") to purchase the maximum principal amount of Notes 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. To the extent that the
aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the Indenture relating to such Asset Sale
Offer, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that from and after the date of the Indenture the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment on
such Equity Interests in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except scheduled payments of interest or principal
at Stated Maturity of such Indebtedness; 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 after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, after giving pro forma effect thereto as if such
Restricted Payment had been made 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 the 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 Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (i), (ii), (iii), (iv), (viii) (other than those permitted by clause
(f) of the definition of "Permitted Investments"), (ix), (xii) and (xiii) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
date of the Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds
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received by the Company as a contribution to the Company's capital or received
by the Company from the issue or sale since the date of the Indenture of Equity
Interests of the Company (other than Disqualified Stock) or of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Restricted Subsidiary of the Company 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 cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment, plus (iv) if any
Unrestricted Subsidiary (A) is redesignated as a Restricted Subsidiary, the
fair market value of such redesignated Subsidiary (as determined in good faith
by the Board of Directors) as of the date of its redesignation or (B) pays any
cash dividends or cash distributions to the Company or any of its Restricted
Subsidiaries, 50% of any such cash dividends or cash distributions made after
the date of the Indenture.
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 Company
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale or issuance (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its Equity Interests on
a pro rata basis; (v) the declaration or payment of dividends to Acquisition
Corp. or Holding for expenses incurred by Acquisition Corp. or Holding in their
capacity as holding companies or for services rendered on behalf of the
Company, including, without limitation, (a) customary salary, bonus and other
benefits payable to officers and employees of Acquisition Corp. or Holding, (b)
fees and expenses paid to members of the Board of Directors of Acquisition
Corp. or Holding, (c) general corporate overhead expenses of Acquisition Corp.
or Holding, (d) management, consulting or advisory fees paid to Acquisition
Corp. or Holding not to exceed $4.0 million in any fiscal year, and (e) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Acquisition Corp. or Holding held by any member or former
member of Acquisition Corp.'s, Holding's or the Company's (or any of their
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement, stockholders agreement or stock option agreement;
provided, however, the aggregate amount paid pursuant to the foregoing clauses
(a) through (e) does not exceed $5.0 million in any fiscal year (with any
unused amounts in any fiscal year being carried over to succeeding fiscal
years, subject to a maximum (without giving effect to the following clause (y))
of $10.0 million in any calendar year, plus (y) the aggregate cash proceeds
received by the Company from any reissuance of Equity Interests by Acquisition
Corp. or Holding to members of management of the Company and its Restricted
Subsidiaries; (vi) Investments in any Person (other than the Company or a
Restricted Subsidiary) engaged in a Permitted Business in an amount not to
exceed $5.0 million; (vii) other Investments in Unrestricted Subsidiaries
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (vii) that are at that time
outstanding, not to exceed $2.0 million; (viii) Permitted Investments; (ix) the
declaration or payment of dividends or other payments to Acquisition Corp. or
Holding pursuant to any tax sharing agreement or other arrangement among
Acquisition Corp., Holding or other members of the affiliated corporations of
which Acquisition Corp. or Holding is the common parent; (x) other Restricted
Payments in an aggregate amount not to exceed $10.0 million; (xi) so long as no
Default or Event of Default has occurred and is continuing, the declaration and
payment of dividends on Disqualified Stock issued or after the date of the
Indenture, the incurrence of which satisfied the covenant set forth in the
first paragraph of "--Incurrence of Indebtedness and Issuance of Preferred
Stock" below; (xii) the declaration or payment of dividends to Acquisition
Corp. or Holding to satisfy any required purchase price adjustment payment
arising out of the Acquisition; and (xiii) the declaration or payment of
dividends or other payments to
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Acquisition Corp. or Holding in an amount not to exceed $2.0 million to satisfy
redemption obligations in respect of Equity Interests of Acquisition Corp. or
Holding that are held by management of Acquisition Corp., Holding or the
Company; provided that such amount shall not be applied against expenses
incurred pursuant to clause (v)(e) above.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation (as
determined in good faith by the Board of Directors). 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 Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee; such determination will 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 Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
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 the Company will not, and will not permit any
of its 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) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock or preferred stock and the
Company's Restricted Subsidiaries may incur Indebtedness (including Acquired
Debt) and issue Disqualified Stock or preferred stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness and letters of credit
pursuant to the Credit Agreement; provided that the aggregate principal amount
of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) then classified as having been incurred in reliance on this clause
(i) that remains outstanding under the Credit Agreement after giving effect to
such incurrence does not exceed the sum of $20.0 million.
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
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(iv) the incurrence by the Company or any of its Restricted Subsidiaries
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
improvement of property, plant or equipment used in the business of the Company
or such Restricted Subsidiary (whether through the direct purchase of assets or
the Capital Stock of any Person owning such Assets), in an aggregate principal
amount or accreted value, as applicable, not to exceed $10.0 million;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new Restricted
Subsidiary; provided that such Indebtedness was incurred by the prior owner of
such assets or such Restricted Subsidiary prior to such acquisition by the
Company or one of its Subsidiaries and was not incurred in connection with, or
in contemplation of, such acquisition by the Company or one of its
Subsidiaries; provided further that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (v), does not exceed $5.0
million;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was permitted
by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to
the prior payment in full in cash of all Obligations with respect to the Notes
and (ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the Company
or a Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Restricted Subsidiaries
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 or (ii) exchange
rate risk with respect to any agreement or Indebtedness of such Person payable
in a currency other than U.S. dollars;
(ix) the Guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(xi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without limitation
to letters of credit in respect to workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; provided, however, that upon the
drawing of such letters of credit or the incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or incurrence;
(xii) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, asset or Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that (x) such Indebtedness is not reflected on the balance sheet of
the Company or any Restricted Subsidiary (contingent obligations referred to in
a footnote or footnotes
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to financial statements and not otherwise reflected on the balance sheet will
not be deemed to be reflected on such balance sheet for purposes of this clause
(x)) and (y) the maximum assumable liability in respect of such Indebtedness
shall at no time exceed 50% of the gross proceeds including non-cash proceeds
(the fair market value of such non-cash proceeds being measured at the time
received and without giving effect to any such subsequent changes in value)
actually received by the Company and/or such Restricted Subsidiary in
connection with such disposition;
(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary in
the ordinary course of business;
(xiv) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 million at any time outstanding;
and
(xv) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness, including Attributable Debt incurred after the date
of the Indenture, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xv), not to exceed $20.0 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 (xv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. In addition, the Company may, at any
time, change the classification of an item of Indebtedness (or any portion
thereof) to any other clause or to the first paragraph hereof provided that the
Company would be permitted to incur such item of Indebtedness (or portion
thereof) pursuant to such other clause or the first paragraph hereof, as the
case may be, at such time of reclassification. Accrual of interest, accretion
or amortization of original issue discount and the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien (other than Permitted Liens) upon
any of their property or assets, now owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any Indebtedness owed to the
Company or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indenture, (b) the Credit
Agreement 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,
replacement or refinancings are no more restrictive in the aggregate (as
determined in the good faith judgment of the Company's Board of Directors) with
respect to such dividend and other payment restrictions than those contained in
the Credit Agreement as in effect on the date of the Indenture, (c) the
Indenture and the Notes, (d) any applicable law, rule, regulation or order, (e)
any instrument of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not
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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 by the terms
of the Indenture to be incurred, (f) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (e) above on the property so acquired, (h) Permitted
Refinancing Indebtedness, provided that the material restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, in the good faith judgment of the Company's board of directors,
taken as a whole, to the Holders of Notes than those contained in the
agreements governing the Indebtedness being refinanced, (i) contracts for the
sale of assets, including without limitation 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, (j) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business and (k) other Indebtedness or Disqualified Stock of Restricted
Subsidiaries permitted to be incurred subsequent to the Issuance Date pursuant
to the provisions of the covenant described under "--Incurrence of Indebtedness
and Issuance of Preferred Stock."
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions, to another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes and 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) the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) 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" or (b) would
(together with its Restricted Subsidiaries) have a higher Fixed Charge Coverage
Ratio immediately after such transaction (after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period) than the Fixed Charge Coverage Ratio of the Company and
its subsidiaries immediately prior to the transaction. The foregoing clause
(iv) will not prohibit (a) a merger between the Company and a Wholly Owned
Subsidiary of Acquisition Corp. or Holding created for the purpose of holding
the Capital Stock of the Company, (b) a merger between the Company and a Wholly
Owned Subsidiary or (c) a merger between the Company and an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
state of the United States so long as, in each case, the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby. The
Indenture will also provide that the Company may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other Person. The provisions of this covenant will
not be applicable to a sale, assignment, transfer, conveyance or other
disposition of assets between or among the Company and its Wholly Owned
Restricted Subsidiaries.
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Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction") unless (i) such Affiliate Transaction is on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving either aggregate consideration in excess of $5.0 million
or an aggregate consideration in excess of $3.0 million where there are no
disinterested members of the Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that the following shall not be deemed Affiliate
Transactions: (q) customary directors' fees, indemnification or similar
arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (r) transactions between or among the
Company and/or its Restricted Subsidiaries, (s) Permitted Investments and
Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments," (t) customary loans,
advances, fees and compensation paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any of its
Restricted Subsidiaries, (u) transactions pursuant to any contract or agreement
in effect on the date of the Indenture as the same may be amended, modified or
replaced from time to time so long as any such amendment, modification or
replacement is no less favorable to the Company and its Restricted Subsidiaries
than the contract or agreement as in effect on the Issue Date, (v) transactions
between the Company or its Restricted Subsidiaries on the one hand, and
Donaldson, Lufkin & Jenrette Securities Corporation or its Affiliates ("DLJ")
on the other hand, involving the provision of financial, advisory, placement or
underwriting services by DLJ; provided that fees payable to DLJ do not exceed
the usual and customary fees of DLJ for similar services, (w) insurance
arrangements among Acquisition Corp., Holding and its Subsidiaries that are not
less favorable to the Company or any of its Subsidiaries than those that are in
effect on the date hereof provided such arrangements are conducted in the
ordinary course of business consistent with past practices, (x) payments under
any tax sharing agreement or other arrangement among Acquisition Corp., Holding
and other members of the affiliated group of corporations of which either is
the common parent and (y) payments in connection with the Refinancing
(including the payment of fees and expenses with respect thereto).
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or any Restricted Subsidiary may enter
into a sale and leaseback transaction if (i) the Company or such Restricted
Subsidiary could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the covenant described above under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
"--Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."
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Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to incur Indebtedness or Guarantee or
pledge any assets to secure the payment of any other Indebtedness of the
Company or any Restricted Subsidiary unless either such Restricted Subsidiary
(x) is a Subsidiary Guarantor or (y) simultaneously executes and delivers a
supplemental indenture to the Indenture and becomes a Subsidiary Guarantor,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's other Indebtedness or Guarantee of or pledge to secure such other
Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of the Indenture. The form of such Guarantee is
attached as an exhibit to the Indenture.
Additional Guarantees
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $10.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or a Foreign
Subsidiary, (ii) if the Company or any of its Restricted Subsidiaries shall
acquire another Restricted Subsidiary other than a Foreign Subsidiary having
total assets with a fair market value (as determined in good faith by the Board
of Directors) in excess of $10.0 million, or (iii) if any Restricted Subsidiary
other than a Foreign Subsidiary shall incur Acquired Debt in excess of $10.0
million, then the Company shall, at the time of such transfer, acquisition or
incurrence, (i) cause such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt (if not then a Subsidiary
Guarantor) to execute a Note Guarantee of the Obligations of the Company under
the Notes in the form set forth in the Indenture and (ii) deliver to the
Trustee an Opinion of Counsel, in accordance with the terms of the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Trustee and Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, following the consummation of the Exchange Offer, whether
or not required by the rules and regulations of the Commission, the Company
will file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a filing) and
make such information available to the Trustee, securities analysts and
prospective investors upon request. In addition, for so long as any of the
Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or Holder of the Notes in connection with
the sale thereof, the information required by 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: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to comply with the provisions described under the captions
"--Repurchase at the Option of Holders--Change of Control" or "--Certain
Covenants--Asset Sales"; (iv) failure by the Company for 30 days after notice
from the Trustee or at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described under the captions
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (v) failure by the Company for 60 days after notice from the
Trustee or holders of at least 25% in principal amount of the Notes then
outstanding to comply with any of its other agreements in the Indenture or the
Notes; (vi) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists,
or is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express 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; (vii) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries that are Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any of its
Subsidiaries all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to July
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to July 1, 2003, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the 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 Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium and Liquidated
Damages, if any, and interest on such Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events
of Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the 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 and Liquidated Damages, if
any, and interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, subject to customary assumptions and exclusions,
the Holders of the outstanding 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 Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds 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 Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or any analogous New York State law provision to any
other
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applicable federal or New York bankruptcy, insolvency, reorganization or
similar law affecting creditors' rights generally; (vii) the Company must
deliver to the Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Notes over
the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel (which opinion may be subject to customary assumptions and exclusions),
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange 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 Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a 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
and the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of 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 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 Note; (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration); (v) make any Note
payable in money other than that stated in the Notes; (vi) make any change in
the provisions of the Indenture relating to waivers of (a) past Defaults or (b)
the rights of Holders of Notes to receive payments of principal of or premium,
if any, or interest on the Notes; (vii) waive a redemption payment with respect
to any Note (other than a payment required by one of the covenants described
above under the caption "--Repurchase at the Option of Holders") or (viii) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or the sale of all or substantially all of the assets
of the Company, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act or to allow any Subsidiary to guarantee
the Notes.
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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 Company, 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.
The Holders of a majority in principal amount of the then outstanding
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
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. 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 Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to AKI, Inc., 1815 East
Main Street, Chattanooga, Tennessee 37404; Attention: Chief Financial Officer.
FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES
The Old Notes were initially sold to qualified institutional buyers in
reliance on Rule 144A under the Securities Act ("Rule 144A Notes"). Old Notes
also were offered and sold in offshore transactions in reliance on Regulation S
("Regulation S Notes"). Rule 144A Notes and Regulation S Notes were each
initially represented by one or more Notes in registered, global form without
interest coupons (the "Old Global Notes"). The Old Global Notes were deposited
upon issuance with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of a nominee of DTC,
in each case for credit to an account of a direct or indirect participant as
described below. Regulation S Notes were deposited upon issuance with the
Trustee as custodian for DTC, and registered in the name of a nominee of DTC,
in each case for credit to the accounts of Euroclear System ("Euroclear") and
Cedel Bank, S.A. ("CEDEL").
The New Notes will be represented by one or more new notes in registered,
global form without interest coupons (collectively, the "New Global Notes") and
deposited with the Trustee as custodian and registered in the name of a nominee
of DTC. The Old Global Notes, to the extent directed by holders thereof in
their Letters of Transmittal, will be exchanged through book-entry electronic
transfer for one or more New Global Notes for credit to an account of a direct
or indirect participant as described below. No service charge will be made for
any registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
New Notes issued to non-qualified institutional buyers in exchange for Old
Notes held by such investors, if any, will be issued only in certificated,
fully registered, definitive form. The New Global Note will, upon request, be
exchangeable for other New Notes in definitive, fully registered form without
coupons in denominations of $1,000 and integral multiples thereof, but only in
accordance with DTC's customary procedures. The New Global Note will also be
exchangeable in certain other limited circumstances. See "--Exchange of
Book-Entry Notes for Certificated Notes." The Company, the Trustee and any
other agent thereof will be entitled to treat DTC's nominee as the sole owner
and holder of the unexchanged portion of the New Global Note for all purposes.
Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance
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and settlement of transactions in those securities between the Participants
through electronic book-entry changes in accounts of the 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 interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and the Indirect
Participants.
DTC has also advised the Company that pursuant to procedures established
by it, (i) upon deposit of the New Global Note, DTC will credit the accounts of
Participants designated by the Participants with portions of the principal
amount of the Old Global Notes and (ii) ownership of such interests in the New
Global Note 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 interests in the New Global Note).
Investors in the New Global Note 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. All interests in the New 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 system.
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 the Old Global Notes or the New
Global Note to such persons may be limited to that extent. Because DTC can act
only on behalf of the Participants, which in turn act on behalf of the Indirect
Participants and certain banks, the ability of a person having beneficial
interests in the New 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 Notes, see "--Exchange of Book-Entry Notes for
Certificated Notes."
Except as described below, owners of interests in the New Global Note 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, if any) and interest
on the New Global Note registered in the name of DTC or its nominee will be
payable by the Trustee to DTC or its nominee in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the New Notes, including the
New Global Note, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee or any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
or accuracy of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the New Global Note, 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 New Global Note, or (ii)
any other matter relating to the actions and practices of DTC or any of the
Participants or the Indirect Participants.
DTC has advised the Company 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 principal amount of beneficial interests in the relevant security
as shown on the records of DTC. 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 not be the responsibility of DTC,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by DTC or any
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of the Participants in identifying the beneficial owners of the New Notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
New Global Note for all purposes.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account with DTC interests in the Old Global Notes or the New Global Note
are credited and only in respect of such portion of the aggregate principal
amount of the Notes as to which such Participant or Participants has or have
given such direction. However, if any of the events described under "--
Exchange of Book Entry Notes for Certificated Notes" occurs, DTC reserves the
right to exchange the New Global Note for New Notes in certificate form and to
distribute such New Notes to its Participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Old Global Notes and the New Global
Note among accountholders in DTC and accountholders of 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. None of the
Company or the Trustee nor any agent of the Company or the Trustee will have
any responsibility for the performance by DTC, Euroclear or CEDEL or their
respective participants, indirect participants or accountholders of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
The New Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depository for the New Global Note and the Company
thereupon fails to appoint a successor depository or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, 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 shall have occurred and be
continuing a Default or an Event of Default with respect to the New Notes. In
all cases, certificated New Notes delivered in exchange for the New 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 depository (in
accordance with its customary procedures). In addition, subject to certain
restrictions on the transferability of the New Notes, New Notes in definitive
form will be issued upon the resale, pledge or other transfer of any New Notes
or interest therein to any person or entity that is not a qualified
institutional buyer or that does not participate in DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
next day funds to the accounts specified by the Global Note Holder. With
respect to Certificated Notes, the Company 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 Company expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
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
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Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, 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.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition (a
"Disposition") of any assets or rights (including, without limitation, by way
of a sale and leaseback) provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the (Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
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 Asset Sale covenant), and (ii) the issue or sale by
the Company or any of its Restricted Subsidiaries of Equity Interests of any of
the Company's Restricted Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $3.0 million or (b) for net proceeds
in excess of $3.0 million. Notwithstanding the foregoing the following items
shall not be deemed to be Asset Sales: (i) a disposition of assets by the
Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by the covenant described above under
the caption "--Certain Covenants--Restricted Payments"; (iv) a disposition in
the ordinary course of business, (v) the sale and leaseback of any assets
within 90 days of the acquisition thereof, (vi) foreclosures on assets and
(vii) any exchange of property pursuant to Section 1031 on the Internal Revenue
Code of 1986, as amended, for use in a Related Business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"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) United States dollars, (ii) Government
Securities having maturities of not more than six months from the date of
acquisition, (iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Credit Agreement or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the rating of "P-2" (or higher) from Moody's
Investors Service, Inc. or "A-3" (or higher) from Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition and
(vi) any fund investing exclusively in investments of the type described in
clauses (i) through (v) above.
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"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below),
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that 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 more than 50%
of the Voting Stock of the Company (measured by voting power rather than number
of shares), or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"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), plus (ii) provision for taxes based on income or
profits of such Person and its 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
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, 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 expenses in any future period or amortization of a
prepaid cash expense 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 expenses were deducted in computing such Consolidated Net
Income, plus (v) expenses and charges of the Company related to the Refinancing
which are paid, taken or otherwise accounted for within 90 days of the
consummation of the Refinancing, plus (vi) any non-capitalized transaction
costs incurred in connection with actual or proposed financings, acquisitions
or divestitures (including, but not limited to, financing and refinancing fees
and costs incurred in connection with the Refinancing). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that Net
Income of such Subsidiary was included in calculating Consolidated Net Income
of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (a) the interest expense of such
Person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount, non-cash interest payments, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, 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 that in no
event shall any amortization of deferred financing costs be included in
Consolidated Interest Expense); and (b) the consolidated capitalized interest
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis,
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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 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, (iv) the cumulative effect of a change
in accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries for purposes of the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock" and shall be included for purposes of the covenant described
under the caption "Restricted Payments" only to the extent of the amount of
dividends or distributions paid in cash to the Company or one of its Restricted
Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture 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 members of such Board at the time of such
nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of April
30, 1996, as amended on December 12, 1997, between the Company and Heller
Financial, Inc., providing for revolving credit borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"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.
"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), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature; provided,
however, that any Capital Stock that would not qualify as Disqualified Stock
but for change of control provisions shall not constitute Disqualified Stock if
the provisions are not more favorable to the holders of such Capital Stock than
the provisions described under "--Change of Control" applicable to the Holders
of the Notes.
"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).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the Consolidated Interest Expense of such Person
for such period, (ii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iii)
the product of (a) all dividend payments, whether or not in cash, 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
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.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
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 or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date shall be calculated to include the Consolidated Cash Flow of
the acquired entities on a pro forma basis after giving effect to cost savings
resulting from employee terminations, facilities consolidations and closings,
standardization of employee benefits and compensation policies, consolidation
of property, casualty and other insurance coverage and policies,
standardization of sales and distribution methods, reductions in taxes other
than income taxes and other cost savings reasonably expected to be realized
from such acquisition, 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, (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 (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 Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of the Company that is not
organized under the laws of a state or territory of the United States or the
District of Columbia.
"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.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"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 currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, 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 bankers' 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
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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; provided that Indebtedness shall not include the pledge by
the Company of the Capital Stock of an Unrestricted Subsidiary of the Company
to secure Non-Recourse Debt of such Unrestricted Subsidiary. 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, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"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 disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), the amounts required to be applied to the payment of
Indebtedness (other than Indebtedness incurred pursuant to the Credit
Agreement), secured by a Lien on the asset or assets that were the subject of
the Asset Sale, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being
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offered hereby) of the Company or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock (other than stock of an Unrestricted Subsidiary pledged by the
Company to secure debt of such Unrestricted Subsidiary) or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business in which the Company and its
Restricted Subsidiaries are engaged on the date of the Indenture or any
business reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is engaged in a Permitted Business;
(b) any Investment in Cash Equivalents; (c) any Investment by the Company or
any Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary of the Company that
is engaged in a Permitted Business or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company that is engaged in a Permitted Business; (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"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; and (f) other Investments made
after the date of the Indenture in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (f) that are at the time outstanding,
not to exceed $10.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Agreement that was permitted by the terms of the Indenture to be incurred or
other Indebtedness allowed to be incurred under clause (i) of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (ii) Liens in favor of the Company; (iii) Liens on property
of a Person existing at the time such Person is merged into or consolidated
with the Company or any Restricted Subsidiary of the Company, provided that
such Liens were not incurred in contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company or any Restricted Subsidiary; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company, provided that such Liens were not
incurred in contemplation of such acquisition; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens existing on the date of the Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (viii) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (iv) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock";
(ix) Liens securing Permitted Refinancing Indebtedness where the Liens securing
the Permitted Refinancing Indebtedness were permitted under the Indenture; (x)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Restricted Subsidiary; and (xi) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance,
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renew, replace, defease or refund other Indebtedness of the Company or any of
its Restricted Subsidiaries; 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,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date no earlier 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,
replaced, defeased or refunded; and (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Roger L. Barnett, DLJ Merchant Banking Partners II,
L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, L.P.,
DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ
Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK Investment Plan 1997
Partners and DLJ First ESC L.P.
"Public Equity Offering" means a public offering of Equity Interests
(other than Disqualified Stock) of (i) the Company or (ii) Acquisition Corp. or
Holding to the extent the net proceeds thereof are contributed to the Company
as a capital contribution, that, in each case, results in net proceeds to the
Company of at least $25.0 million.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or partner, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time 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 or limited liability company (a)
the sole general partner or the managing general partner or managing member 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).
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"Subsidiary Guarantor" means any Restricted Subsidiary that executes a
supplemental indenture providing for the Guarantee of the payment of the Notes
by such Restricted Subsidiary.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with 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 Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall be permitted only if (i) such Indebtedness is permitted under the
covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one- twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a 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 Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Subject to the qualifications set forth below, in the opinion of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., tax counsel to the Company, the following
accurately sets forth the anticipated material U.S. federal income tax
consequences applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by Holders who acquire the New Notes
pursuant to the Exchange Offer. It is limited solely to U.S. federal income tax
matters and is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations (including proposed regulations, administrative
rulings and pronouncements of the Internal Revenue Service "IRS"), and judicial
decisions, all as of the date hereof and all of which are subject to change at
any time, possibly with retroactive effect.
The following is limited to Holders who hold the Notes as "capital assets"
for U.S. federal income tax purposes and does not cover all aspects of federal
income taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, particular Holders. The following
does not address U.S. federal income tax consequences that may be applicable to
particular categories of shareholders, including insurance companies,
tax-exempt persons, financial institutions, dealers securities, persons with
significant holdings of company stock, and non-United States persons, including
foreign corporations and nonresident alien individuals. The following does not
address any tax considerations under the laws of any state, locality, or
foreign country.
The Company has not sought, nor does it intend to seek, a ruling from the
IRS as to any of the matters covered by this discussion, and there can be no
assurance that the IRS will not successfully challenge the conclusions reached
in this discussion. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED
BELOW DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON
U.S. FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE
SUBJECT TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES.
EXCHANGE
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
will not be treated as an exchange or other tax event for federal income tax
purposes because the New Notes should not be considered to differ materially in
kind or extent from the Old Notes. A Holder will have the same adjusted tax
basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
INTEREST
A Holder of New Notes will be required to report interest income for
federal income tax purposes for any interest earned on the Notes in accordance
with such Holder's method of tax accounting.
ORIGINAL ISSUE DISCOUNT
The Old Notes do not have original issue discount ("OID") for federal
income tax purposes. Accordingly, the New Notes also will not have OID since
the New Notes should be treated as a continuation of the Old Notes for federal
income tax purposes.
MARKET DISCOUNT
Under the market discount rules of the Code, an exchanging Holder (other
than a Holder who made the election described below) who purchased an Old Note
with "market discount" (generally defined as the amount by which the stated
redemption price of the Old Note on the Holder's date of purchase exceeded the
Holder's purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note received in the exchange
as ordinary income to the extent of
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the market discount that accrued during the Holder's holding period for such
New Note (which period will include such holder's holding period for the Old
Note). In addition, a Holder of a Note acquired at market discount may be
required to defer the deduction of all or a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry such Note. A Holder
who has elected under applicable Code provisions to include market discount in
income annually as such discount accrues will not be required to treat any gain
recognized as ordinary income (or defer interest deductions) under the market
discount rules described above. Holders should consult their tax advisors as to
the portion of any gain that would be taxable as ordinary income under these
provisions.
AMORTIZABLE BOND PREMIUM
In general, if a holder's initial tax basis in the Old Notes at
acquisition exceeded the amount payable at maturity, the excess will be treated
as "amortizable bond premium" (including after the exchange of such Old Notes
for New Notes). In such case, the Holder may elect under section 171 of the
Code to amortize the bond premium annually under a constant yield method. The
Holder's adjusted tax basis in the Note is decreased by the amount of the
allowable amortization. Because the Notes have early call provisions, Holders
must take such call provisions into account to determine the amount of
amortizable bond premium. Amortizable bond premium is treated as an offset to
interest received on the obligation rather than as an interest deduction,
except as may be provided in Treasury regulations. An election to amortize bond
premium would apply to amortizable bond premium on all taxable bonds held on or
acquired after the beginning of the Holder's taxable year for which the
election is made, and may be revoked only with the consent of the IRS. Holders
who acquire their Notes with amortizable bond premium should consult their own
tax advisors.
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION OF NOTES
On sale, exchange, redemption or other disposition of the Notes, and
except to the extent that the cash received is attributable to accrued interest
(which generally represents ordinary interest income) or market discount (the
tax consequences of which are described above), a Holder generally will
recognize capital gain or loss measured by the difference between the amount
realized and such Holder's adjusted tax basis in the Notes redeemed, and any
applicable capital gain generally would be taxed at a reduced rate of 20
percent for a Holder that is not a corporation and who holds the Notes for more
than one year.
BACKUP WITHHOLDING
Federal income tax backup withholding at a rate of 31 percent on
dividends, interest payments, and proceeds from a sale, exchange, or redemption
of New Notes will apply unless the Holder (i) is a corporation or comes within
certain other exempt categories (and, when required, demonstrates this fact) or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. The amount of any backup
withholding from a payment to a Holder will be allowed as a credit against the
Holder's federal income tax liability and may entitle such Holder to a refund,
provided that the required information is furnished to the IRS. A Holder of
Notes who does not provide the Company with his correct taxpayer identification
number may be subject to penalties imposed by the IRS. The Company will report
to the Holders of the Notes and the IRS the amount of any "reportable payments"
and any amount withheld with respect to the Notes during the calendar year.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Purchase Agreement
dated June 22, 1998, the Company sold the Old Notes to the Initial Purchaser.
The Initial Purchaser received a 3.0% discount and commissions totalling
$3,450,000 in connection with the Offering.
The Initial Purchaser received customary advisory fees and was reimbursed
for its expenses in connection with advice rendered regarding the Acquisition.
In addition, the Company has retained the Initial Purchaser as its financial
advisor until December 31, 2002. An affiliate of the Initial Purchaser
79
<PAGE>
provided the Bridge Financing for the Acquisition for which it was paid
customary fees and reimbursed its expenses. A portion of the proceeds from the
Offering was used to repay the Bridge Notes. Other affiliates of the Initial
Purchaser own significant amounts of Acquisition Corp. Common Stock. See "Use
or Proceeds," "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions--Transactions with DLJMBII
and their Affiliates."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with 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 Company has agreed that it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in
connection with any such resale for a period until 180 days after the Exchange
Offer Registration Statement has been declared effective, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for
their own accounts as a result of market-making activities or other trading
activities have been exchanged for New Notes and resold by such broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker 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.
For a period until 180 days after the Exchange Offer Registration
Statement has been declared effective, or such shorter period as will terminate
when all Old Notes acquired by broker-dealers for their own accounts as a
result of market-making activities or other trading activities have been
exchanged for New Notes and resold by such broker-dealers, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer, other than commissions or concessions of any
brokers or dealers and the fees of any counsel or other advisors or experts
retained by the Holders of the Notes, except as expressly set forth in the
Registration Rights Agreement and will indemnify the Holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
NOTICE TO HOLDERS
The New Notes may not be sold or transferred to, and each Holder of Old
Notes, by its exchange of Old Notes for New Notes shall be deemed to have
represented and covenanted that it is not acquiring the New Notes for or on
behalf of, and will not transfer the New Notes to, any pension or welfare plan
(as defined in Section 3 of the Employee Retirement Income Security Act of
1974; "ERISA") except that such a purchase for or on behalf of a pension or
welfare plan shall be permitted:
(1) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the Holder in which no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
assets in such collective investment fund and the conditions of Section
III of Prohibit Transaction Class Exemption 91-38 issued by the
Department of Labor are satisfied;
80
<PAGE>
(2) to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the Holder in which, at any
time while the New Notes are outstanding, no plan (together with any
other plans maintained by the same employer or employee organization) has
an interest in excees of 10% of the total of all assets in such pooled
separate account and the conditions of Section III of Prohibit
Transaction Class Exemption 90-1 issued by the Department of Labor are
satisfied;
(3) to the extent such purchase is made on behalf of a plan by (i) an
investment advisor registered under the Investment Advisers Act of 1940
that had as of the last day of its most recent fiscal year total assets
under its management and control in excess of $50,000,000 and had
stockholders' or partners' equity in excess of $750,000, as shown in its
most recent balance sheet prepared in accordance with generally accepted
accounting principles, or (ii) a bank as defined in Section 202(a)(2) of
the Investment Advisers Act of 1940 with equity capital in excess of
$1,000,000 as of the last day of its most recent fiscal year, or (iii) an
insurance company which is qualified under the laws of more than one
state to manage, acquire or dispose of any assets of a plan, which
insurance company has as of the last day of its most recent fiscal year,
net worth in excess of $1,000,000 and which is subject to supervision and
examination by state authority having supervision over insurance
companies and, in any case, such investment adviser, bank or insurance
company is otherwise a qualified professional asset manager, as such term
is used in Prohibited Transaction Class Exemption 84-14 issued by the
Department of Labor, and the assets of such plan when combined with the
assets of other plans established or maintained by the same employer (or
affiliate thereof) or employee organization and managed by such
investment advisor, bank or insurance company, do not represent more than
20% of the total client assets managed by such investment advisor, bank
or insurance company, and the conditions of Section I of such exemption
are otherwise satisfied;
(4) to the extent such purchase is made with funds from an insurance
company general account, the conditions of Sections I and IV of
Prohibited Transactions Class Exemption 95-60 issued by the Department of
Labor are satisfied;
(5) to the extent such plan is a governmental plan (as defined in Section
3 of ERISA) which is not subject to the provisions of Title I of ERISA of
Section 401 of the Internal Revenue Code; or
(6) to the extent such purchase is on behalf of a plan by an in-house
asset manager and the conditions of Part I of Prohibited Transactions
Class Exemptions 96-23 issued by the Department of Labor are satisfied.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes will
be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
New York, New York.
EXPERTS
The consolidated financial statements of AKI, Inc. and its subsidiaries as
of June 30, 1996 and 1997 and for each of the three years in the period ended
June 30, 1997 included in this Prospectus have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
81
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Data ..... P-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998 . P-4
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998 ......................................................... P-5
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended June 30, 1997 ............................................. P-6
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine
Months Ended March 31, 1998 .................................................. P-7
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations .. P-8
</TABLE>
P-1
<PAGE>
AKI, INC. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
DLJ Merchant Banking Partners II, L.P. and certain related investors
(collectively, "DLJMBII") and certain members of Arcade Holding Corporation
(the "Predecessor") organized ACH I Acquisition Corp. ("Acquisition Corp.") and
AHC I Merger Corp. ("Merger Corp.") for purposes of acquiring the Predecessor.
Merger Corp. was capitalized by an equity contribution from Acquisition Corp.
and the issuance of senior increasing rate notes. On December 15, 1997, Merger
Corp. acquired all of the equity interests of the Predecessor (the
"Acquisition"), merged with and into the Predecessor and the combined entity
assumed the name AKI, Inc. (the "Company"). Subsequent to the Acquisition,
Acquisition Corp. contributed all of its equity interest in the Company to AKI
Holding Corp. ("Holding").
On June 22, 1998, the Company acquired the fragrance sampling business,
including certain fixed assets, of the Industrial and Consumer Products
division of the Minnesota Mining and Manufacturing Company ("3M") for
approximately $7.25 million in cash and the assumption of certain liabilities
(the "3M Acquisition").
The following unaudited pro forma condensed consolidated financial data of
the Company are based upon historical financial statements of the Company or
the Predecessor as adjusted to give effect to the Acquisition and the offering
(the "Offering") by the Company of the Senior Notes offered hereby (the
"Notes"), together with a capital contribution (the "Equity Contribution") to
the Company of the net proceeds from the concurrent offering (the "Debenture
Offering") by Holding, and the application of the net proceeds therefrom as
discussed under the caption "Use of Proceeds" (collectively, the "Refinancing")
and the 3M Acquisition. The accompanying unaudited pro forma condensed
consolidated balance sheet as of March 31, 1998 gives effect to the Refinancing
and the 3M Acquisition as if they had occurred on March 31, 1998. The unaudited
historical balance sheet as of March 31, 1998 includes the effects of the
Acquisition as such Acquisition occurred on December 15, 1997. The accompanying
unaudited pro forma condensed consolidated statements of operations for the
year ended June 30, 1997 and for the nine months ended March 31, 1998 give
effect to the Acquisition, the Refinancing and the 3M Acquisition as if they
had occurred at the beginning of the earliest period presented.
Pro forma adjustments are described in the accompanying notes and are
applied to the historical consolidated balance sheet and consolidated
statements of operations of the Company or the Predecessor to account for the
Acquisition and the 3M Acquisition under the purchase method of accounting and
the Refinancing. In accordance with the consensus reached by the Emerging
Issues Task Force of the Financial Accounting Standards Board in Issue 88-16,
"Basis in Leveraged Buyout Transactions," the purchase price allocation
required an adjustment for the continuing interest attributable to management's
ownership interest in Predecessor carried over in connection with the
Acquisition. As a result, a reduction in stockholder's equity was recorded
which represents the difference between the fair value of the Company's assets
and the related book value attributable to the interest of the continuing
stockholders' investment in the Predecessor. The remaining purchase price has
been allocated to assets and liabilities based upon estimates of their
respective fair value as determined by management and a third-party appraisal
with respect to property, plant and equipment. Final allocations of certain
liabilities may be different from the amounts reflected; however, it is not
anticipated that any significant changes will be made to the preliminary
allocations. For the 3M Acquisition, the purchase price has been allocated to
assets purchased and liabilities assumed based upon estimates of their
respective fair value as of March 31, 1998 as determined by management.
Accordingly, the final allocations may be different from the amounts reflected;
however, it is not anticipated that any significant changes will be made to the
preliminary allocations.
The Company has preliminarily analyzed the savings it expects to realize
from reductions in management fees, total depreciation expense, salaries,
benefits, material costs and other operating expenses as a result of the
Acquisition. To the extent that the Company has agreed prospectively to
reductions in management fees (which represent the difference between the
Predecessor's management fees and the new financial advisory fees to which the
Company is contractually obligated through the
P-2
<PAGE>
AKI, INC. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA--(CONTINUED)
Acquisition agreement) and has quantified the expected reduction in total
depreciation expense (useful lives of certain property, plant and equipment
were extended based upon the third-party appraisal), these reductions have been
reflected in the unaudited pro forma condensed consolidated statements of
operations. Other potential cost savings have not been included in the
unaudited pro forma condensed consolidated statements of operations.
Additionally, the unaudited pro forma financial statements do not include any
charges for a proposed stock option plan.
As noted above, the Company has acquired the fragrance sampling business
of 3M. 3M's fragrance sampling business is predominantly a sales and
distribution business as it outsources the production of the majority of the
products it sells. The Company intends to terminate all such outsourcing
arrangements and relocate all of the purchased business' operations to its
Chattanooga facilities as the Company has excess manufacturing capacity at such
facilities. In addition, except for several sales and marketing employees, the
Company does not intend to extend employment to any employees from 3M; the
Company's management has preliminarily determined that additional personnel
will be required at its Chattanooga facilities in the selling, general and
administrative functions in order to serve the incremental sales volume. As
described in the notes to the unaudited pro forma condensed consolidated
statements of operations, the Company has adjusted the historical operating
results of this business to reflect the cost of producing and selling such
products by the Company. The adjustments to 3M's historical results are based
on the Company's historical production and selling, general and administrative
cost structure, modified as described to account for the increased sales
volume.
The pro forma adjustments are based on estimates, available information
and certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma condensed consolidated financial data do not
purport to represent what the Company's results of operations or financial
position that would actually have resulted if the Acquisition, the Refinancing
or the 3M Acquisition had occurred on the dates indicated and are not
necessarily representative of the Company's results of operations for any
future period. The unaudited pro forma condensed consolidated balance sheet and
consolidated statements of operations should be read in conjunction with the
Consolidated Financial Statements and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information appearing elsewhere in this Prospectus.
P-3
<PAGE>
AKI, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA 3M
REFINANCING FOR ACQUISITION
AKI, INC. ADJUSTMENTS REFINANCING ADJUSTMENTS PRO FORMA
----------- ------------------- ------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............. $ 988 $ 6,899(a) $ 7,887 $ (7,250)(c) $ 637
Accounts receivable, net .............. 15,377 -- 15,377 -- 15,377
Inventory ............................. 2,278 -- 2,278 -- 2,278
Income tax refund receivable .......... 5,822 -- 5,822 -- 5,822
Prepaid expenses ...................... 268 -- 268 -- 268
Deferred income taxes ................. 1,983 1,013 (b) 2,996 -- 2,996
--------- ----------- --------- --------- ---------
TOTAL CURRENT ASSETS ............... 26,716 7,912 34,628 (7,250) 27,378
Property, plant and equipment, net 18,812 -- 18,812 143 (c) 18,955
Goodwill, net ......................... 152,804 -- 152,804 7,365 (c) 160,169
Deferred charges ...................... 3,207 4,850 (a) 5,390 -- 5,390
(2,667)(b)
Deferred income taxes ................. 922 -- 922 -- 922
Other assets .......................... 206 -- 206 -- 206
--------- ----------- --------- --------- ---------
TOTAL ASSETS ....................... $ 202,667 $ 10,095 $ 212,762 $ 258 $ 213,020
========= =========== ========= ========= =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of capital lease
obligation ........................... $ 595 $ -- $ 595 $ -- $ 595
Current portion of other notes
payable .............................. 1,438 -- 1,438 -- 1,438
Senior increasing rate notes .......... 123,500 (123,500)(a) -- -- --
Accounts payable and accrued
expenses ............................. 9,004 (650)(a) 8,354 258 (c) 8,612
--------- ----------- --------- --------- ---------
TOTAL CURRENT LIABILITIES .......... 134,537 (124,150) 10,387 258 10,645
Revolving line of credit .............. 1,600 (1,600)(a) -- -- --
Long-term portion of capital lease
obligations .......................... 1,646 -- 1,646 -- 1,646
Long-term debt ........................ - 115,000 (a) 115,000 -- 115,000
Deferred income taxes ................. 3,611 -- 3,611 -- 3,611
--------- ----------- --------- --------- ---------
TOTAL LIABILITIES .................. 141,394 (10,750) 130,644 258 130,902
--------- ----------- --------- --------- ---------
STOCKHOLDER'S EQUITY
Common stock .......................... -- -- -- -- --
Additional paid-in capital ............ 78,363 22,499 (a) 100,862 -- 100,862
Accumulated deficit ................... (1,284) (1,654)(b) (2,938) -- (2,938)
Cumulative translation adjustment (76) -- (76) -- (76)
Carryover basis adjustment ............ (15,730) -- (15,730) -- (15,730)
--------- ----------- --------- --------- ---------
TOTAL STOCKHOLDER'S EQUITY ......... 61,273 20,845 82,118 -- 82,118
--------- ----------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY .............. $ 202,667 $ 10,095 $ 212,762 $ 258 $ 213,020
========= =========== ========= ========= =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.
P-4
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
REFINANCING ADJUSTMENTS
(a) Reflects the impact of the Refinancing, including (i) the sale of
$115,000 of the Notes, net of underwriting discounts ($3,450), (ii) the equity
contribution to the Company by Holding of the gross proceeds ($25,962) from the
Debenture Offering, net of estimated expenses (including underwriting
discounts) of $1,263 and amount retained at Holding of $2,200, (iii) the
estimated expenses of $1,400 to be paid in connection with the sale of the
Notes and (iv) the repayment of the senior increasing rate notes ($123,500),
revolving line of credit ($1,600) and accrued interest on the senior increasing
rate notes and revolving line of credit ($650) from the proceeds of the sale of
the Notes and the equity contribution.
SUMMARY OF SOURCES AND USES OF PROCEEDS OF THE REFINANCING:
<TABLE>
<S> <C>
Sources of Funds:
Notes offered hereby, net of discounts ............ $111,550
Equity contribution ............................... 22,499
--------
Total sources ..................................... 134,049
--------
Use of Funds:
Expenses .......................................... 1,400
Repayment of senior increasing rate notes ......... 123,500
Repayment of revolving line of credit ............. 1,600
Accrued interest .................................. 650
--------
Total uses ........................................ 127,150
--------
Net increase in cash .............................. $ 6,899
========
</TABLE>
(b) Reflects the write-off of the unamortized deferred financing costs
associated with the senior increasing rate notes ($2,667) and the recognition
of the related tax benefit ($1,013).
3M ACQUISITION ADJUSTMENTS
(c) Reflects the Company's purchase of 3M's fragrance sampling business,
including the acquisition of certain fixed assets ($143) through cash ($7,250)
and the assumption of certain liabilities ($258). Goodwill represents the
excess purchase price paid over the fair value of net identifiable assets
acquired and is amortized over forty years using the straight-line method.
P-5
<PAGE>
AKI, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997 (I)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION FOR
AKI, INC. ADJUSTMENTS ACQUISITION
----------- ----------------- -------------
<S> <C> <C> <C>
Net sales ........................ $ 77,723 $ -- $ 77,723
Cost of goods sold ............... 49,467 (677)(a) 48,790
-------- ---------- ---------
Gross profit .................. 28,256 677 28,933
Selling, general and
administrative expenses ......... 13,353 115 (a) 13,468
Amortization of goodwill ......... 1,214 2,634 (b) 3,848
-------- ---------- ---------
Income (loss) from
operations ................... 13,689 (2,072) 11,617
Other expenses (income):
Interest expense, net ........... 6,203 11,297 (c) 17,500
Management fees to
stockholder(s) ................ 470 (220)(d) 250
Other, net ...................... (101) -- (101)
-------- ---------- ---------
Income (loss) before
income taxes ................. 7,117 (13,149) (6,032)
Income tax expense (benefit) ..... 3,135 (3,953)(e) (818)
-------- ---------- ---------
Net income (loss) ............. $ 3,982 $ (9,196) $ (5,214)
======== ========== =========
</TABLE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
PRO FORMA
FOR 3M
REFINANCING ACQUISITION AND ACQUISITION
ADJUSTMENTS REFINANCING ADJUSTMENTS (H) PRO FORMA
------------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C>
Net sales ........................ $ -- $ 77,723 $10,048 $87,771
Cost of goods sold ............... -- 48,790 5,367 54,157
----------- -------- ------- -------
Gross profit .................. -- 28,933 4,681 33,614
Selling, general and
administrative expenses ......... -- 13,468 867 14,335
Amortization of goodwill ......... -- 3,848 184 4,032
----------- -------- ------- -------
Income (loss) from
operations ................... -- 11,617 3,630 15,247
Other expenses (income):
Interest expense, net ........... (4,539) (f) 12,961 -- 12,961
Management fees to
stockholder(s) ................ -- 250 -- 250
Other, net ...................... -- (101) -- (101)
----------- -------- ------- -------
Income (loss) before
income taxes ................. 4,539 (1,493) 3,630 2,137
Income tax expense (benefit) ..... 1,711 (g) 893 1,365 2,258
----------- -------- ------- -------
Net income (loss) ............. $ 2,828 $ (2,386) $ 2,265 $ (121)
=========== ======== ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
P-6
<PAGE>
AKI, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998 (I)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ACQUISITION FOR
AKI, INC. ADJUSTMENTS ACQUISITION
-------------- ----------------- ---------------
<S> <C> <C> <C>
Net sales ........................ $ 57,168 $ -- $ 57,168
Cost of goods sold ............... 36,591 (387)(a) 36,204
-------- ---------- --------
Gross profit .................. 20,577 387 20,964
Selling, general and
administrative expenses ......... 8,901 86 (a) 8,987
Amortization of goodwill ......... 1,684 1,206 (b) 2,890
-------- ---------- --------
Income (loss) from
operations ................... 9,992 (905) 9,087
Other expenses (income):
Interest expense, net ........... 7,809 5,237 (c) 13,046
Management fees to
stockholder(s) ................ 278 (90)(d) 188
Other, net ...................... (4) -- (4)
---------- ---------- -----------
Income (loss) before
income taxes ................. 1,909 (6,052) (4,143)
Income tax expense (benefit) ..... 1,400 (1,889)(e) (489)
--------- ---------- ----------
Net income (loss) ............. $ 509 $ (4,163) $ (3,654)
========= ========== ==========
</TABLE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
PRO FORMA
FOR 3M
REFINANCING ACQUISITION AND ACQUISITION
ADJUSTMENTS REFINANCING ADJUSTMENTS (H) PRO FORMA
------------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................ $ -- $ 57,168 $6,870 $64,038
Cost of goods sold ............... -- 36,204 3,452 39,656
----------- -------- ------ -------
Gross profit .................. -- 20,964 3,418 24,382
Selling, general and
administrative expenses ......... -- 8,987 660 9,647
Amortization of goodwill ......... -- 2,890 138 3,028
----------- -------- ------ -------
Income (loss) from
operations ................... -- 9,087 2,620 11,707
Other expenses (income):
Interest expense, net ........... (3,404) (f) 9,642 -- 9,642
Management fees to
stockholder(s) ................ -- 188 -- 188
Other, net ...................... -- (4) -- (4)
----------- ----------- ------ ---------
Income (loss) before
income taxes ................. 3,404 (739) 2,620 1,881
Income tax expense (benefit) ..... 1,328 (g) 839 1,022 1,861
----------- ---------- ------ --------
Net income (loss) ............. $ 2,076 $ (1,578) $1,598 $ 20
=========== ========== ====== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
P-7
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS IN THOUSANDS)
ACQUISITION ADJUSTMENTS
(a) Represents the net reduction of depreciation expense ($562 in the year
ended June 30, 1997 and $301 in the nine months ended March 31, 1998) as a
result of the fair values assigned to property, plant and equipment and
estimated useful lives which were extended as determined from the property,
plant and equipment appraisal commissioned by the Company in connection with
the application of purchase accounting associated with the Acquisition.
(b) Adjusts goodwill amortization to $3,848 in the year ended June 30,
1997 and $2,890 in the nine months ended March 31, 1998 based upon goodwill
arising from the Acquisition of $153,929 amortized using the straight-line
method over 40 years.
(c) Reflects incremental interest expense and amortization of deferred
charges ($11,297 in the year ended June 30, 1997 and $5,237 in the nine months
ended March 31, 1998) on the senior increasing rate notes issued in connection
with the Acquisition as though such issuance had occurred at the beginning of
the period.
(d) Reflects the elimination of management fees and expenses paid to
former stockholders, net of financial advisor fees agreed to on a prospective
basis through the Acquisition agreement ($220 in the year ended June 30, 1997
and $90 in the nine months ended March 31, 1998).
(e) Reflects incremental income tax benefit relating to pro forma
consolidated statements of operations' adjustments in (c) and (d) above ($3,953
in the year ended June 30, 1997 and $1,889 in the nine months ended March 31,
1998). Goodwill is not tax deductible.
REFINANCING ADJUSTMENTS
(f) Reflects incremental reduction in interest expense and amortization of
deferred charges ($4,539 in the year ended June 30, 1997 and $3,404 in the nine
months ended March 31, 1998) associated with the Refinancing as though such
Refinancing had occurred at the beginning of the period.
(g) Reflects the incremental provision for income taxes ($1,711 in the
year ended June 30, 1997 and $1,328 in the nine months ended March 31, 1998) on
the incremental reduction in interest expense associated with the Refinancing.
3M ACQUISITION ADJUSTMENTS
(h) Reflects the incremental impact of the Company's acquisition of 3M's
fragrance sampling business. The tables presented below set forth the 3M
fragrance sampling business' historical statements of operations conformed to
the periods indicated as well as the adjustments required to adjust those
historical results for contract alterations on a prospective basis and to
reflect the costs of producing and selling such products by the Company.
P-8
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
3M 3M
HISTORICAL ADJUSTMENTS ADJUSTED
------------ --------------------- ---------
<S> <C> <C> <C>
Net sales ............................................ $15,342 $ (5,294)(i) $10,048
Cost of goods sold ................................... 10,195 (4,828)(ii) 5,367
------- ---------- -------
Gross profit ........................................ 5,147 (466) 4,681
Selling, general and administrative expenses ......... 4,694 (3,827)(iii) 867
Amortization of goodwill ............................. -- 184 (iv) 184
------- ---------- -------
Income before income taxes .......................... 453 3,177 3,630
Income tax expense (benefit) ......................... 163 1,202 (v) 1,365
------- ---------- -------
Net income .......................................... $ 290 $ 1,975 $ 2,265
======= ========== =======
</TABLE>
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
3M 3M
HISTORICAL ADJUSTMENTS ADJUSTED
------------ --------------------- ---------
<S> <C> <C> <C>
Net sales ............................................ $12,603 $ (5,733)(i) $6,870
Cost of goods sold ................................... 9,131 (5,679)(ii) 3,452
------- ---------- ------
Gross profit ........................................ 3,472 (54) 3,418
Selling, general and administrative expenses ......... 3,834 (3,174)(iii) 660
Amortization of goodwill ............................. -- 138 (iv) 138
------- ---------- ------
Income (loss) before income taxes ................... (362) 2,982 2,620
Income tax expense (benefit) ......................... (130) 1,152 (v) 1,022
------- ---------- ------
Net income (loss) ................................... $ (232) $ 1,830 $1,598
======= ========== ======
</TABLE>
- ----------
(i) Reflects the decrease in net sales resulting from a change in the
customer base.
(ii) Reflects the decrease in production costs resulting from the change
in customer base noted in (i) above ($3,518 for the year ended June
30, 1997 and $4,154 for the nine months ended March 31, 1998) and
from the consolidation of all production into the Company's
Chattanooga facilities. The decrease takes into account the
Company's available manufacturing capacity at such facilities as
well as the variable costs (primarily materials and direct labor) of
such incremental sales. Due to the Company's existing capacity,
fixed costs (primarily depreciation and overhead) will not be
affected by such incremental sales.
P-9
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(iii) Reflects the net decrease in selling, general and administrative
expenses due to the consolidation of these activities into the
Company. Upon the consummation of the 3M Acquisition, the Company
intends to add several additional sales and marketing employees as
well as certain additional administrative employees. The salaries,
benefits and commissions, if applicable, of these employees have
been accounted for in the adjustment. The Company believes that due
to the similarity of its existing customers and 3M's fragrance
sampling customers, no other additional employees will be required.
The adjustment also reflects the elimination of corporate expense
allocations that will be discontinued as a result of the transfer of
the 3M fragrance sampling business to the Company.
(iv) Represents amortization expense based upon goodwill of $7,365
arising from the 3M Acquisition amortized over 40 years using the
straight-line method.
(v) Reflects incremental income tax expense relating to the 3M
adjustments in (i) through (iv) above.
OTHER DATA
(i) EBITDA on a pro forma basis was $22,587 in the year ended June 30,
1997 and $17,213 in the nine months ended March 31, 1998. EBITDA represents
income from operations plus depreciation and amortization. EBITDA is discussed
because it is a widely accepted financial indicator used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance. EBITDA is not intended to represent cash flows for the period, nor
has it been presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and is not
indicative of operating income or cash flow from operations as determined under
GAAP.
The ratio of earnings to fixed charges on a pro forma basis was 1.2x for
the year ended June 30, 1997 and 1.2x for the nine months ended March 31, 1998.
Earnings used in computing the ratio of earnings to fixed charges consists of
income (loss) before income tax expense (benefit) plus fixed charges. Fixed
charges are defined as interest expense, which includes amortization of
deferred financing costs.
P-10
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ....................................................... F-2
Consolidated Balance Sheets at June 30, 1996 and 1997, and Unaudited Consolidated Balance
Sheet at March 31, 1998 ................................................................ F-3
Consolidated Statements of Operations for the Three Years Ended June 30, 1997 and
Unaudited Consolidated Statements of Operations for the Nine Months Ended March 31,
1997 and the Periods from July 1, 1997 through December 15, 1997 and from December 16,
1997 through March 31, 1998 ............................................................ F-4
Consolidated Statements of Changes in Stockholder(s) Equity for the Three Years Ended
June 30, 1997 and Unaudited Consolidated Statements of Changes in Stockholder(s) Equity
for the Periods from July 1, 1997 through December 15, 1997 and from December 16, 1997
through March 31, 1998 ................................................................. F-5
Consolidated Statements of Cash Flows for the Three Years Ended June 30, 1997 and
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended March 31,
1997 and the Periods from July 1, 1997 through December 15, 1997 and from December 16,
1997 through March 31, 1998 ............................................................ F-6
Notes to Consolidated Financial Statements .............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
AKI, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of AKI, Inc. and Subsidiaries, formerly known as Arcade
Holding Corporation (the "Predecessor") at June 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Predecessor's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Nashville, Tennessee
April 22, 1998
F-2
<PAGE>
AKI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------- ---------------
JUNE 30, MARCH 31, 1998
------------------------- ---------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................ $ 626 $ 303 $ 988
Accounts receivable, net ................................. 12,746 10,200 15,377
Inventory ................................................ 2,236 2,786 2,278
Income tax refund receivable ............................. -- -- 5,822
Prepaid expenses ......................................... 285 221 268
Deferred income taxes .................................... 499 424 1,983
-------- ------- ---------
TOTAL CURRENT ASSETS .................................. 16,392 13,934 26,716
Property, plant and equipment, net ....................... 19,625 18,156 18,812
Goodwill, net ............................................ 45,507 44,293 152,804
Deferred charges ......................................... 807 555 3,207
Deferred income taxes .................................... -- -- 922
Other assets ............................................. 64 204 206
-------- ------- ---------
TOTAL ASSETS ........................................... $ 82,395 $77,142 $ 202,667
======== ======= =========
LIABILITIES AND STOCKHOLDER(S) EQUITY
CURRENT LIABILITIES
Current portion of loans payable to stockholder .......... $ 7,004 $37,892 $ --
Current portion of capital lease obligations ............. 2,467 557 595
Current portion of other notes payable ................... 1,200 100 1,438
Revolving line of credit ................................. -- 4,338 --
Senior increasing rate notes ............................. -- -- 123,500
Accounts payable, trade .................................. 4,862 3,435 4,200
Accrued income taxes ..................................... 1,188 26 --
Accrued bonuses .......................................... 1,017 1,396 682
Accrued expenses ......................................... 3,339 3,147 4,122
-------- ------- ---------
TOTAL CURRENT LIABILITIES .............................. 21,077 50,891 134,537
Revolving line of credit ................................. -- -- 1,600
Loans payable to stockholder, net ........................ 37,532 -- --
Long-term portion of capital lease obligations ........... 2,654 2,098 1,646
Other notes payable, net ................................. 1,201 1,301 --
Deferred income taxes .................................... 3,321 2,949 3,611
-------- ------- ---------
TOTAL LIABILITIES ..................................... 65,785 57,239 141,394
-------- ------- ---------
Commitments and contingencies (Note 10)
Redeemable preferred stock ............................... 8,678 8,678
STOCKHOLDER(S) EQUITY
Common stock, $0.01 par, 100,000 shares authorized;
48,000 shares issued and outstanding at June 30, 1996
and 1997 ................................................ 1 1
Preferred stock, $0.01 par, 8,700 shares authorized; no
shares issued or outstanding at March 31, 1998 .......... --
Common stock, $0.01 par, 100,000 shares authorized; 1,000
shares issued and outstanding at March 31, 1998 ......... --
Additional paid-in capital ............................... 4,889 4,889 78,363
Stock purchase warrants .................................. 1,923 1,923 --
Retained earnings (deficit) .............................. 1,199 4,565 (1,284)
Cumulative translation adjustment ........................ (80) (153) (76)
Carryover basis adjustment ............................... -- -- (15,730)
-------- ------- ---------
TOTAL STOCKHOLDER(S) EQUITY ............................ 7,932 11,225 61,273
-------- ------- ---------
TOTAL LIABILITIES AND STOCKHOLDER(S) EQUITY ............ $ 82,395 $77,142 $ 202,667
======== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AKI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------------------------- ------------------
NINE MONTHS JULY 1, 1997
YEAR ENDED JUNE 30, ENDED TO DECEMBER 16, 1997
------------------------------------ MARCH 31, DECEMBER 15, TO
1995 1996 1997 1997 1997 MARCH 31, 1998
---------- ---------- ---------- ------------- -------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales .................... $61,794 $73,486 $77,723 $62,367 $35,186 $ 21,982
Cost of goods sold ........... 38,333 49,862 49,467 39,529 22,809 13,782
------- ------- ------- ------- ------- --------
Gross profit ............... 23,461 23,624 28,256 22,838 12,377 8,200
Selling, general and
administrative expenses...... 8,483 10,655 13,353 10,470 5,712 3,189
Amortization of goodwill ..... 1,113 1,214 1,214 911 559 1,125
------- ------- ------- ------- ------- --------
Income from
operations ................ 13,865 11,755 13,689 11,457 6,106 3,886
Other expenses (income):
Interest expense to
stockholder(s) .............. 6,181 6,164 5,196 3,960 2,143 5,031
Interest expense (income),
other ....................... (11) 598 1,007 734 503 132
Management fees to
stockholder(s) .............. 470 470 470 353 215 63
Other, net ................... (22) 244 (101) (266) 11 (15)
------- ------- ------- ------- ------- --------
Income (loss) before
income taxes .............. 7,247 4,279 7,117 6,676 3,234 (1,325)
Income tax expense
(benefit) ................... 3,114 2,101 3,135 2,852 1,441 (41)
------- ------- ------- ------- ------- --------
Net income (loss) .......... $ 4,133 $ 2,178 $ 3,982 $ 3,824 $ 1,793 $ (1,284)
======= ======= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AKI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER(S) EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK STOCK CUMULATIVE CARRYOVER
----------------- PAID-IN PURCHASE RETAINED TRANSLATION BASIS
SHARES AMOUNT CAPITAL WARRANTS EARNINGS ADJUSTMENT ADJUSTMENT TOTAL
-------- -------- --------- ---------- ------------ ------------- ------------- -----------
PREDECESSOR
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1994 ........... 48,000 $ 1 $ 4,889 $1,923 $ (3,886) $ -- $ -- $ 2,927
Preferred stock dividend ......... -- -- -- -- (608) -- -- (608)
Cumulative translation
adjustment ...................... -- -- -- -- -- 120 -- 120
Net income ....................... -- -- -- -- 4,133 -- -- 4,133
------ ---- ------- ------ -------- ------ --------- --------
Balances, June 30, 1995 ........... 48,000 1 4,889 1,923 (361) 120 -- 6,572
Preferred stock dividend ......... -- -- -- -- (618) -- -- (618)
Cumulative translation
adjustment ...................... -- -- -- -- -- (200) -- (200)
Net income ....................... -- -- -- -- 2,178 -- -- 2,178
------ ---- ------- ------ -------- ------ --------- --------
Balances, June 30, 1996 ........... 48,000 1 4,889 1,923 1,199 (80) -- 7,932
Preferred stock dividend ......... -- -- -- -- (616) -- -- (616)
Cumulative translation
adjustment ...................... -- -- -- -- -- (73) -- (73)
Net income ....................... -- -- -- -- 3,982 -- -- 3,982
------ ---- ------- ------ -------- ------ --------- --------
Balances, June 30, 1997 ........... 48,000 1 4,889 1,923 4,565 (153) -- 11,225
Preferred stock dividend
(unaudited) ..................... -- -- -- -- (283) -- -- (283)
Cumulative translation
adjustment (unaudited) .......... -- -- -- -- -- (19) -- (19)
Net income (unaudited) ........... -- -- -- -- 1,793 -- -- 1,793
------ ---- ------- ------ -------- ------ --------- --------
Balances, December 15, 1997
(unaudited) ...................... 48,000 $ 1 $ 4,889 $1,923 $ 6,075 $ (172) $ -- $ 12,716
====== ==== ======= ====== ======== ====== ========= ========
- -----------------------------------------------------------------------------------------------------------------------------
SUCCESSOR
---------
Balances, December 16, 1997
(unaudited) ...................... 1,000 $ -- $78,363 $ -- $ -- $ -- $ (15,730) $ 62,633
Cumulative translation
adjustment (unaudited) .......... -- -- -- -- -- (76) -- (76)
Net loss (unaudited) ............. -- -- -- -- (1,284) -- -- (1,284)
------ ---- ------- ------ -------- ------ --------- --------
Balances, March 31, 1998
(unaudited) ...................... 1,000 $ -- $78,363 $ -- $ (1,284) $ (76) $ (15,730) $ 61,273
====== ==== ======= ====== ======== ====== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AKI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------------------- ------------------
NINE MONTHS JULY 1, 1997
YEAR ENDED JUNE 30, ENDED TO DECEMBER 16, 1997
----------------------------------- MARCH 31, DECEMBER 15, TO
1995 1996 1997 1997 1997 MARCH 31, 1998
----------- ----------- ----------- ------------- ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................... $ 4,133 $ 2,178 $ 3,982 $ 3,824 $ 1,793 $ (1,284)
Adjustment to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization of
goodwill and other intangibles ........ 3,627 4,422 5,084 3,828 2,456 2,007
Amortization of debt discount .......... 378 642 560 420 233 44
Amortization of loan closing costs 260 231 258 193 101 1,122
Deferred income taxes .................. 1,575 (483) (297) (967) (460) (148)
Other .................................. 382 239 (138) (124) (18) (76)
Changes in operating assets and
liabilities:
Accounts receivable .................... (4,962) (1,268) 2,546 (2,452) 1,153 (6,329)
Inventory .............................. (1,103) (304) (550) 67 69 220
Prepaid expenses, deferred charges
and other assets ...................... (293) (168) (101) (103) (62) (432)
Income taxes ........................... 784 75 (1,163) (540) 699 91
Accounts payable and accrued
expenses .............................. 1,920 (227) (1,239) (909) (1,036) (4,938)
Other liabilities ...................... (2,246) -- -- -- -- --
-------- -------- -------- -------- -------- ----------
Net cash provided by (used in)
operating activities ................... 4,455 5,337 8,942 3,237 4,928 (9,723)
-------- -------- -------- -------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment .................. (1,325) (2,051) (2,462) (1,839) (807) (255)
Proceeds from sale of equipment ......... -- 55 38 19 -- --
Refundable deposit on equipment ......... (1,984) 1,984 -- -- -- --
Payments for acquisitions, net of
cash acquired .......................... (528) -- -- -- -- (134,152)
-------- -------- -------- -------- -------- ----------
Net cash used in investing activities.... (3,837) (12) (2,424) (1,820) (807) (134,407)
-------- -------- -------- -------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital leases for
equipment .............................. (209) (646) (2,359) (2,227) (249) (165)
Proceeds on line of credit with
stockholder ............................ 3,500 7,500 -- -- -- --
Repayments on line of credit with
stockholder ............................ (3,500) (7,500) -- -- -- --
Net proceeds (repayments) on line
of credit .............................. -- -- 4,338 7,700 2,362 (5,100)
Proceeds from issuance of senior
increasing rate notes .................. -- -- -- -- -- 119,735
Proceeds from issuance of common
stock .................................. -- -- -- -- -- 76,000
Redemption of preferred stock ........... -- -- -- -- -- (8,678)
Proceeds from issuance of loans
payable to stockholder ................. 4,000 -- -- -- -- --
Repayment of loans payable to
stockholder ............................ (3,486) (6,004) (7,004) (5,253) (1,851) (36,649)
Repayment of other notes payable ........ (150) (1,627) (1,200) (1,175) (50) (25)
Dividends paid on preferred stock ....... (305) (618) (616) (460) (155) --
-------- -------- -------- -------- -------- ----------
Net cash provided by (used in)
financing activities ................... (150) (8,895) (6,841) (1,415) 57 145,118
-------- -------- -------- -------- -------- ----------
Net increase (decrease) in cash and
cash equivalents ........................ 468 (3,570) (323) 2 4,178 988
Cash and cash equivalents, beginning
of period ............................... 3,728 4,196 626 626 303 --
-------- -------- -------- -------- -------- ----------
Cash and cash equivalents, end of
period .................................. $ 4,196 $ 626 $ 303 $ 628 $ 4,481 $ 988
======== ======== ======== ======== ======== ==========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest to stockholder(s) ............. $ 5,561 $ 5,573 $ 4,559 $ 3,483 $ 1,146 $ 4,005
Interest, other ........................ 94 604 917 672 459 64
Income taxes ........................... 2,697 2,834 4,594 4,384 1,222 33
SIGNIFICANT NON-CASH ACTIVITIES:
Assets acquired under capital lease ..... $ 1,798 $ 3,555 $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
1. ORGANIZATION, BUSINESS AND ACQUISITION
Arcade Holding Corporation (the "Predecessor") was organized for the
purpose of acquiring all the issued and outstanding capital stock of Arcade,
Inc. ("Arcade") on November 4, 1993. Arcade manufactures and distributes
cosmetics sampling products from its Chattanooga, Tennessee facilities, and
distributes its products in Europe through its French subsidiary, Arcade Europe
S.A.R.L. On June 9, 1995, Arcade acquired all of the issued and outstanding
stock of Scent Seal Inc. ("Scent Seal") (see Note 8). The acquisition of Scent
Seal did not have a material impact on the financial position or results of
operations of the Predecessor. These acquisitions were accounted for as
purchase transactions whereby the purchase cost was allocated to the fair value
of the net assets acquired.
As more fully described in Note 15, DLJ Merchant Banking Partners II, L.P.
and certain related investors (collectively, "DLJMBII") and certain members of
the Predecessor organized AHC I Acquisition Corp. ("Acquisition Corp.") and AHC
I Merger Corp. ("Merger Corp.") for purposes of acquiring the Predecessor.
Merger Corp. was a wholly-owned subsidiary of Acquisition Corp. and was
initially capitalized by Acquisition Corp. with an equity contribution of
$78,363 ($76,000 of cash and $2,363 of non-cash consideration in the form of a
preferred stock option in Acquisition Corp.) Immediately following this equity
contribution, Merger Corp. issued $123,500 of senior increasing rate notes to
an entity that has a partial ownership interest in Acquisition Corp. On
December 15, 1997, Merger Corp. acquired all of the equity interests of the
Predecessor (the "Acquisition") for a total cost of $197,730, which consisted
of $138,634 cash paid for equity interests and related expenses, $2,363 in
non-cash consideration and the assumption of $56,733 in debt, preferred stock
and related interest and dividends, including capital lease obligations. Merger
Corp. then merged with and into the Predecessor and the combined entity assumed
the name AKI, Inc. ("AKI," the "Successor" or the "Company"). The Acquisition
was accounted for using the purchase method of accounting. Subsequent to the
Acquisition, Acquisition Corp. contributed all of its ownership interest in AKI
to AKI Holding Corp. ("Holding").
Unless otherwise indicated, all references to years refer to the
Predecessor's fiscal year, June 30.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The consolidated balance sheet at March 31, 1998 and the consolidated
statements of operations, of changes in stockholder(s) equity and of cash flows
for the nine month period ended March 31, 1997, the period from July 1, 1997
through December 15, 1997 and the period from December 16, 1997 through March
31, 1998 are unaudited, and certain information and footnote disclosure related
thereto, normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion of
management, the unaudited interim consolidated financials were prepared
following the same policies and procedures used in the preparation of the
audited financial statements and all adjustments, consisting only of normal
recurring adjustments necessary to fairly present the financial position,
results of operations and cash flows with respect to the interim consolidated
financial statements, have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
The accompanying unaudited interim consolidated financial statements as of
March 31, 1998 and for the period from December 16, 1997 through March 31,
1998, present the financial position and results of operations of the Company
on the basis of accounting described in Note 15 and, accordingly, are not
comparable with the audited Predecessor consolidated financial statements as of
June 30, 1996 and 1997 and for each of the three years in the period ended June
30, 1997, nor with the unaudited Predecessor interim consolidated financial
statements for the nine months ended March 31, 1997 and the period from July 1,
1997 to December 15, 1997.
F-7
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Predecessor and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, Predecessor
considers all highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Concentration of Credit Risk
Predecessor maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. Predecessor has not experienced any losses
in such accounts; in addition, Predecessor believes it is not exposed to any
significant credit risk on cash and cash equivalents. Predecessor grants credit
terms in the normal course of business to its customers and as part of its
ongoing procedures, Predecessor monitors the credit worthiness of its
customers. Predecessor does not believe that it is subject to any unusual
credit risk beyond the normal credit risk attendant in its business.
Approximately $9,354, $17,690 and $13,104 of net sales were from sales to
customers outside of the United States for the years ended June 30, 1995, 1996
and 1997, respectively. A single customer accounted for approximately 20.4% and
12.9% of Predecessor's net sales in 1995 and 1996, respectively. In 1997, two
customers accounted for 12.1% and 11.4% of Predecessor's net sales,
respectively.
Concentration of Purchasing
Products accounting for a majority of Predecessor's net sales utilize
specific grades of paper that are produced exclusively for Predecessor by one
international supplier. Predecessor does not have an agreement with this
supplier.
Revenue Recognition and Accounts Receivable
Product sales are recognized upon shipment, net of estimated discounts.
Accounts receivable are accounted for net of allowances for doubtful accounts.
Inventory
Paper inventory is stated at the lower of cost or market using the
last-in, first-out (LIFO) method; all other inventories are stated at the lower
of cost or market using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures that extend
the economic lives or improve the efficiency of equipment are capitalized. The
costs of maintenance and repairs are expensed as incurred. Upon retirement or
disposal, the related cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is recorded.
F-8
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is computed using the straight-line method based on the
estimated useful lives of the assets as indicated in Note 5 for financial
reporting purposes and accelerated methods for tax purposes.
Goodwill
The aggregate purchase price of business acquisitions was allocated to the
assets and liabilities of the acquired companies based on their respective fair
values as of the acquisition date. Goodwill represents the excess purchase
price paid over the fair value of net identifiable assets acquired and is
amortized over forty years using the straight-line method. Accumulated
amortization was $1,872, $3,086 and $4,300 at June 30, 1995, 1996 and 1997,
respectively.
Predecessor periodically reviews the value of its goodwill to determine if
an impairment has occurred. Predecessor measures the potential impairment of
recorded goodwill by the undiscounted value of expected future operating cash
flows in relation to its net capital investment. Based on its review,
Predecessor does not believe that an impairment of its goodwill has occurred.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments,"
requires the disclosure of the fair value of financial instruments, for assets
and liabilities recognized and not recognized on the balance sheet, for which
it is practicable to estimate fair value. The carrying value of Predecessor's
financial instruments approximates fair value.
Foreign Currency Transactions
Gains and losses on foreign currency transactions with third parties have
been included in the determination of net income in accordance with SFAS No.
52, "Foreign Currency Translation." Foreign currency losses and (gains)
amounted to $7, $(99) and $387 for the years ended June 30, 1995, 1996 and
1997, respectively.
Research and Development Expenses
Research and development expenditures are charged to selling, general and
administrative expenses in the period incurred. Research and development
expenses totaled $500, $1,012 and $1,263 for the years ended June 30, 1995,
1996 and 1997, respectively.
Debt Issuance Costs
Debt issuance costs are being amortized using the effective interest
method over the terms of the related debt. Such costs are included in the
accompanying consolidated balance sheets, net of accumulated amortization.
Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly,
deferred tax assets and liabilities are recognized at the applicable income tax
rates based upon future tax consequences of temporary differences between the
tax basis and financial reporting basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
F-9
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
The following table details the components of accounts receivable:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Trade accounts receivable .................................... $12,707 $10,362
Allowance for doubtful accounts .............................. (467) (319)
------- -------
12,240 10,043
Employee and other related party accounts receivable ......... 218 121
Other accounts receivable .................................... 288 36
------- -------
$12,746 $10,200
======= =======
</TABLE>
4. INVENTORY
The following table details the components of inventory:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
Raw materials
Paper ....................... $ 653 $ 915
Other raw materials ......... 499 956
------ ------
Net raw materials ........... 1,152 1,871
Work in process ............... 1,084 915
------ ------
Net inventory ................. $2,236 $2,786
====== ======
</TABLE>
Inventory would have been greater by $117 and $45 at June 30, 1996 and
1997, respectively, had it been stated using the FIFO method.
5. PROPERTY, PLANT AND EQUIPMENT
The following table details the components of property, plant and
equipment as well as their estimated useful lives:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
ESTIMATED
USEFUL LIVES 1996 1997
---------------- ----------- ------------
<S> <C> <C> <C>
Land .............................. -- $ 243 $ 243
Building and improvements ......... 15 -- 30 years 2,552 2,741
Machinery and equipment ........... 5 -- 7 years 21,573 23,250
Furniture and fixtures ............ 3 -- 5 years 1,760 2,359
Construction in progress .......... 543 424
-------- ---------
26,671 29,017
(7,046) (10,861)
-------- ---------
$ 19,625 $ 18,156
======== =========
</TABLE>
F-10
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expense amounted to $2,496, $3,188 and $3,850 for the years
ended June 30, 1995, 1996 and 1997, respectively.
Property held under capital leases was included in the respective
property, plant and equipment account on the balance sheet as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Machinery and equipment ............... $5,353 $3,555
Less accumulated depreciation ......... (382) (762)
------ ------
$4,971 $2,793
====== ======
</TABLE>
Depreciation of capital leases totaled $156, $421 and $633 for the years
ended June 30, 1995, 1996 and 1997, respectively. Future minimum lease payments
under the remaining lease are as follows:
<TABLE>
<CAPTION>
PAYMENT INTEREST
--------- ---------
<S> <C> <C>
1998 .......... $ 774 $217
1999 .......... 774 165
2000 .......... 774 107
2001 .......... 839 17
------ ----
$3,161 $506
====== ====
</TABLE>
6. LINE OF CREDIT
Predecessor entered into a $15,000 revolving loan commitment ("Credit
Agreement") with an institutional lender in 1996. This facility would have
expired in November 1998. Borrowings were limited to a borrowing base
consisting of accounts receivable, inventory and property, plant and equipment.
Interest on amounts borrowed accrued at either prime plus 1% or LIBOR plus
2.75% (9.25% and 9.50% at June 30, 1996 and 1997, respectively). Predecessor
paid an annual commitment fee on its unused lines of credit amounting to 0.5%
of the unused amount and a facility fee of $38 per annum. The Credit Agreement
contained certain financial covenants and other restrictions including
restrictions on additional indebtedness and investments. Predecessor was not in
compliance with all such covenants at June 30, 1997. Therefore, all amounts
outstanding under the Credit Agreement at June 30, 1997 were classified as
short-term liabilities. However, all amounts outstanding under the Credit
Agreement were subsequently repaid upon the acquisition of Predecessor as
discussed in Note 15 and an amended credit agreement entered into.
7. LOANS PAYABLE TO STOCKHOLDER
Loans payable to stockholder consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
---------- ------------
<S> <C> <C>
Senior Loan ............................. $ 14,910 $ 7,906
Senior Subordinated Loans ............... 30,594 30,594
Less unamortized debt discounts ......... (968) (608)
-------- ---------
44,536 37,892
Less current portion .................... (7,004) (37,892)
-------- ---------
$ 37,532 $ --
======== =========
</TABLE>
F-11
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
7. LOANS PAYABLE TO STOCKHOLDER (CONTINUED)
Predecessor entered into a Senior Loan Agreement and two Subordinated Loan
Agreements (collectively, the "Loan Agreements") with a party that owned
Predecessor's preferred stock and a significant portion of its common stock.
The Loan Agreements were collateralized by substantially all the assets of
Predecessor. The Loan Agreements limited the Predecessor's ability to incur
additional indebtedness, pay dividends and purchase fixed assets. Additionally,
the Loan Agreements required that certain financial covenants be maintained.
Predecessor was not in compliance with all such covenants at June 30, 1997.
Therefore, all amounts outstanding under the Loan Agreements at June 30, 1997
were classified as short-term liabilities. However, this debt was subsequently
retired upon the acquisition of Predecessor as discussed in Note 15.
Amounts borrowed under the Senior Loan Agreement were repayable in varying
quarterly amounts through December 1998. All amounts borrowed under the Senior
Loan Agreement bore interest at prime plus 1.50% (9.75% and 10% at June 30,
1996 and 1997, respectively) which was payable monthly.
Predecessor borrowed $30,000 under the Subordinated Loan Agreements, of
which $23,000 was designated as Loan I and $7,000 was designated as Loan II.
Loan I bore interest, payable quarterly, at 12% until November 4, 1998, and
then would have converted to prime plus 4%. Loan II bore interest, payable
quarterly, at 7%. The outstanding amount of the subordinated loans was net of
unamortized debt discounts, which were being amortized over the term of the
related loan. The loans were repayable in varying quarterly installments from
March 1999 until December 2001.
In connection with Loan II, Predecessor issued a warrant to purchase
19,233 shares of common stock at $0.05 per share. The warrant was exercisable
until November 4, 2003. Predecessor valued the warrants at $100 each based on
the fair market value of a share of the underlying common stock resulting from
a sale with a third party. In connection with the warrant issued, Predecessor
recorded debt discount of $1,923. In connection with the sale of Predecessor on
December 15, 1997 (Note 15), all outstanding warrants were purchased from the
holder by the buyer of Predecessor and retired.
Maturities of loans payable to stockholder at June 30, 1997, were as
follows:
<TABLE>
<S> <C>
1998 .................................... $ 7,404
1999 .................................... 5,502
2000 .................................... 10,000
2001 .................................... 10,000
2002 .................................... 5,594
-------
38,500
Less unamortized debt discounts ......... (608)
-------
$37,892
=======
</TABLE>
8. OTHER NOTES PAYABLE
In connection with the acquisition of Scent Seal, Predecessor issued
$3,627 in noninterest bearing promissory notes ("Notes") to an employee of
Predecessor who was previously a Scent Seal stockholder. The remaining notes
are due in quarterly installments of $25 through June 1998 with a balloon
payment of $1,450 due in July 1998. Predecessor recorded a debt discount of
$649 in connection with the issuance of the Notes to reflect an effective
interest rate of 10%. The discount is being amortized over the term of the
Notes.
F-12
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
8. OTHER NOTES PAYABLE (CONTINUED)
Maturities of other notes payable at June 30, 1997, were as follows:
<TABLE>
<S> <C>
1998 ................................... $ 100
1999 ................................... 1,450
------
1,550
Less unamortized debt discount ......... (149)
------
$1,401
======
</TABLE>
9. REDEEMABLE PREFERRED STOCK
In connection with the 1993 acquisition of Arcade, Predecessor authorized
and issued 8,000 shares of 7% cumulative, $1 par value preferred stock at
$1,000 per share. The preferred stock prohibited the Predecessor from acquiring
its common stock as long as the preferred stock was outstanding and restricted
the payment of common stock dividends. Accrued and unpaid dividends of $678
accrued through December 31, 1994, were added to the outstanding balance. The
preferred stock would have been redeemable on December 31, 2001, at liquidation
value of $1,000 per share plus accrued and unpaid dividends.
In connection with the sale of Predecessor on December 15, 1997 (Note 15),
all outstanding preferred stock was redeemed at $1,000 per share plus accrued
and unpaid dividends.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
Predecessor leases equipment and office space under operating leases
expiring at various dates. Rent expense was approximately $72, $355 and $443
for the years ended June 30, 1995, 1996 and 1997, respectively. Future minimum
lease payments under these leases are as follows:
<TABLE>
<S> <C>
1998 ................ $249
1999 ................ 235
2000 ................ 153
2001 ................ 129
----
$766
====
</TABLE>
Royalty Agreements
Predecessor maintains licensing agreements for certain technologies used
in the manufacture of certain Predecessor products. Under the terms of one
licensing agreement, Predecessor is required to submit royalty payments based
on a percentage of net sales of those products manufactured with the specific
technology, or a minimum of $800 per year. This agreement expires in 2003 or
when a total of $12,500 in cumulative royalty payments has been paid.
Under the terms of another licensing agreement, Predecessor is required to
submit royalty payments based on the number of products sold that were
manufactured with the specific licensed technology, or a minimum of $475 per
year. This agreement expires in 2012, coinciding with the expiration of the
underlying patent.
F-13
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
Predecessor is a party to litigation arising in the ordinary course of
business which, in the opinion of management, will not have a material adverse
effect on Predecessor's financial condition, results of operations or cash
flows.
Year 2000/European Monetary Unit
Predecessor has not implemented a strategy to be fully compliant with the
year 2000 and European monetary unit issues related to its computer systems.
Management does not believe that the costs related to implementing such a
strategy will have a material impact on the operations or financial statements
of Predecessor.
11. RETIREMENT PLANS
Predecessor has a 401(k) defined contribution plan (the "Plan") covering
substantially all full-time salaried employees. Applicable employees who have
six months of service and have attained age 21 are eligible to participate in
the Plan. Employees may elect to contribute a percentage of their earnings to
the Plan in accordance with limits prescribed by law. Predecessor's
contributions to the Plan are determined annually by the Board of Directors and
generally are a matching percentage of employee contributions. Predecessor's
contributions to this Plan were $132, $136 and $159 for the years ended June
30, 1995, 1996 and 1997, respectively.
Certain Predecessor hourly employees are covered under a multiemployer
defined benefit plan administered under a collective bargaining agreement.
Predecessor's cost (determined by union contract) under this Plan was $93, $127
and $143 for the years ended June 30, 1995, 1996 and 1997, respectively.
12. INCOME TAXES
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current expense:
Federal ............ $1,340 $2,225 $2,880
State .............. 199 359 552
------ ------ ------
1,539 2,584 3,432
------ ------ ------
Deferred benefit:
Federal ............ 1,389 (418) (255)
State .............. 186 (65) (42)
------ ------ ------
1,575 (483) (297)
------ ------ ------
$3,114 $2,101 $3,135
====== ====== ======
</TABLE>
F-14
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
12. INCOME TAXES (CONTINUED)
The significant components of Predecessor's deferred tax asset and
deferred tax liability at June 30, 1996 and 1997, were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------
1996 1997
---------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Deferred income tax asset:
Accrued expenses ............... $317 $ -- $300 $ --
Allowance for doubtful accounts 182 -- 124 --
---- ------ ---- ------
499 -- 424 --
---- ------ ---- ------
Deferred income tax liability:
Property, plant and equipment .. -- 3,321 -- 2,949
---- ------ ---- ------
$499 $3,321 $424 $2,949
==== ====== ==== ======
</TABLE>
The income tax provision recognized by Predecessor for the years ended
June 30, 1995, 1996 and 1997, differs from the amount determined by applying
the applicable U.S. statutory federal income tax rate to Predecessor's pretax
income as a result of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed tax provision at the statutory rate .............. $2,464 $1,455 $2,420
State income tax provision, net of Federal effect ......... 255 194 335
Nondeductible expenses .................................... 391 427 455
Other, net ................................................ 4 25 (75)
------ ------ ------
$3,114 $2,101 $3,135
====== ====== ======
</TABLE>
13. STOCK OPTION AGREEMENT
Predecessor sponsored a key employee stock option plan under which a
maximum of 12,571 shares of Predecessor's common stock could be reserved for
nonqualified options; all stock options were granted with an exercise price
equal to the fair market value of $100 per share. All options vested ratably
over five years and would have expired ten years from the grant date.
Predecessor accounted for its employee stock options under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"). Under APB 25, because the exercise price of Predecessor's employee stock
options equaled the market value of the underlying stock on the date of grant,
no compensation expense was recognized.
F-15
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
13. STOCK OPTION AGREEMENT (CONTINUED)
A summary of Predecessor's stock option activity and related information
follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1997
------------------------- ----------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year ......... 8,380 $100 12,571 $100 12,571 $100
Granted ............................... 8,381 100 -- -- -- --
Exercised ............................. -- -- -- -- -- --
Forfeited ............................. (4,190) 100 -- -- -- --
------ ---- ------ ---- ------ ----
Outstanding, end of year ............... 12,571 $100 12,571 $100 12,571 $100
====== ====== ======
Exercisable at end of year ............. 838 $100 3,352 $100 5,866 $100
====== ====== ======
Weighted average remaining
contractual life ...................... 9.3 years 8.3 years 7.3 years
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), requires disclosure of pro forma
information regarding net income for option grants subsequent to December 15,
1995. Because all of the Predecessor's options were granted prior to that date,
no pro forma adjustments to net income or disclosure of information would apply
under SFAS 123.
As a result of the sale of Predecessor on December 15, 1997 (Note 15), all
outstanding options became immediately vested and exercisable under the
individual stock option agreements. In connection with the sale, the buyer of
Predecessor purchased and retired 11,201 of the outstanding options. The
remaining 1,370 options were exchanged at their fair value for an option to
purchase Acquisition Corp.'s preferred stock.
14. RELATED PARTY TRANSACTIONS
The Predecessor made payments to a company controlled by a stockholder of
the Predecessor, of $451, $692 and $612 for the years ended June 30, 1995, 1996
and 1997, respectively, for management fees, bonuses and expense
reimbursements.
The Predecessor also made payments to another stockholder totaling $120
for each of the years ended June 30, 1995, 1996 and 1997 for management fees.
15. SUBSEQUENT EVENT
DLJMBII and certain members of the Predecessor organized Acquisition Corp.
and Merger Corp. for purposes of acquiring the Predecessor. Merger Corp. was a
wholly-owned subsidiary of Acquisition Corp. and was initially capitalized by
Acquisition Corp. with an equity contribution of $78,363 ($76,000 of cash and
$2,363 of non-cash consideration in the form of a preferred stock option in
Acquisition Corp.). Immediately following this equity contribution, Merger
Corp. issued $123,500 of senior increasing rate notes to an entity that has a
partial ownership interest in Acquisition Corp. The senior increasing rate
notes mature on December 15, 1998 and can be repaid without penalty at any time
prior to maturity. The senior increasing rate notes bear interest equal to the
greater of (i) a rate of 10.0% per annum and (ii) a daily floating rate of
prime plus 2.25% plus an additional percentage amount equal to (a) 1.0% from
and including the interest payment date on June 15, 1998 or (b) 1.5% from and
including the interest payment date on September 15, 1998. Merger Corp.
received cash proceeds from the issuance of the senior increasing rate notes of
$119,735, net of $3,765 of associated debt issuance costs.
F-16
<PAGE>
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
15. SUBSEQUENT EVENT (CONTINUED)
On December 15, 1997, Merger Corp. acquired all of the equity interests of
the Predecessor (the "Acquisition") for a total cost of $197,730, which
consisted of $138,634 cash paid for equity interests and related expenses,
$2,363 in non-cash consideration and the assumption of $56,733 in debt,
preferred stock and related interest and dividends, including capital lease
obligations. Merger Corp. then merged with and into the Predecessor and the
combined entity assumed the name AKI. Subsequent to the Acquisition,
Acquisition Corp. contributed all of its ownership interest in AKI to Holding.
The Acquisition was accounted for using the purchase method of accounting.
In accordance with the consensus reached by the Emerging Issues Task Force of
the Financial Accounting Standards Board in Issue 88-16, "Basis in Leveraged
Buyout Transactions," the purchase price allocation required an adjustment for
the continuing interest attributable to management's ownership interest in
Predecessor carried over in connection with the Acquisition. As a result, a
reduction in stockholder's equity of $15,730 was recorded which represents the
difference between the fair value of the Company's assets and the related book
value attributable to the interest of the continuing shareholders' investment
in Predecessor. The remaining purchase price has been allocated to assets and
liabilities based upon estimates of their respective fair value as determined
by management and a third-party appraisal with respect to property, plant and
equipment.
In connection with the Acquisition, the Company repaid the outstanding
balance and related interest of Predecessor's loans payable to a shareholder of
$37,374, the outstanding balance and related interest on the Predecessor's line
of credit of $6,728 and redeemed all outstanding preferred stock and related
dividends for $8,806.
The following shows the acquisition costs and the preliminary allocation
of the purchase price:
<TABLE>
<S> <C>
Acquisition costs
Cash paid for stock ................................................. $ 134,403
Direct acquisition costs ............................................ 4,231
---------
138,634
Non-cash consideration for stock .................................... 2,363
---------
Total ............................................................... 140,997
Less--Carryover basis adjustment .................................... (15,730)
---------
Purchase price to be allocated ...................................... $ 125,267
=========
Summary allocation of purchase price
Cash ................................................................ $ 4,481
Other current assets ................................................ 18,936
Fixed assets ........................................................ 20,132
Deferred income taxes ............................................... 1,799
Other assets ........................................................ 329
Goodwill ............................................................ 153,929
---------
Total allocation to assets .......................................... $ 199,606
=========
Current liabilities ................................................. $ 13,190
Long-term debt (including current portion) and related interest ..... 47,927
Deferred income taxes ............................................... 4,416
Preferred stock and related dividends ............................... 8,806
---------
Total liabilities assumed ........................................... $ 74,339
=========
</TABLE>
Final allocations of certain liabilities may be different from amounts
reflected; however, it is not anticipated that any significant changes will be
made to the preliminary allocations.
F-17
<PAGE>
===============================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS EXCHANGE
OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Available Information ........................ iii
Prospectus Summary ........................... 1
Risk Factors ................................. 14
Use of Proceeds .............................. 19
The Exchange Offer ........................... 20
Capitalization ............................... 27
Selected Historical Consolidated Financial
Data ...................................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 30
Business ..................................... 35
The Transactions ............................. 45
Management ................................... 46
Security Ownership of Certain Beneficial
Owners and Management ..................... 49
Certain Relationships and Related
Transactions .............................. 50
Description of Certain Indebtedness .......... 52
Description of New Notes ..................... 53
Certain U.S. Federal Income Tax
Consequences .............................. 78
Plan of Distribution ......................... 79
Notice to Holders ............................ 80
Legal Matters ................................ 81
Experts ...................................... 81
Index to Unaudited Pro Forma
Condensed Consolidated Financial
Data ...................................... P-1
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
===============================================================================
OFFER TO EXCHANGE
10 1/2% NEW SENIOR NOTES DUE 2008 FOR UP TO $115,000,000
IN PRINCIPAL
AMOUNT OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
AKI, INC.
--------------------------------------------
PROSPECTUS
--------------------------------------------
, 1998
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THE SECURITIES HAS BEEN FILED WITH THE
SECURITIES A-1 AND EXCHANGE COMMISSION. THE 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 ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO ANY REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
PROSPECTUS
AKI, INC.
10 1/2% NEW SENIOR NOTES DUE 2008
----------------
The 10 1/2% New Senior Notes due 2008 (the "New Notes") were issued in
exchange for the 10 1/2% Senior Notes due 2008 (the "Old Notes") by AKI, Inc.,
a Delaware corporation (the "Company"). The New Notes are obligations of the
Company.
The New Notes will mature on July 1, 2008. The New Notes bear interest
from June 25, 1997, the date of issuance of the Old Notes tendered in exchange
for the New Notes. Interest on the New Notes will be payable semi-annually on
January 1 and July 1 of each year, commencing on January 1, 1999, at a rate of
10 1/2% per annum. The New Notes are redeemable at the option of the Company,
in whole or in part, at anytime on or after July 1, 2003, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the date of
redemption. In addition, at any time prior to July 1, 2001, the Company may on
any one or more occasions redeem up to 35% of the aggregate principal amount of
New Notes originally issued at a redemption price equal to 110.5% 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 Public Equity Offerings (as defined herein); provided that at least
65% of the aggregate principal amount of New Notes originally issued remains
outstanding immediately after the occurrence of any such redemption. See
"Description of New Notes--Optional Redemption." In addition, upon the
occurrence of a Change of Control (as defined herein), each holder of Notes
will have the right to require the Company to repurchase all or any part of
such holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase. See "Description of New
Notes--Repurchase at the Option of Holders--Change of Control." There can be no
assurance that, in the event of a Change of Control, the Company would have
sufficient funds to purchase all Notes tendered. See "Risk Factors--Limitations
on Ability to Make Change of Control Payment."
The New Notes are general unsecured obligations of the Company, and rank
pari passu in right of payment to all existing and future senior unsecured
indebtedness of the Company and rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. The New Notes, however,
are effectively subordinated to all secured obligations of the Company,
including borrowings under the Credit Agreement (as defined herein), to the
extent of the assets securing such obligations. As of March 31,1998, on a pro
forma basis, after giving effect to the Refinancing (as defined herein) and the
consummation of the 3M Acquisition (as defined herein), the Company would have
had no outstanding secured obligations (other than outstanding letters of
credit in the amount of $0.6 million) under the Credit Agreement. In addition,
as of such date and on such pro forma basis, borrowings of up to approximately
$19.4 million were available under the Credit Agreement, subject to certain
conditions.
(Continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NEW NOTES.
----------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") in connection with the offers and sales in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. The Company does not intend to list the New Notes on a national
securities exchange or to apply for quotation of the New Notes through the
National Association of Securities Dealers Automated Quotation System. DLJ has
advised the Company that it intends to make a market in the New Notes. However
DLJ is not obligated to do so and any market-making activities with respect to
the New Notes may be discontinued at any time without notice. The Company will
receive no portion of the proceeds of the sale of the New Notes and will bear
expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is , 1998
A-1
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR DLJ. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
NEW NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
The New Notes are general unsecured obligations of the Company, and rank
pari passu in right of payment to all existing and future senior unsecured
indebtedness of the Company and rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. The New Notes, however,
are effectively subordinated to all secured obligations of the Company,
including borrowings under the Credit Agreement (as defined herein), to the
extent of the assets securing such obligations. As of March 31,1998, on a pro
forma basis, after giving effect to the Refinancing (as defined herein) and the
consummation of the 3M Acquisition (as defined herein), the Company would have
had no outstanding secured obligations (other than outstanding letters of
credit in the amount of $0.6 million) under the Credit Agreement. In addition,
as of such date and on such pro forma basis, borrowings of up to approximately
$19.4 million were available under the Credit Agreement, subject to certain
conditions.
A-2
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
----------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement") under the Securities Act with
respect to the New Notes being offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Exchange Offer Registration
Statement and the exhibits and schedules thereto, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed or incorporated by reference
as an exhibit to the Exchange Offer Registration Statement, reference is made
to such exhibit for a more complete description of the matter involved, and
each such statement is qualified in its entirety by such reference.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company became subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Commission. The
Exchange Offer Registration Statement and the exhibits and schedules thereto as
well as any reports and other information filed by the Company may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and at
500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site (http://www.sec.gov) that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. Under the terms of the Indenture pursuant
to which the New Notes were issued, the Company has agreed that, whether or not
it is required to do so by the rules and regulations of the Commission, for so
long as any of the Notes remain outstanding, it will furnish to the Trustee and
Holders of the Notes and file with the Commission (unless the Commission will
not accept such a filing) (i) all quarterly and annual financial information
that would be required to be contained in such a filing with the Commission on
Forms 10-Q and 10-K if the Company was required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company was required to file such reports. The Company has agreed to make such
information available to the Trustee, securities analysts and prospective
investors upon request. In addition, for so long as any of the Notes remain
outstanding, the Company has agreed to make available to any prospective
purchaser of the Notes or Holder of the Notes in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
A-3
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NEW NOTES
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or the
ability of the Holders of the New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. If such market were to
develop, the New Notes could trade at prices that may be higher or lower than
their initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. Although it is not obligated to do so, DLJ intends to make a market
in the New Notes. Any such market-making activity may be discontinued at any
time, for any reason, without notice at the sole discretion of DLJ. No
assurance can be given as to the liquidity of or the trading market for the New
Notes.
DLJ may be deemed to be an affiliate of the Company and, as such, may be
required to deliver a prospectus in connection with its market-making
activities in the New Notes. Pursuant to the Registration Rights Agreement, the
Company agreed to use its respective best efforts to file and maintain a
registration statement that would allow DLJ to engage in market-making
transactions in the New Notes. The Company has agreed to bear substantially all
the costs and expenses related to such registration statement.
A-4
<PAGE>
[ATLERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New Notes
by DLJ in market-making transactions. The Company will not receive any of the
proceeds from such transactions.
A-5
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJ (the "Initial Purchaser") in
connection with offers and sales of the New Notes in market-making transactions
effected from time to time. The Initial Purchaser may act as a principal or
agent in such transactions, including as agent for the counterparty when acting
as principal or as agent for both counterparties, and may receive compensation
in the form of discounts and commissions, including from both counterparties
when it acts as agent for both. Such sales will be made at prevailing market
prices at the time of sale, at prices related thereto or at negotiated prices.
DLJ has informed the Company that it does not intend to confirm sales of the
New Notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
DLJMBII, an affiliate of DLJ, and certain of its affiliates beneficially
own approximately 81.3% of the outstanding Acquisition Corp. Common Stock.
Messrs. Dean, Michael and Wittels, who are directors of the Company and
officers and directors of Holding and Acquisition Corp., are officers of DLJ
Merchant Banking. The Initial Purchaser is also an affiliate of DLJ Merchant
Banking and DLJMBII and has acted as financial advisor to the Company in
connection with the structuring of the Acquisition. For these financial
advisory services, the Initial Purchaser received a customary fee and was
reimbursed for its out-of-pocket expenses. In addition, pursuant to an
agreement between the Initial Purchaser and Acquisition Corp., the Initial
Purchaser will receive a customary annual fee for acting as the exclusive
financial and investment banking advisor to the Company ending December 31,
2002. DLJ acted as a purchaser in connection with the initial sale of the Old
Notes and received an underwriting discount of $3.45 million in connection
therewith. See "Certain Relationships and Related Party Transactions."
The Company has been advised by the Initial Purchaser that, subject to
applicable laws and regulations, the Initial Purchaser currently intends to
make a market in the New Notes following completion of the Exchange Offer.
However, the Initial Purchaser is not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors --Trading
Market for the New Notes."
The Initial Purchaser and the Company have entered into the Registration
Rights Agreement with respect to the use by the Initial Purchaser of this
Prospectus. Pursuant to such agreement, the Company agreed to bear all
registration expenses incurred under such agreement, and the Company agreed to
indemnify the Initial Purchaser in connection with its acting as Initial
Purchaser and as financial advisor.
A-6
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of Notes
by an initial beneficial owner of Notes that, for U.S. federal income tax
purposes, is not a "U.S. person" (a "Non-U.S. Holder"). This discussion is
based upon the U.S. federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "U.S. person" means
a citizen or resident of the U.S., a corporation created or organized in the
U.S. or under the laws of the U.S., or of any political subdivision thereof, a
estate whose income ins includable in gross income for U.S. federal income tax
purposes regardless of it source or a trust, if a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of
the trust. For purposes of the withholding tax on interest, a non-resident
alien or other non-resident fiduciary of an estate or trust will be considered
to be a Non-U.S. Holder. The tax treatment of the holders of the Notes may vary
depending upon their particular situations. U.S. persons acquiring the Notes
are subject to different rules than those discussed below. This discussion does
not address the U.S. federal income tax consequences to investors in
pass-through entities hat hold a Note. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE U.S. FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE
LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
For purposes of the discussion below, interest and gain on the sale,
exchange or other disposition of Note will be considered to be "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the U.S.
INTEREST
Interest paid by the Company (including any Liquidated Damages or other
amounts that are treated as additional interest) to a Non-U.S. Holder will not
be subject to U.S. federal income or withholding tax if such interest is not
U.S. trade or business income and is "portfolio interest." Interest will be
portfolio interest if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company and is not a controlled foreign corporation
with respect to which the Company is a "related person" within the meaning of
the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the
beneficial owner (a) certifies, under penalties of perjury, that such holder is
not a U.S. person and provides such holder's name and address and 9b) is not a
bank receiving interest on an extension of credit made pursuant to a loan
agreement made in the ordinary course of its trade or business.
The gross amount of payments of interest that do not qualify for the
portfolio interest exception and that re not U.S. trade or business income will
be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to
reduce or eliminate withholding. U.S. trade or business income will be taxes at
regular graduated U.S. rates rather than the 30% gross rate. In the case of a
Non-U.S. Holder that is a corporation, such U.S. trade or business income may
also be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the actual or deemed repatriation form the United States
of earnings and profits attributable to U.S. trade or business income) at a
rate of 30%. The branch profits tax may not apply (or may apply at a reduced
rate) if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty. To claim exemption form withholding
or to claim the benefits of a treaty, a Non-U.S. Holder must provide property
executed Form 1001 or 4224 (or such successor from as the Internal Revenue
Service 9the "IRS") designates), as applicable prior to the payment of
interest. These forma must be periodically updated. Under new final regulations
effective, subject to certain transition rules, for payments after December 31,
1999, the Forms 1001 and 4224 will be replaced by a Form W-8. Also under these
regulations, a Non-U.S. Holder who is claiming the benefits of a treaty may be
required in certain instances to obtain a U.S. taxpayer identification number
and to
A-7
<PAGE>
provide certain documentary evidence issued by the appropriate foreign
governmental authority to prove residence in the foreign country. Certain
special procedures are provided in the final regulations for payments through
qualified intermediaries. Prospective purchasers are urged to consult their tax
advisors regarding the final regulations.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on gain recognized on a sale, redemption or other disposition of a Note unless
(i) the gain is effectively connected with the conduct of a trade or business
within the U.S. by the Non-U.S. Holder; (ii) in the case of a Non-U.S. Holder
who is a nonresident alien individual and holds the Notes as a capital asset,
such holder is present in the U.S. for 183 or more day sin the taxable year and
certain other requirements are met; or (iii) the Non-U.S. Holder is subject to
the special rules applicable to certain former citizens and residents of the
U.S.
FEDERAL ESTATE TAXES
Notes held (or treated a held) by an individual who is not a citizen or
resident of the United States (for federal estate tax purposes) at the time of
his or her death will not be subject to the U.S. federal estate tax, provided
that (i) the individual does not actually or constructively own 10% or more of
the total voting power of all voting stock of the Company and (ii) income on
the Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder
any interest paid to the Non-U.S. Holder. Copies of these information returns
may also be made available under the provisions of a specific treaty or other
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides.
In the case of a payments of interest to Non-U.S. Holders, Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established, provided that neither the Company nor its
payment agent has actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not in fact satisfied. The payment of the
proceeds from the disposition of Notes to or through the U.S. office of any
broker, U.S. or foreign, will be subject to information reporting and possible
backup withholding unless the owner certifies as its non-U.S. status under
penalty of perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the Holder is a U.S. person or that
the conditions of any other exemption are not, in fact, satisfied. The payment
of the proceeds form the disposition of Notes to or through a non-U.S. office
of a non-U.S. broker will not be subject to information reporting or backup
withholding unless the non-U.S. broker has certain types of relationships with
the U.S.
In the case of the payment of proceeds form the disposition of Notes to or
through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations r4equre information reporting (but not backup
withholding) on the payment unless the broker has documentary evidence in its
files that the owner is an Non-U.S. Holder and the broker has no knowledge to
the contrary.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
the final regulations do not significantly alter the substantive withholding
and information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. NON-U.S. HOLDER SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
A-8
<PAGE>
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
===============================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information ........................
Prospectus Summary ...........................
Risk Factors .................................
Use of Proceeds ..............................
Capitalization ...............................
Selected Historical Consolidated Financial
Data ......................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................
Business .....................................
The Transactions .............................
Management ...................................
Security Ownership of Certain Beneficial
Owners and Management .....................
Certain Relationships and Related
Transactions ..............................
Description of Certain Indebtedness ..........
Description of New Notes .....................
Certain U.S. Federal Income Tax
Consequences ..............................
Plan of Distribution .........................
Notice to Holders ............................
Legal Matters ................................
Experts ......................................
Index to Unaudited Pro Forma
Condensed Consolidated Financial
Data ...................................... P-1
Index to Consolidated Financial
Statements ................................ F-1
</TABLE>
===============================================================================
10 1/2% NEW SENIOR NOTES
DUE 2008
AKI, INC.
--------------------------------------------
PROSPECTUS
--------------------------------------------
, 1998
===============================================================================
A-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article Eighth of the Company's Certificate of Incorporation, (the
"Certificate of Incorporation") (incorporated by reference as Exhibit 3.1 to
this Registration Statement), eliminates the liability of the Company's
directors to the Company or its stockholders, except for liabilities related to
breach of duty of loyalty, actions not in good faith and certain other
liabilities.
Section 145 of the DGCL provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
Article Eighth of the Certificate of Incorporation provides that the
Company shall indemnify any director to the fullest extent permitted by the
DGCL. The Company also maintains officers' and directors' liability insurance
which insures against liabilities that officers and directors of the Company
may incur in such capacities.
Reference is made to Section 8 of the Registration Rights Agreement filed
as Exhibit 4.3 to this Exchange Offer Registration Statement which provides for
indemnification for the officers and directors of the Company and certain
control persons of the Company against certain liabilities, including
liabilities caused by any untrue statement of material fact or omission in any
registration statement, draft prospectus, prospectus or any amendments thereto.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1. Purchase Agreement dated June 22, 1998 between DLJ and the Company.
3.1. Certificate of Incorporation of the Company.*
3.2. Bylaws of the Company.
4.1. Indenture dated as of June 25, 1998 between the Company and IBJ Schroder Bank &
Trust Company, as Trustee.
4.2. Form of 10 1/2% Senior Notes due July 1, 2008.*
4.3. Registration Rights Agreement, dated as of June 25, 1998 between the Company and
DLJ.
5.1. Legal opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. concerning the legality of the
Notes.
8.1. Legal opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. concerning certain tax
matters.
10.1. Acquisition Corp. Stock Option Plan.
10.2. Option Letter Agreement relating to the Time Vesting Options dated as of June 17, 1998
between Acquisition Corp. and Roger L. Barnett.
10.3. Option Letter Agreement relating to the Standard Options dated as of June 17, 1998
between Acquisition Corp. and Roger L. Barnett.
II-1
<PAGE>
10.4. Employment Agreement dated as of June 17, 1998 between the Company and Roger L.
Barnett.
10.5. Employment Agreement dated as of May 12, 1998 between the Company and Barry W.
Miller.
10.6. Stockholders Agreement dated as of December 15, 1997 between Acquisition Corp.,
DLJMBII and certain other investors including Roger L. Barnett.
10.7. Credit Agreement dated as of April 30, 1996, as amended on December 12, 1997, between
the Company and Heller Financial, Inc.
10.8. Securities Purchase Agreement dated as of December 15, 1997 between the Company and
the Bridge Lender.*
10.9. Asset Purchase Agreement dated as of June 22, 1998 between Arcade Marketing, Inc. and
Minnesota, Mining and Manufacturing Company.
10.10. Acquisition Agreement dated as of December 15, 1997 between the Company and
DLJMBII and certain related investors.*
10.11. Put Option Agreement dated as of December , 1997 between Roger L. Barnett,
Acquisition Corp. and DLJMBII.*
10.12. Indenture dated as of June 25, 1998 between Holding and State Street Bank and Trust
Company.
12.1 Computation of Earnings to Fixed Charges.
16.1 Letter from Coopers & Lybrand L.L.P. dated as of , 1998 regarding Change in
Certifying Accountant.*
23.1. Consent of Price Waterhouse L.L.P.
23.2. Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in Exhibit 5.1).*
24.1. Powers of Attorney (included on signature page hereto).
25.1. Form T-1 Statement of Eligibility of Trustee and Qualification under the Trust Indenture
Act of 1939 of IBJ Schroder Bank & Trust Company, as Trustee under the Indenture.*
99.1. Letter of Transmittal.*
99.2 Notice of Guaranteed Delivery.*
</TABLE>
(b) Financial Statement Schedules
Schedule II -- Allowance for Doubtful Accounts
- ----------
* To be filed by amendment.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and Bylaws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in such Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in such Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
items 4.10(b), 11 or 13 of this Form, within one business day 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 Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 7th day of August 1998.
AKI, INC.
By: /s/ Kenneth A. Budde
-------------------------------------
Kenneth A. Budde
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger L. Barnett and David M. Wittels,
and each of them his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as might or could
be done in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ Roger L. Barnett President, Chief Executive Officer August 7, 1998
- ------------------------- (principal executive officer)
Roger L. Barnett and Director
/s/ Thompson Dean Chairman of the Board and Director August 7, 1998
- -------------------------
Thompson Dean
/s/ Barry W. Miller Chief Operating Officer August 7, 1998
- -------------------------
Barry W. Miller
/s/Kenneth A. Budde Chief Financial Officer (principal August 7, 1998
- ------------------------- financial officer and principal
Kenneth A. Budde accounting officer)
/s/Hugh R. Kirkpatrick Director August 7, 1998
- -------------------------
Hugh R. Kirkpatrick
Director August 7, 1998
- -------------------------
Mark Michaels
/s/ David M. Wittels Director August 7, 1998
- -------------------------
David M. Wittels
</TABLE>
II-4
<PAGE>
SCHEDULE II
AKI, INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
YEAR BEGINNING END OF
ENDED OF PERIOD ADDITIONS(1) DEDUCTIONS(2) PERIOD
- -------- ------------ -------------- --------------- -----------
<S> <C> <C> <C> <C>
1995 375 671 (667) 379
1996 379 337 (249) 467
1997 467 120 (268) 319
</TABLE>
- ----------
(1) Additions represent amounts charged to expense during the respective
periods.
(2) Deductions represent net writeoffs and recoveries recorded by the Company
during the respective periods.
<PAGE>
EXECUTION COPY
AKI, INC.
$115,000,000
10 1/2% SENIOR NOTES DUE 2008
PURCHASE AGREEMENT
JUNE 22, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
$115,000,000
10 1/2% Senior Notes due 2008
AKI, INC.
PURCHASE AGREEMENT
June 22, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
AKI, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation (the
"Initial Purchaser") an aggregate of $115,000,000 in principal amount of its 10
1/2% Senior Notes due 2008 (the "Series A Notes"), subject to the terms and
conditions set forth herein. The Series A Notes are to be issued pursuant to
the provisions of an indenture (the "Indenture"), to be dated as of the Closing
Date (as defined below), between the Company and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"). The Series A Notes and the Series B Notes
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "Notes". Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Indenture.
The Company intends to use the gross proceeds from the sale
to the Initial Purchaser of the Series A Notes to (i) repay the outstanding
principal of and accrued interest on $123.5 million in Senior Increasing Rate
Notes and (ii) fund working capital requirements and general corporate
purposes, including funding the purchase price of the acquisition of the
fragrance sampling business of the Consumer Products Division of Minnesota
Mining and Manufacturing Company.
1. OFFERING MEMORANDUM. The Series A Notes will be offered
and sold to the Initial Purchaser pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"Act"). The Company has prepared a preliminary offering memorandum, dated June
5, 1998 (the "Preliminary Offering
1
<PAGE>
Memorandum"), and a final offering memorandum, dated June 22, 1998 (the
"Offering Memorandum"), relating to the Series A Notes.
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Series A Notes (and
all securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER
OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A OR
REGULATION S THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF THE SECURITIES ACT
(AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF
AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000,
AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2)
TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
<PAGE>
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, an aggregate principal amount of $115.0 million of
Series A Notes at a purchase price equal to 97.0% of the principal amount
thereof (the "Purchase Price").
3. TERMS OF OFFERING. The Initial Purchaser has advised the
Company that the Initial Purchaser will make offers (the "Exempt Resales") of
the Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchaser reasonably believes to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBs") and (ii) to persons permitted to purchase
the Series A Notes in offshore transactions in reliance upon Regulation S under
the Act (each, a "Regulation S Purchaser") (such persons specified in clauses
(i) and (ii) being referred to herein as the "Eligible Purchasers"). The
Initial Purchaser will offer the Series A Notes to Eligible Purchasers
initially at a price equal to 100% of the principal amount thereof. Such price
may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "Registration Rights Agreement"), to be executed on and dated
the Closing Date, in substantially the form of Exhibit A hereto, for so long as
such Series A Notes constitute "Transfer Restricted Securities" (as defined in
the Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Securities and Exchange
Commission (the "Commission") under the circumstances set forth therein, (i) a
registration statement under the Act (the "Exchange Offer Registration
Statement") relating to the Company's new 10 1/2% Senior Notes due 2008 (the
"Series B Notes"), identical in all material respects to the Series A Notes
(except that the Series B Notes shall have been registered pursuant to such
Exchange Offer Registration Statement), to be offered in exchange for the
Series A Notes (such offer to exchange being referred to as the "Exchange
Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the
Act (the "Shelf Registration Statement" and, together with the Exchange Offer
Registration Statement, the "Registration Statements") relating to the resale
by certain holders of the Series A Notes, and to use their reasonable best
efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer.
This Agreement, the Indenture, the Series A Notes and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price for,
the Series A Notes shall be made at the offices of Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, New York 10022, or such other location as may be
mutually acceptable. Such delivery and payment shall be made at 9:00 a.m. New
York City time, on June 25, 1998 or at such other time on the same date or such
other date as shall be agreed upon by the Initial Purchaser and the
<PAGE>
Company in writing. The time and date of such delivery and the payment for the
Series A Notes are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global
form, registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (collectively, the "Global
Note"), shall be delivered by the Company to the Initial Purchaser (or as the
Initial Purchaser directs) in each case with any transfer taxes thereon duly
paid by the Company against payment by the Initial Purchaser of the Purchase
Price thereof by wire transfer in same day funds to the order of the Company.
The Global Note shall be made available to the Initial Purchaser for inspection
not later than 9:30 a.m., New York City time, on the business day immediately
preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY. As of the date hereof, the
Company hereby agrees with the Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly (and, if
requested by the Initial Purchaser, confirm such advice in writing) (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Notes for
offering or sale in any jurisdiction designated by the Initial Purchaser
pursuant to Section 5(e) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory authority
for such purpose and (ii) of the happening of any event during the period
referred to in Section 5(c) below that makes any statement of a material fact
made in the Offering Memorandum untrue or that requires any additions to or
changes in the Offering Memorandum in order to make the statements therein not
misleading. The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
of any Series A Notes under any state securities or Blue Sky laws and, if at
any time any state securities commission or other federal or state regulatory
authority shall issue an order suspending the qualification or exemption of any
Series A Notes under any state securities or Blue Sky laws, the Company shall
use its reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign entity in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation, other
than as to matters and transactions relating to the Preliminary Offering
Memorandum, the Offering Memorandum or Exempt Resales, in any jurisdiction in
which it is not now so subject.
(b) To furnish the Initial Purchaser and those persons
identified by the Initial Purchaser to the Company as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchaser may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchaser's
compliance with its representations and warranties and agreements set forth in
Section 7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchaser in connection with
Exempt Resales.
<PAGE>
(c) During such period, as in the opinion of counsel for
the Initial Purchaser, an Offering Memorandum is required by law to be
delivered in connection with Exempt Resales by the Initial Purchaser and in
connection with market-making activities of the Initial Purchaser for so long
as any Series A Notes are outstanding, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchaser shall not
previously have been advised or to which the Initial Purchaser shall reasonably
object in writing after being so advised and (ii) to prepare promptly upon the
Initial Purchaser's reasonable request, any amendment or supplement to the
Offering Memorandum that may be necessary or advisable in connection with such
Exempt Resales or such market-making activities; provided, however, that the
Company shall have the right to determine the form and substance of such
amendment or supplement to the Offering Memorandum, in consultation with the
Initial Purchaser.
(d) If, during the period referred to in Section 5(c)
above, any event shall occur or condition shall exist as a result of which, in
the opinion of counsel to the Initial Purchaser, it becomes necessary to amend
or supplement the Offering Memorandum in order to make the statements therein,
in the light of the circumstances when such Offering Memorandum is delivered to
an Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchaser, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of
the circumstances existing when it is so delivered, be misleading, or so that
such Offering Memorandum will comply with applicable law, and to furnish to the
Initial Purchaser and such other persons as the Initial Purchaser may designate
such number of copies thereof as the Initial Purchaser may reasonably request.
(e) Prior to the sale of all Series A Notes pursuant to
Exempt Resales as contemplated hereby, to cooperate with the Initial Purchaser
and counsel to the Initial Purchaser in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial Purchaser
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchaser may reasonably request and to continue
such registration or qualification in effect so long as required for Exempt
Resales and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
in which it is not now so qualified or to take any action that would subject it
to general consent to service of process or taxation other than as to matters
and transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) So long as the Notes are outstanding and the Indenture
so requires, (i) to mail and make generally available as soon as practicable
after the end of each fiscal year to the record holders of the Notes a
financial report of the Company and its subsidiaries on a consolidated basis,
all such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash flows
and a consolidated statement of shareholders' equity as of the end of and for
such fiscal year, together with
<PAGE>
comparable information as of the end of and for the preceding year, certified
by the Company's independent public accountants and (ii) to mail and make
generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, a consolidated balance sheet, a consolidated statement of operations
and a consolidated statement of cash flows (and similar financial reports of
all unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the corresponding
periods of the preceding year.
(g) So long as the Notes are outstanding, to furnish to
the Initial Purchaser as soon as available copies of all reports or other
communications furnished by the Company to its security holders generally or
furnished to or filed with the Commission or any national securities exchange
on which any class of securities of the Company is listed and such other
publicly available information concerning the Company and/or its subsidiaries
as the Initial Purchaser may reasonably request.
(h) So long as any of the Series A Notes remain
outstanding and during any period in which the Company is not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder of Series A Notes in
connection with any sale thereof and any prospective purchaser of such Series A
Notes from such holder, the information ("Rule 144A Information") required by
Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to
be paid all expenses incident to the performance of the obligations of the
Company under this Agreement, including: (i) the fees, disbursements and
expenses of counsel to the Company and accountants of the Company in connection
with the sale and delivery of the Series A Notes to the Initial Purchaser and
pursuant to Exempt Resales, and all other fees and expenses in connection with
the preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements to any
of the foregoing (including financial statements), including the mailing and
delivering of copies thereof to the Initial Purchaser and persons designated by
it in the quantities specified herein, (ii) all costs and expenses related to
the transfer and delivery of the Series A Notes to the Initial Purchaser and
pursuant to Exempt Resales, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement, the other
Operative Documents and any other agreements or documents in connection with
the offering, purchase, sale or delivery of the Series A Notes (other than the
fees of counsel for the Initial Purchaser, except as provided by Section
5(i)(iv) below), (iv) all expenses in connection with the registration or
qualification of the Series A Notes for offer and sale under the securities or
Blue Sky laws of the several states and all costs of printing or producing any
preliminary and supplemental Blue Sky memoranda in connection therewith
(including the filing fees and the reasonable fees and disbursements of counsel
for the Initial Purchaser in connection with such registration or qualification
and memoranda relating thereto), (v) the cost of printing certificates
representing the Notes, (vi) all expenses and listing fees in connection with
the application for quotation of the Series A Notes in the National Association
of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL
<PAGE>
("PORTAL"), (vii) the fees and expenses of the Trustee in connection with the
Indenture and the Notes, (viii) the costs and charges of any transfer agent,
registrar and/or depositary (including DTC), (ix) any fees charged by rating
agencies for the rating of the Notes, (x) all costs and expenses of the
Exchange Offer and any Registration Statement, as set forth in the Registration
Rights Agreement and (xi) and all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section (5)(i).
(j) To use its reasonable best efforts to effect the
inclusion of the Series A Notes in PORTAL and to maintain the listing of the
Series A Notes on PORTAL for so long as the Series A Notes are outstanding.
(k) To use its reasonable best efforts to obtain the
approval of DTC for "book-entry" transfer of the Notes, and to comply with all
of its agreements set forth in the representation letters of the Company to DTC
relating to the approval of the Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any warrants, rights or options to purchase or otherwise acquire debt
securities of the Company substantially similar to the Notes (other than (i)
the Notes and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of the Initial Purchaser, which will not be
unreasonably held.
(m) Not to sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Series A Notes to the Initial
Purchaser or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Series A Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Notes.
(o) To cause the Exchange Offer to be made in the
appropriate form to permit Series B Notes registered pursuant to the Act to be
offered in exchange for the Series A Notes and to comply with all applicable
federal and state securities laws in connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(q) To use its reasonable best efforts to do and perform
all things required or necessary to be done and performed under this Agreement
by it prior to the Closing Date and to satisfy or obtain the waiver of all
conditions precedent to the delivery of the Series A Notes.
(r) Not to use any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in connection
with the offer and sale of the
<PAGE>
Series A Notes pursuant hereto, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
As of the date hereof, the Company represents and warrants to, and agrees with,
the Initial Purchaser that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this paragraph (a)
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchaser furnished to the
Company in writing by the Initial Purchaser expressly for use therein. No stop
order preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(c) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights.
(d) The entities listed on Schedule A hereto are the only
subsidiaries, direct or indirect, of the Company. All of the outstanding shares
of capital stock of each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and are
owned by the Company, directly or indirectly through one or more subsidiaries,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a "Lien").
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
<PAGE>
(f) The Indenture has been duly authorized by the Company
and, on the Closing Date, will have been validly executed and delivered by the
Company. When the Indenture has been duly executed and delivered by the Company
(and assuming the due authorization, execution and delivery thereof by the
Trustee), the Indenture will be a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939, as
amended (the "TIA" or "Trust Indenture Act"), and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
(g) The Series A Notes have been duly authorized by the
Company for issuance and sale to the Initial Purchaser pursuant to this
Agreement and, on the Closing Date, will have been validly executed and
delivered by the Company. When the Series A Notes have been issued, executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchaser in accordance with the terms
of this Agreement, the Series A Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable in accordance with their terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Series A Notes will conform in
all material respects as to legal matters to the description thereof contained
in the Offering Memorandum.
(h) On the Closing Date, the Series B Notes will have been
duly authorized by the Company. When the Series B Notes are issued, executed
and authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the benefits of the Indenture
and will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(i) The Registration Rights Agreement has been duly
authorized by the Company and, on the Closing Date, will have been duly
executed and delivered by the Company. When the Registration Rights Agreement
has been duly executed and delivered by the Company and the Initial Purchaser,
the Registration Rights Agreement will be the valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as (i) the enforcement thereof may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Registration Rights Agreement will conform in all material respects as to
legal matters to the description thereof contained in the Offering Memorandum.
<PAGE>
(j) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, except as would not,
singly or in the aggregate, result in a Material Adverse Effect.
(k) The execution, delivery and performance of this
Agreement and the other Operative Documents by the Company, compliance by the
Company with all provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except (i) in regards to the Registration Rights
Agreement and the transactions contemplated thereby, and (ii) such as may be
required under the securities or Blue Sky laws of the various states), (ii)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any of its subsidiaries
or any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound,
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property, (iv) result in the imposition or creation of (or the
obligation to create or impose) a Lien under, any agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound, or (v) result
in the termination, suspension or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or result in any other
impairment of the rights of the holder of any such Authorization; except as
would not, singly or in the aggregate, result in a Material Adverse Effect.
(l) There are no legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is a party or to
which any of their respective property is reasonably expected to be subject,
which might, singly or in the aggregate, result in a Material Adverse Effect.
(m) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules
and regulations promulgated thereunder, except for such violations which would
not, singly or in the aggregate, result in a Material Adverse Effect.
(n) Except as set forth in the Offering Memorandum, there
are no costs or liabilities associated with Environmental Laws (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any
<PAGE>
potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(o) Each of the Company and its subsidiaries has such
permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without limitation,
under any applicable Environmental Laws, as are necessary to own, lease,
license and operate its respective properties and to conduct its business,
except where the failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a Material Adverse
Effect. Each such Authorization is valid and in full force and effect and each
of the Company and its respective subsidiaries is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; and
no event has occurred (including, without limitation, the receipt of any notice
from any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, result in a Material Adverse Effect.
(p) The Company and its subsidiaries own or possess, or
can acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names ("intellectual
property") currently employed by them in connection with the business now
operated by them; except where the failure to own or possess or otherwise be
able to acquire such intellectual property would not, singly or in the
aggregate, have a Material Adverse Effect; and, to the best knowledge of the
Company after due inquiry, neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.
(q) The Company and its subsidiaries maintain reasonably
adequate insurance.
(r) Since the respective dates as of which information is
given in the Offering Memorandum, other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to
the date of this Agreement), (i) there has not occurred any material adverse
change or any development involving a prospective material adverse change in
the condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii) there
has not been any material adverse change or any development involving a
prospective material adverse change in the capital stock or in the long-term
debt of the Company or any of its subsidiaries and (iii)
<PAGE>
neither the Company nor any of its subsidiaries have incurred any material
liability or obligation, direct or contingent.
(s) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened against
the Company or any of its subsidiaries before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or more significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending against the Company or any of its
subsidiaries or, to the best knowledge of the Company, threatened against them,
(ii) strike, labor dispute, slowdown or stoppage pending or threatened against
the Company or any of its subsidiaries or (iii) union representation question
existing with respect to the employees of the Company or any of its
subsidiaries; except for such actions which, singly or in the aggregate, would
not result in a Material Adverse Effect.
(t) All tax returns required to be filed by the Company
and its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all taxes, including withholding
taxes, penalties and interest, assessments, fees and other charges due pursuant
to such returns or pursuant to any assessment received by the Company or any of
its subsidiaries have been paid, other than those being contested in good faith
and for which adequate reserves have been provided, except for such tax returns
the failure to file, and such taxes the failure to pay, as would not, singly or
in the aggregate, result in a Material Adverse Effect.
(u) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(v) All indebtedness of the Company that will be repaid
with the proceeds of the issuance and sale of the Series A Notes was incurred,
and the indebtedness represented by the Series A Notes is being incurred, for
proper purposes and in good faith. At the time of the incurrence of such
indebtedness that will be repaid with the proceeds of the issuance and sale of
the Series A Notes, and on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Series A Notes), (a) the
fair value and present fair saleable value of the Company's assets exceeds and
would exceed its stated liabilities and identified contingent liabilities, (b)
the Company should be able to pay its debts as they become absolute and matured
and (c) the capital of the Company is not and would not be unreasonably small
for the business in which it is engaged.
(w) The accountants, Price Waterhouse L.L.P., that have
certified the financial statements included in the Preliminary Offering
Memorandum and the Offering
<PAGE>
Memorandum are independent public accountants with respect to the Company, as
required by the Act and the Exchange Act.
(x) The historical financial statements, together with
related notes forming part of the Offering Memorandum (and any amendment or
supplement thereto), present fairly in all material respects the consolidated
financial position, results of operations and changes in financial position of
the Company and its subsidiaries on the basis stated in the Offering Memorandum
at the respective dates or for the respective periods to which they apply. Such
statements and related notes have been prepared in all material respects
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed in the Offering
Memorandum. The other financial and statistical information and data set forth
in the Offering Memorandum (and any amendment or supplement thereto) are, in
all material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
(y) The pro forma financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements of the Company
and its subsidiaries and give effect to assumptions used in the preparation
thereof on a reasonable basis and in good faith and present fairly the
historical and proposed transactions contemplated by the Preliminary Offering
Memorandum and the Offering Memorandum The pro forma financial and statistical
information and data included in the Offering Memorandum are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(z) In the Company's opinion, the assumptions used in the
preparation of the pro forma financial statements included in the Offering
Memorandum are reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to therein.
(aa) The Company is not and, after giving effect to the
offering and sale of the Series A Notes and the application of the net proceeds
thereof as described in the Offering Memorandum will not be, an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
(bb) Other than the Registration Rights Agreement, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Notes
registered pursuant to any Registration Statement.
(cc) Neither the Company nor any of its subsidiaries nor
any agent thereof acting on the behalf of them has taken, and none of them will
take, any action that might cause this Agreement or the issuance or sale of the
Series A Notes to violate Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors
of the Federal Reserve System.
<PAGE>
(dd) Except as described in the Offering Memorandum, there
are no outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens related to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of, or other
ownership interest in, the Company or any of its subsidiaries.
(ee) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(ff) When the Series A Notes are issued and delivered
pursuant to this Agreement, the Series A Notes will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of the Company
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system.
(gg) No form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) was used by the
Company or any of its representatives (other than the Initial Purchaser, as to
whom the Company makes no representation) in connection with the offer and sale
of the Series A Notes contemplated hereby, including, but not limited to,
articles, notices or other communications published in any newspaper, magazine,
or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or
general advertising. No securities of the same class as the Series A Notes have
been issued and sold by the Company within the six-month period immediately
prior to the date hereof.
(hh) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.
(ii) None of the Company nor any of its affiliates or any
person acting on its or their behalf (other than the Initial Purchaser, as to
whom the Company makes no representation) has engaged or will engage in any
"directed selling efforts" within the meaning of Regulation S under the Act
("Regulation S") with respect to the Series A Notes.
(jj) The Company has not, and will not, offer or sell the
Series A Notes as part of a plan or scheme to evade the registration provisions
of the Act.
(kk) The Company and its affiliates and all persons acting
on their behalf (other than the Initial Purchaser, as to whom the Company makes
no representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering of
the Series A Notes outside the United States and, in connection therewith, the
Offering Memorandum will contain the disclosure required by Rule 902(g)(2).
(ll) The Series A Notes sold in reliance on Regulation S
will be represented upon issuance by a temporary global security that may not
be exchanged for definitive securities until the expiration of the
"distribution compliance period" referred to in Rule 903(b)(2) of the Act and
only upon certification of beneficial ownership of such Series A
<PAGE>
Notes by non-U.S. persons or U.S. persons who purchased such Series A Notes in
transactions that were exempt from the registration requirements of the Act.
(mm) No registration under the Act of the Series A Notes
is required for the sale of the Series A Notes to the Initial Purchaser as
contemplated hereby or for the Exempt Resales, assuming the accuracy of the
Initial Purchaser's representations and warranties and agreements set forth in
Section 7 hereof.
(nn) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed the Company that it is considering
imposing) any condition (financial or otherwise) on the Company's retaining any
rating assigned as of the date hereof to the Company or any securities of the
Company or (ii) has indicated to the Company that it is considering (a) the
downgrading, suspension or withdrawal of, or any review for a possible change
that does not indicate the direction of the possible change in, any rating so
assigned or (b) any change in the outlook for any rating of the Company or any
securities of the Company.
(oo) Each certificate signed by any officer of the Company
and delivered to the Initial Purchaser or counsel for the Initial Purchaser
shall be deemed to be a representation and warranty by the Company to the
Initial Purchaser as to the matters covered thereby.
The Company acknowledges that the Initial Purchaser and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchaser,
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
Initial Purchaser represents and warrants to the Company that:
(a) The Initial Purchaser is either a QIB or an
institution that is an "accredited investor" as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act (an "Accredited Institution"), in either
case, with such knowledge and experience in financial and business matters as
is necessary in order to evaluate the merits and risks of an investment in the
Series A Notes.
(b) The Initial Purchaser (A) is not acquiring the Series
A Notes with a view to any distribution thereof or with any present intention
of offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) The Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the
<PAGE>
Series A Notes pursuant hereto, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
(d) The Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Series A
Notes only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell
the Series A Notes only to, and will solicit offers to buy the Series A Notes
only from (A) Eligible Purchasers that the Initial Purchaser reasonably
believes are QIBs and (B) Regulation S Purchasers, in each case, that agree
that (x) the Series A Notes purchased by them may be resold, pledged or
otherwise transferred within the time period referred to under Rule 144(k)
(taking into account the provisions of Rule 144(d) under the Act, if
applicable) under the Act, as in effect on the date of the transfer of such
Series A Notes, only (I) to the Company or any of its subsidiaries, (II) to a
person whom the seller reasonably believes is a QIB purchasing for its own
account or for the account of a QIB in a transaction meeting the requirements
of Rule 144A under the Act, (III) in an offshore transaction (as defined in
Rule 902 under the Act) meeting the requirements of Rule 904 of the Act, (IV)
in a transaction meeting the requirements of Rule 144 under the Act, (V) to an
Accredited Institution that, prior to such transfer, furnishes the Trustee a
signed letter containing certain representations and agreements relating to the
registration of transfer of such Series A Note (the form of which is
substantially the same as Exhibit D to the Indenture) and, if such transfer is
in respect of an aggregate principal amount of Series A Notes less than
$250,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Act, (VI) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of counsel
acceptable to the Company) or (VII) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other applicable jurisdiction and (y)
they will deliver to each person to whom such Series A Notes or an interest
therein is transferred a notice substantially to the effect of the foregoing.
(e) The Initial Purchaser and its affiliates or any person
acting on its or their behalf have not engaged or will not engage in any
"directed selling efforts" within the meaning of Regulation S with respect to
the Series A Notes.
(f) The Series A Notes offered and sold by the Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by the
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
(h) The Initial Purchaser agrees that it has not offered
or sold and will not offer or sell the Series A Notes in the United States or
to, or for the benefit or account of, a U.S. Person (other than a distributor),
in each case, as defined in Rule 902 under the Act (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later of
the
<PAGE>
commencement of the offering of the Series A Notes pursuant hereto and the
Closing Date, other than in accordance with Regulation S of the Act or another
exemption from the registration requirements of the Act. Such Initial Purchaser
agrees that, during such 40-day "distribution compliance period", it will not
cause any advertisement with respect to the Series A Notes (including any
"tombstone" advertisement) to be published in any newspaper or periodical or
posted in any public place and will not issue any circular relating to the
Series A Notes, except such advertisements as permitted by and including the
statements required by Regulation S.
(i) The Initial Purchaser agrees that, at or prior to
confirmation of a sale of Series A Notes by it to any distributor, dealer or
person receiving a selling concession, fee or other remuneration during the
40-day "distribution compliance period" referred to in Rule 902(g)(2) under the
Act, it will send to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to substantially
the following effect:
"The Series A Notes covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part of your distribution
at any time or (ii) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, except in either
case in accordance with Regulation S under the Securities Act (or Rule
144A or to Accredited Institutions in transactions that are exempt
from the registration requirements of the Securities Act), and in
connection with any subsequent sale by you of the Series A Notes
covered hereby in reliance on Regulation S during the period referred
to above to any distributor, dealer or person receiving a selling
concession, fee or other remuneration, you must deliver a notice to
substantially the foregoing effect. Terms used above have the meanings
assigned to them in Regulation S."
(j) The Initial Purchaser agrees that the Series A Notes
offered and sold in reliance on Regulation S will be represented upon issuance
by a global security that may not be exchanged for definitive securities until
the expiration of the 40-day "distribution compliance period" referred to in
Rule 902(g)(2) of the Act and only upon certification of beneficial ownership
of such Series A Notes by non-U.S. persons or U.S. persons who purchased such
Series A Notes in transactions that were exempt from the registration
requirements of the Act.
The Initial Purchaser acknowledges that the Company and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchaser
will rely upon the accuracy and truth of the foregoing representations and the
Initial Purchaser hereby consents to such reliance.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Initial Purchaser, its directors, its officers and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any
<PAGE>
legal or other expenses reasonably incurred in connection with investigating or
defending any matter, including any action, that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Memorandum (or any amendment or supplement thereto), the Preliminary
Offering Memorandum or any Rule 144A Information provided by the Company to any
holder or prospective purchaser of Series A Notes pursuant to Section 5(h) or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to the Initial Purchaser
furnished in writing to the Company by the Initial Purchaser; provided,
however, that the foregoing indemnity agreement with respect to any Preliminary
Offering Memorandum shall not inure to the benefit of the Initial Purchaser if
the Initial Purchaser should fail to deliver an Offering Memorandum as then
amended or supplemented (so long as the Offering Memorandum and any amendment
or supplement thereto was provided by the Company to the Initial Purchaser in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, if such material misstatement or omission or alleged material
misstatement or omission was cured in the Offering Memorandum, as so amended or
supplemented.
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company and its respective directors and officers and each person,
if any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) the Company, to the same extent as the foregoing indemnity
from the Company to the Initial Purchaser but only with reference to
information relating to the Initial Purchaser furnished in writing to the
Company by the Initial Purchaser expressly for use in the Preliminary Offering
Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchaser shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchaser). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such
<PAGE>
action or employ counsel reasonably satisfactory to the indemnified party or
(iii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party, and a conflict
or potential conflict exists based on advice of counsel to the indemnified
party between the indemnified party and the indemnifying party (in which case
the indemnifying party shall not have the right to direct or assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation, in the case of the parties
indemnified pursuant to Section 8(a), and by the Company, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty business
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could
have been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Initial Purchaser on the other hand from the
offering of the Series A Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company, on the one hand, and
the Initial Purchaser, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand and the Initial Purchaser, on
the other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (after underwriting discounts
and commissions, but before deducting expenses) received by the Company, and
the total discounts and commissions received by the Initial Purchaser bear to
the total price to investors of the Series A Notes, in each case as set forth
in the
<PAGE>
table on the cover page of the Offering Memorandum. The relative fault of the
Company, on the one hand, and the Initial Purchaser, on the other hand, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, on the
one hand, or the Initial Purchaser, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Initial Purchaser agree that it would
not be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, the Initial Purchaser shall not be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by the Initial Purchaser exceeds the amount of any damages
which the Initial Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The
obligation of the Initial Purchaser to purchase the Series A Notes under this
Agreement is subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement and the other Operative Documents shall be true and
correct in all material respects, except where otherwise qualified, on the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice
have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change in,
any rating of the Company or any securities of the Company (including, without
limitation, the placing of any of the foregoing ratings on credit watch with
negative or developing implications or under review with an uncertain
direction) by any "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act, (ii) there
shall not have occurred any change, nor shall notice have been given of any
<PAGE>
potential or intended change, in the outlook for any rating of the Company by
any such rating organization and (iii) no such rating organization shall have
given notice that it has assigned (or is considering assigning) a lower rating
to the Notes than that on which the Notes were marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum other than as contemplated by the Offering
Memorandum, (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there shall not have been any change or
any development involving a prospective change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your reasonable
judgment, is material and adverse and, in your reasonable judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum.
(d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by each of the President and the
Chief Financial Officer of the Company, confirming the matters set forth in
Sections 9(a), 9(b) and 9(c) and stating that, to such Officer's reasonable
knowledge and belief, the Company has complied with all agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied on or prior to the Closing Date.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated the Closing
Date, of Weil, Gotshal & Manges LLP, counsel for the Company, to the effect
that:
(i) the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of
its states of incorporation and has all requisite
corporate power and authority to own, lease and operate
its properties and to carry on its business as now being
conducted;
(ii) the Company has all requisite corporate power and
authority to execute and deliver the Series A Notes
delivered on the Closing Date, the Indenture, the
Registration Rights Agreement and this Agreement
(collectively, the "Note Documents") and to perform its
obligations thereunder. The execution, delivery and
performance of the Note Documents by the Company and the
consummation by the Company of the transactions
contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company. The
Note Documents have been duly and validly executed and
delivered by the Company;
(iii) the issuance of the Series A Notes delivered on
the Closing Date has been duly authorized by all necessary
corporate action on the part of the Company. The Series A
Notes delivered on the Closing Date, when duly executed by
the Company and authenticated by the
<PAGE>
Trustee in accordance with the terms of the Indenture and
duly delivered against receipt of payment therefor in
accordance with the terms of this Agreement, will be
entitled to the benefits of the Indenture and will
constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance
with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium, and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability,
to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a
proceeding at law or in equity);
(iv) assuming the due authorization, execution and
delivery thereof by the Trustee (in the case of the
Indenture) and the Initial Purchaser (in the case of the
Registration Rights Agreement), each of the Indenture and
the Registration Rights Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and similar laws affecting
creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity,
including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity) and subject
to the qualification that rights to indemnification and
contribution under the Registration Rights Agreement may
be limited by federal or state securities laws or public
policy relating thereto;
(v) the issuance of the Series B Notes to be delivered
in connection with the consummation of the Exchange Offer
has been duly authorized by all necessary corporate action
on the part of the Company;
(vi) the execution and delivery of the Note Documents,
the consummation of the transactions contemplated thereby
and compliance by the Company with the provisions thereof
will not conflict with, constitute a default under or
violate (i) any of the terms, conditions or provisions of
the certificate of incorporation or bylaws of the Company,
(ii) any of the terms, conditions or provisions of any
material document, agreement or other instrument to which
the Company is a party or by which it is bound of which we
are aware, (iii) any New York, Delaware corporate or
federal law or regulation (other than federal and state
securities or blue sky laws, as to which such counsel need
not express any opinion in this paragraph), or (iv) any
judgment, writ, injunction, decree, order or ruling of any
court or governmental authority binding on the Company of
which we are aware;
<PAGE>
(vii) no consent, approval, waiver, license or
authorization or other action by or filing with any New
York, Delaware corporate or federal governmental authority
is required in connection with the execution and delivery
by the Issuers, to the extent a party thereto, of the Note
Documents or the consummation by the Company of the
transactions contemplated thereby, except for (i) the
applicable requirements of federal and state securities or
blue sky laws, as to which such counsel need not express
any opinion in this paragraph) and (ii) those already
obtained and which are in full force and effect;
(viii) to such counsel's knowledge, there is no
litigation, proceeding or governmental investigation
pending or overtly threatened against the Company that
relates to the any of the transactions contemplated by
this Agreement;
(ix) to such counsel's knowledge, there is no material
document, agreement or other instrument to which the
Company is a party (other than the Registration Rights
Agreement) granting any person the right to require the
Company to file a registration statement under the
Securities Act with respect to any securities of the
Company or to require the Company to include such
securities with the Series A Notes registered pursuant to
any Registration Statement;
(x) the Company is not, and after giving effect to the
offering and sale of the Series A Notes in accordance with
the terms of this Agreement and the application of the net
proceeds thereof as described in the Offering Memorandum
under the caption "Use of Proceeds," will not be, an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(xi) the Indenture and the Series A Notes delivered on
the Closing Date conform in all material respects as to
legal matters to the description thereof contained in the
Offering Memorandum under the caption "Description of
Notes";
(xii) assuming that the representations and warranties
of the Initial Purchaser contained in this Agreement are
true, correct and complete and assuming compliance by the
Initial Purchaser with its covenants contained in this
Agreement, it is not necessary in connection with the
offer, sale and delivery of the Series A Notes delivered
on the Closing Date to the Initial Purchaser pursuant to
this Agreement or the resales of such Series A Notes by
the Initial Purchaser in the manner contemplated by this
Agreement to register such Series A Notes under the
Securities Act or to qualify the Indenture under the TIA;
(xiii) all of the outstanding shares of the Company's
capital stock are duly authorized, validly issued, fully
paid and non-assessable,
<PAGE>
and have not been issued in violation of any preemptive
rights pursuant to law or in the Company's certificate of
incorporation; and
(xiv) based on the assumptions and subject to the
qualifications set forth therein, the discussion set forth
under the heading "Certain U.S. Federal Tax Considerations
for Non-U.S. Holders" in the Offering Memorandum, as it
relates to legal conclusions and matters of law,
accurately describes the material United States federal
income tax consequences of the acquisition, ownership and
disposition of Notes by an initial beneficial owner of
Notes that, for U.S. federal income tax purposes, is not a
"U.S. person."
In addition, such counsel shall state that it has
participated in conferences with directors, officers and other representatives
of the Company, representatives of the independent public accountants for the
Company, representatives of the Initial Purchaser and representatives of
counsel for the Initial Purchaser, at which conferences the contents of the
final Offering Memorandum and related matters were discussed, and, although
such counsel has not independently verified and is not passing upon and assumes
no responsibility for the accuracy, completeness or fairness of the statements
contained in the final Offering Memorandum (except to the extent specified in
clause (xi) above), no facts have come to such counsel's attention which lead
such counsel to believe that the final Offering Memorandum, as of the date of
the final Offering Memorandum and the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statement contained
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel expresses no view with
respect to the financial statements and related notes, the financial statement
schedules, the assumptions and the other financial and accounting data included
in the final Offering Memorandum).
The opinion of Weil, Gotshal & Manges LLP described in
Section 9(e) above shall be rendered to you at the request of the Company and
shall so state therein. In giving such opinion with respect to the matters
covered by Section 9(e)(xxiii), Weil, Gotshal & Manges LLP may state that their
opinion and belief are based upon their participation in the preparation of the
Offering Memorandum and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as specified.
(f) The Initial Purchaser shall have received on the Closing
Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the
Initial Purchaser, in form and substance reasonably satisfactory to the Initial
Purchaser.
(g) The Initial Purchaser shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof and the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchaser from Price Waterhouse L.L.P., independent
public accountants for the Company and, in each case containing the information
and statements of the type ordinarily included in accountants'
<PAGE>
"comfort letters" to the Initial Purchaser with respect to the financial
statements and certain financial information contained in the Offering
Memorandum.
(h) The Series A Notes shall have been approved by the
NASD for trading, and duly listed in, PORTAL.
(i) The Initial Purchaser shall have received a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Company and the Trustee.
(j) The Company shall have executed the Registration
Rights Agreement and the Initial Purchaser shall have received an original copy
thereof, duly executed by the Company.
(k) The Company shall have executed this Agreement and the
Initial Purchaser shall have received an original copy thereof, duly executed
by the Company.
(l) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably require
for the purpose of enabling them to review or pass upon the matters referred to
in this Section 9 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations, warranties
or conditions herein contained.
(m) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchaser such further information, certificates and
documents as the Initial Purchaser may reasonably request.
(n) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Company at or prior to the
Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the
Closing Date by the Initial Purchaser by written notice to the Company if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchaser's reasonable judgment, is material and adverse and, in
the Initial Purchaser's reasonable judgment, makes it impracticable to market
the Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum, (ii) the suspension or material limitation of trading in securities
or other instruments on the New York Stock Exchange, the American Stock
Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or
limitation on prices for securities or other instruments on any such exchange
or the Nasdaq National Market, (iii) the suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute,
<PAGE>
regulation, rule or order of any court or other governmental authority that in
the Initial Purchaser's opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Initial Purchaser's opinion has a material adverse effect on the financial
markets in the United States.
11. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to 1815
East Main Street, Chattanooga, Tennessee 37404, Attention: Chief Financial
Officer and to 120 East 56th Street, New York, NY 10022, Attention: President,
and (ii) if to the Initial Purchaser, Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the Initial
Purchaser set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchaser, the officers or directors of the Initial Purchaser, any person
controlling the Initial Purchaser, the Company, the officers or directors of
the Company, or any person controlling the Company, (ii) acceptance of the
Series A Notes and payment for them hereunder and (iii) termination of this
Agreement.
If for any reason the Series A Notes are not delivered by or
on behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company agrees to
reimburse the Initial Purchaser for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of counsel) incurred by it.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all reasonable expenses which it has agreed to pay pursuant to Section 5(i)
hereof. The Company also agrees to reimburse the Initial Purchaser and its
officers, directors and each person, if any, who controls such Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act for any and all reasonable fees and expenses (including without
limitation the reasonable fees and expenses of counsel) incurred by them in
connection with enforcing their rights under this Agreement (including without
limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Initial Purchaser, the Initial Purchaser's directors and officers, any
controlling persons referred to herein, the directors of the Company and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Series A Notes from the Initial Purchaser merely
because of such purchase.
<PAGE>
This Agreement shall be governed and construed in accordance
with the internal laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
* * * *
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the Initial Purchaser as of the date first
above written.
Very truly yours,
AKI, INC.
By:_____________________________
Name:
Title:
<PAGE>
The foregoing Purchase Agreement is hereby confirmed and accepted as of the
date first above written by Donaldson, Lufkin & Jenrette Securities
Corporation, as the Initial
Purchaser.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_______________________________
Name:
Title:
<PAGE>
SCHEDULE A
SUBSIDIARIES
Scent Seal, Inc.
Arcade Europe SARL
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
ARCADE MARKETING, INC.,
A Delaware Corporation
1
<PAGE>
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent 1
1.2 Other Offices 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting 1
2.2 Special Meeting 1
2.3 Place of Meetings 2
2.4 Notice 2
2.5 Voting List 2
2.6 Quorum 3
2.7 Required Vote; Withdrawal of Quorum 3
2.8 Method of Voting; Proxies 3
2.9 Record Date 4
2.10 Conduct of Meeting 5
2.11 Inspectors 5
ARTICLE THREE: DIRECTORS
3.1 Management 5
3.2 Number; Qualification; Election; Term 6
3.3 Change in Number 6
3.4 Removal 6
3.5 Vacancies 6
3.6 Meetings of Directors 7
3.7 First Meeting 7
3.8 Election of Officers 7
3.9 Regular Meetings 7
3.10 Special Meetings 7
3.11 Notice 7
3.12 Quorum; Majority Vote 8
3.13 Procedure 8
3.14 Presumption of Assent 8
3.15 Compensation 8
ARTICLE FOUR: COMMITTEES
2
<PAGE>
4.1 Designation 9
4.2 Number; Qualification; Term 9
4.3 Authority 9
4.4 Committee Changes 9
4.5 Alternate Members of Committees 9
4.6 Regular Meetings 9
4.7 Special Meetings 10
4.8 Quorum; Majority Vote 10
4.9 Minutes 10
4.10 Compensation 10
4.11 Responsibility 10
ARTICLE FIVE: NOTICE
5.1 Method 10
5.2 Waiver 11
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office 11
6.2 Removal 11
6.3 Vacancies 11
6.4 Authority 12
6.5 Compensation 12
6.6 Chairman of the Board 12
6.7 President 12
6.8 Vice Presidents 12
6.9 Treasurer 12
6.10 Assistant Treasurers 13
6.11 Secretary 13
6.12 Assistant Secretaries 13
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares 13
7.2 Replacement of Lost or Destroyed Certificates 14
7.3 Transfer of Shares 14
7.4 Registered Stockholders 14
7.5 Regulations 14
7.6 Legends 14
ii
<PAGE>
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends 15
8.2 Reserves 15
8.3 Books and Records 15
8.4 Fiscal Year 15
8.5 Seal 15
8.6 Resignations 15
8.7 Securities of Other Corporations 16
8.8 Telephone Meetings 16
8.9 Action Without a Meeting 16
8.10 Invalid Provisions 17
8.11 Mortgages, etc. 17
8.12 Headings 17
8.13 References 17
8.14 Amendments 17
iii
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
ARCADE MARKETING, INC.,
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware (the "DGCL") and the certificate of incorporation
of Arcade Marketing, Inc., a Delaware corporation (the "Corporation"). In the
event of a direct conflict between the provisions of these bylaws and the
mandatory provisions of the DGCL or the provisions of the certificate of
incorporation of the Corporation, such provisions of the DGCL or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State
of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of
directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
iv
<PAGE>
2.2 Special Meeting. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President or the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held
at any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person(s) calling the meeting, to each stockholder of record
entitled to vote at such meeting. If such notice is to be sent by mail, it
shall be directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy.
2.5 Voting List. At least ten days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the board of
directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and number of shares registered in the name of each stockholder.
For a period of ten days prior to such meeting, such list shall be kept on file
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of meeting or a duly executed waiver of notice of
such meeting or, if not so specified, at the place where the meeting is to be
held and shall be open to examination by any stockholder
2
<PAGE>
during ordinary business hours. Such list shall be produced at such meeting and
kept at the meeting at all times during such meeting and may be inspected by any
stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders,
the stockholders entitled to vote thereat who are present, in person or by
proxy, or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other
than announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide
any question brought before such meeting, unless the question is one on which,
by express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy shall be valid after three years from the
date of its execution, unless otherwise provided in the proxy. If no date is
stated in a proxy, such proxy shall be presumed to have been executed on the
date of the meeting at which it is to be voted. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an
interest sufficient in law to support an irrevocable power or unless otherwise
made irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive
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payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, for any such determination of stockholders, such date in any case to
be not more than 60 days and not less than ten days prior to such meeting nor
more than 60 days prior to any other action. If no record date is fixed:
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the board
of directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
in the State of Delaware, principal place of business, or such officer or agent
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside
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at all meetings of stockholders. The Secretary shall keep the records of each
meeting of stockholders. In the absence or inability to act of any such
officer, such officer's duties shall be performed by the officer given the
authority to act for such absent or non-acting officer under these bylaws or by
some person appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors
which shall constitute the entire board of directors shall be not less than
one. The first board of directors shall consist of the number of directors
named in the certificate of incorporation of the Corporation or, if no
directors are so named, shall consist of the number of directors elected by the
incorporator(s) at an organizational meeting or by unanimous written consent in
lieu thereof. Thereafter, within the limits above specified, the number of
directors which shall constitute the entire board of directors shall be
determined by resolution of the board of directors or by resolution of the
stockholders at the annual meeting thereof or at a special meeting thereof
called for that purpose. Except as otherwise required by law, the certificate
of incorporation of the Corporation, or these bylaws, the directors shall be
elected at an annual meeting of stockholders at which a quorum is present.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy and
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entitled to vote on the election of directors. Each director so chosen shall
hold office until the first annual meeting of stockholders held after his
election and until his successor is elected and qualified or, if earlier, until
his death, resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.
3.3 Change in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire
board of directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote on the election of
directors; provided, however, that so long as stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.5 Vacancies. Vacancies and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director, and each director so chosen shall hold office until
the first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. If there are no directors in office, an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly-created directorship, the directors
then in office shall constitute less than a majority of the whole board of
directors (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly-created directorships or to replace the
directors chosen by the directors then in office. Except as otherwise provided
in these bylaws, when one or more directors shall resign from the board of
directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these bylaws with respect to the filling of other
vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time
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determine or as shall be specified in the notice of such meeting or duly
executed waiver of notice of such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall
be held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 Special Meetings. Special meetings of the board of directors
shall be held whenever called by the Chairman of the Board, the President, or
any director.
3.11 Notice. The Secretary shall give notice of each special meeting
to each director at least 24 hours before the meeting. Notice of any such
meeting need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors,
a majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to
time without further notice. Unless the act of a greater number is required by
law, the certificate of incorporation of the Corporation, or these bylaws, the
act of a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise
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unable to act, the President shall preside at all meetings of the board of
directors. In the absence or inability to act of either such officer, a
chairman shall be chosen by the board of directors from among the directors
present. The Secretary of the Corporation shall act as the secretary of each
meeting of the board of directors unless the board of directors appoints
another person to act as secretary of the meeting. The board of directors shall
keep regular minutes of its proceedings which shall be placed in the minute
book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.15 Compensation. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by
a majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one
or more directors appointed by resolution adopted by a majority of the entire
board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge
any committee.
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4.5 Alternate Members of Committees. The board of directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting
of the committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting
from time to time, without notice other than an announcement at the meeting,
until a quorum is present. The act of a majority of the members present at any
meeting at which a quorum is in attendance shall be the act of a committee,
unless the act of a greater number is required by law, the certificate of
incorporation of the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the
request of the board of directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board
of directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such
director by law.
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ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of
the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice
required or permitted to be given by telegram, telex, or telefax shall be
deemed to be delivered and given at the time transmitted with all charges
prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation
shall be a President, a Secretary, and such other officers as the board of
directors may from time to time elect or appoint, including a Chairman of the
Board, one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine), and a
Treasurer. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, until his death, or until he shall
resign or shall have been removed in the manner hereinafter provided. Any two
or more offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of
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the person so removed. Election or appointment of an officer or agent shall not
of itself create contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the
compensation of any officer and agent (other than the officer to whom such
power is delegated) to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board, if elected by
the board of directors, shall have such powers and duties as may be prescribed
by the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 President. The President shall be the chief executive officer of
the Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as may be reasonably incident to
such responsibilities. If the board of directors has not elected a Chairman of
the Board or in the absence or inability to act of the Chairman of the Board,
the President shall exercise all of the powers and discharge all of the duties
of the Chairman of the Board. As between the Corporation and third parties, any
action taken by the President in the performance of the duties of the Chairman
of the Board shall be conclusive evidence that there is no Chairman of the
Board or that the Chairman of the Board is absent or unable to act.
6.8 Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
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6.9 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as
may be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the order
of their seniority as determined by the board of directors or, in the absence
of such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer
during that officer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which
shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours. He shall in
general perform all duties incident to the office of the Secretary, subject to
the control of the board of directors, the Chairman of the Board, and the
President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or
registrar who has signed, or whose facsimile signature has been placed
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upon, a certificate has ceased to be such officer, transfer agent, or registrar
before such certificate is issued, such certificate may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. The certificates shall be consecutively numbered
and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority
to provide that certificates representing shares of stock bear such legends as
the board of directors deems appropriate to assure that the Corporation does
not become liable for violations of federal or state securities laws or other
applicable law.
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ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the board of
directors shall consider beneficial to the Corporation, and the board of
directors may modify or abolish any such reserve in the manner in which it was
created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the Chairman of the Board, the
President, or the Secretary. Such resignation shall take effect at the time
specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy,
or consent with respect to any such securities.
14
<PAGE>
8.8 Telephone Meetings. Stockholders (acting for themselves or through
a proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
DGCL to be taken at any annual or special meeting of the stockholders, or any
action which may be taken at any annual or special meeting of the stockholders,
may be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders (acting for themselves or through a proxy) of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which the holders of all
shares entitled to vote thereon were present and voted and shall be delivered
to the Corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent of stockholders shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section 8.9(a) to the Corporation, written consents signed by
a sufficient number of holders to take action are delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office, principal place of
business, or such officer or agent shall be by hand or by certified or
registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of
the Corporation or by these bylaws, any action required or permitted to be
taken at a meeting of the board of directors, or of any committee of the board
of directors, may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by all the
directors or all the committee members, as the case may be, entitled to vote
with respect to the subject matter thereof, and such consent shall have the
same force and effect as a vote of such directors or committee members, as the
case may be, and may be stated as such in any certificate or document filed
with the Secretary of State of the State of Delaware or in any certificate
delivered to any person. Such consent or consents shall be filed with the
minutes of proceedings of the board or committee, as the case may be.
15
<PAGE>
8.10 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust,
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.12 Headings. The headings used in these bylaws have been inserted
for administrative convenience only and do not constitute matter to be
construed in interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the board of directors at
any regular meeting of the stockholders or the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
16
<PAGE>
The undersigned, the Assistant Secretary of the Corporation, hereby
certifies that the foregoing amended and restated bylaws were adopted by
written consent of holders of more than 75% of the outstanding shares of common
stock of the Corporation as of December 15, 1997.
------------------------------
David M. Wittels
Assistant Secretary
17
<PAGE>
EXECUTION COPY
===============================================================================
AKI, INC.
$115,000,000
-------------------------------------
10 1/2% SENIOR NOTES DUE 2008
-------------------------------------
-----------------------------
INDENTURE
DATED AS OF JUNE 25, 1998
-----------------------------
IBJ SCHRODER BANK & TRUST COMPANY
Trustee
===============================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310(a)(1)..................................................................7.10
(a)(2) ....................................................................7.10
(a)(3).....................................................................N.A.
(a)(4).....................................................................N.A.
(a)(5).....................................................................7.10
(b) .......................................................................7.10
(c) .......................................................................N.A.
311(a).....................................................................7.11
(b) .......................................................................7.11
(c) .......................................................................N.A.
312 (a)....................................................................2.05
(b) .......................................................................11.03
(c) .......................................................................11.03
313(a).....................................................................7.06
(b)(1).....................................................................10.03
(b)(2).....................................................................7.07
(c) .......................................................................7.06;
11.02
(d) .......................................................................7.06
314(a).....................................................................4.03;
11.02
(b) .......................................................................10.02
(c)(1).....................................................................11.04
(c)(2).....................................................................11.04
(c)(3).....................................................................N.A.
(e) .......................................................................11.05
(f) .......................................................................N.A.
315 (a)....................................................................7.01
(b) .......................................................................7.05,
11.02
(c) .......................................................................7.01
(d) .......................................................................7.01
(e) .......................................................................6.11
316 (a)(last sentence).....................................................2.09
(a)(1)(A)..................................................................6.05
(a)(1)(B)..................................................................6.04
(a)(2).....................................................................N.A.
(b) .......................................................................6.07
(c) .......................................................................2.12
317(a)(1)..................................................................6.08
(a)(2).....................................................................6.09
(b) .......................................................................2.04
318(a).....................................................................11.01
(b) .......................................................................N.A.
(c) .......................................................................11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE........................1
SECTION 1.01. DEFINITIONS.................................................1
SECTION 1.02. OTHER DEFINITIONS..........................................14
SECTION 1.03. TRUST INDENTURE ACT TERMS..................................15
SECTION 1.04. RULES OF CONSTRUCTION......................................15
ARTICLE 2. THE NOTES........................................................15
SECTION 2.01. FORM AND DATING............................................15
SECTION 2.02. EXECUTION AND AUTHENTICATION...............................16
SECTION 2.03. REGISTRAR AND PAYING AGENT.................................17
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST........................17
SECTION 2.05. HOLDER LISTS...............................................17
SECTION 2.06. TRANSFER AND EXCHANGE......................................18
SECTION 2.07. REPLACEMENT NOTES..........................................30
SECTION 2.08. OUTSTANDING NOTES..........................................30
SECTION 2.09. TREASURY NOTES.............................................30
SECTION 2.10. TEMPORARY NOTES............................................30
SECTION 2.11. CANCELLATION...............................................31
SECTION 2.12. DEFAULTED INTEREST.........................................31
ARTICLE 3. REDEMPTION AND PREPAYMENT........................................31
SECTION 3.01. NOTICES TO TRUSTEE.........................................31
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED..........................31
SECTION 3.03. NOTICE OF REDEMPTION.......................................32
i
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.............................33
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE................................33
SECTION 3.06. NOTES REDEEMED IN PART.....................................33
SECTION 3.07. OPTIONAL REDEMPTION........................................33
SECTION 3.08. NO MANDATORY REDEMPTION OR SINKING FUND PAYMENTS...........34
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS........34
ARTICLE 4. COVENANTS........................................................35
SECTION 4.01. PAYMENT OF NOTES...........................................35
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY............................36
SECTION 4.03. REPORTS....................................................36
SECTION 4.04. COMPLIANCE CERTIFICATE.....................................37
SECTION 4.05. TAXES......................................................37
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.............................37
SECTION 4.07. RESTRICTED PAYMENTS........................................38
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES...................................40
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK..........................................41
SECTION 4.10. ASSET SALES................................................43
SECTION 4.11. TRANSACTIONS WITH AFFILIATES...............................44
SECTION 4.12. LIENS......................................................45
SECTION 4.13. BUSINESS ACTIVITIES........................................45
SECTION 4.14. CORPORATE EXISTENCE........................................45
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.................45
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS..............46
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS......46
SECTION 4.18. ADDITIONAL GUARANTEES......................................47
ii
<PAGE>
ARTICLE 5. SUCCESSORS.......................................................47
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS...................47
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED..........................48
ARTICLE 6. DEFAULTS AND REMEDIES............................................48
SECTION 6.01. EVENTS OF DEFAULT..........................................48
SECTION 6.02. ACCELERATION...............................................49
SECTION 6.03. OTHER REMEDIES.............................................50
SECTION 6.04. WAIVER OF PAST DEFAULTS....................................50
SECTION 6.05. CONTROL BY MAJORITY........................................51
SECTION 6.06. LIMITATION ON SUITS........................................51
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT..............51
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.................................51
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM...........................52
SECTION 6.10. PRIORITIES.................................................52
SECTION 6.11. UNDERTAKING FOR COSTS......................................53
ARTICLE 7. TRUSTEE..........................................................53
SECTION 7.01. DUTIES OF TRUSTEE..........................................53
SECTION 7.02. RIGHTS OF TRUSTEE..........................................54
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE...............................54
SECTION 7.04. TRUSTEE'S DISCLAIMER.......................................55
SECTION 7.05. NOTICE OF DEFAULTS.........................................55
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.................55
SECTION 7.07. COMPENSATION AND INDEMNITY.................................55
SECTION 7.08. REPLACEMENT OF TRUSTEE.....................................56
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC...........................57
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION..............................57
iii
<PAGE>
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..........57
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.........................58
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE...58
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.............................58
SECTION 8.03. COVENANT DEFEASANCE........................................58
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.................59
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.................60
SECTION 8.06. REPAYMENT TO COMPANY.......................................60
SECTION 8.07. REINSTATEMENT..............................................61
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.................................61
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES........................61
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES...........................62
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT........................63
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS..........................63
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES...........................63
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC............................63
ARTICLE 10 NOTE GUARANTEES..................................................64
SECTION 10.01. GUARANTEE.................................................64
SECTION 10.02. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY..............65
SECTION 10.03. EXECUTION AND DELIVERY OF NOTE GUARANTEE..................65
SECTION 10.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC.,
ON CERTAIN TERMS........................................65
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS.........................66
ARTICLE 11. MISCELLANEOUS...................................................67
SECTION 11.01. TRUST INDENTURE ACT CONTROLS..............................67
SECTION 11.02. NOTICES...................................................67
iv
<PAGE>
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES........................................68
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT........68
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.............68
SECTION 11.06. RULES BY TRUSTEE AND AGENTS...............................69
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS..............................69
SECTION 11.08. GOVERNING LAW.............................................69
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.............69
SECTION 11.10. SUCCESSORS................................................69
SECTION 11.11. SEVERABILITY..............................................70
SECTION 11.12. COUNTERPART ORIGINALS.....................................70
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC..........................70
EXHIBITS
Exhibit A-1: FORM OF NOTE
Exhibit A-2: FORM OF REGULATION S NOTE
Exhibit B: FORM OF CERTIFICATE OF TRANSFER
Exhibit C: FORM OF CERTIFICATE OF EXCHANGE
Exhibit D: FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E: FORM OF NOTATION OF NOTE GUARANTEE
Exhibit F: FORM OF SUPPLEMENTAL INDENTURE
v
<PAGE>
INDENTURE dated as of June 25, 1998 between AKI, Inc., a Delaware
corporation (the "Company"), and IBJ Schroder Bank & Trust Company, a New York
banking corporation, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 10 1/2%
Senior Notes due 2008 (the "Series A Notes") and the new 10 1/2% Senior Notes
due 2008 to be issued pursuant to the Registration Rights Agreement (the
"Series B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"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, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, 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.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition (a "Disposition") of any assets or rights (including, without
limitation, by way of a sale and leaseback), provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed
by 4.15 and 5.01 and not by the provisions of the Section 4.10 hereof, and (ii)
the issue or sale by the Company or any of its Restricted Subsidiaries of
Equity Interests of any of the Company's Restricted Subsidiaries, in the case
of either clause (i) or (ii), whether in a
<PAGE>
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for net proceeds in excess of
$3.0 million. Notwithstanding the foregoing the following items shall not be
deemed to be Asset Sales: (i) a disposition of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by Section 4.07 hereof, (iv) a
disposition in the ordinary course of business, (v) the sale and leaseback of
any assets within 90 days of the acquisition thereof, (vi) foreclosures on
assets and (vii) any exchange of property pursuant to Section 1031 on the
Internal Revenue Code of 1986, as amended, for use in a Related Business.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) Government
Securities having maturities of not more than six months from the date of
acquisition, (iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Credit Agreement or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the rating of "P-2" (or higher) from Moody's
Investors Service, Inc. or "A-3" (or higher) from Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition and
(vi) any fund investing exclusively in investments of the type described in
clauses (i) through (v) above.
"Cedel" means Cedel Bank, SA.
2
<PAGE>
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole to any "person" (as such term is used in Section 13(d) of the Exchange
Act) other than the Principals or their Related Parties (as defined below),
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that 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 more than 50%
of the Voting Stock of the Company (measured by voting power rather than number
of shares), or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"Company" means AKI, Inc., and any and all successors thereto.
"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), plus (ii) provision for taxes based on income or
profits of such Person and its 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
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, 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 expenses in any future period or amortization of a
prepaid cash expense 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 expenses were deducted in computing such Consolidated Net
Income, plus (v) expenses and charges of the Company related to the Refinancing
which are paid, taken or otherwise accounted for within 90 days of the
consummation of the Refinancing, plus (vi) any non-capitalized transaction
costs incurred in connection with actual or proposed financings, acquisitions
or divestitures (including, but not limited to, financing and refinancing fees
and costs incurred in connection with the Refinancing). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that Net
Income of such Subsidiary was included in calculating Consolidated Net Income
of such Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication, (a) the interest expense of such
Person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount, non-cash interest payments, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, 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 that in no
event shall any amortization of deferred financing costs be included in
Consolidated Interest Expense); and (b) the consolidated capitalized interest
3
<PAGE>
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, 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 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, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries for purposes of Section 4.09 hereof and shall be
included for purposes of Section 4.07 hereof only to the extent of the amount
of dividends or distributions paid in cash to the Company or one of its
Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture 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 members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement, dated as of
April 30, 1996, as amended on December 12, 1997, between the Company and Heller
Financial, Inc., providing for revolving credit borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
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"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), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature; provided,
however, that any Capital Stock that would not qualify as Disqualified Stock
but for change of control provisions shall not constitute Disqualified Stock if
the provisions are not more favorable to the holders of such Capital Stock than
the provisions described under Section 4.15 applicable to the Holders of the
Notes.
"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).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the Consolidated Interest Expense of such
Person for such period, (ii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iii)
the product of (a) all dividend payments, whether or not in cash, 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
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 for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
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 or
redemption of Indebtedness, or such issuance or redemption of
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<PAGE>
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be calculated to include the Consolidated
Cash Flow of the acquired entities on a pro forma basis after giving effect to
cost savings resulting from employee terminations, facilities consolidations
and closings, standardization of employee benefits and compensation policies,
consolidation of property, casualty and other insurance coverage and policies,
standardization of sales and distribution methods, reductions in taxes other
than income taxes and other cost savings reasonably expected to be realized
from such acquisition, 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, (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 (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 Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of the Company that is not
organized under the laws of a state or territory of the United States or the
District of Columbia.
"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 this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"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 currency exchange rates.
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<PAGE>
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, 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 bankers' 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; provided that
Indebtedness shall not include the pledge by the Company of the Capital Stock
of an Unrestricted Subsidiary of the Company to secure Non-Recourse Debt of
such Unrestricted Subsidiary. 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, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of Section 4.07 hereof.
"Issue Date" means the date of original issuance of the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
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<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"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 disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), the amounts required to be
applied to the payment of Indebtedness (other than Indebtedness incurred
pursuant to the Credit Agreement), secured by a Lien on the asset or assets
that were the subject of the Asset Sale, and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock (other than stock of an Unrestricted Subsidiary
pledged by the Company to secure debt of such Unrestricted Subsidiary) or
assets of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
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<PAGE>
"Note Guarantee" means the Guarantee by each Subsidiary Guarantor of
the Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of
such Person. "Officers' Certificate" means a certificate signed by (i) the
Chairman of the Board of Directors, the Chief Executive Officer, the President
or a Vice President of the Company and (ii) the Chief Financial Officer or the
Secretary of the Company, which certificate shall comply with this Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Business" means any business in which the Company and its
Restricted Subsidiaries are engaged on the date of this Indenture or any
business reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Company or in
a Restricted Subsidiary of the Company that is engaged in a Permitted Business;
(b) any Investment in Cash Equivalents; (c) any Investment by the Company or
any Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary of the Company that
is engaged in a Permitted Business or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company that is engaged in a Permitted Business; (d) any Restricted Investment
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with Section 4.10 hereof; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; and (f) other Investments made
after the date of this Indenture in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (f) that are at the time outstanding,
not to exceed $10.0 million.
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"Permitted Liens" means (i) Liens securing Indebtedness under the
Credit Agreement that was permitted by the terms of this Indenture to be
incurred or other Indebtedness allowed to be incurred under clause (i) of
Section 4.09 hereof; (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company,
provided that such Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any Restricted Subsidiary; (iv)
Liens on property existing at the time of acquisition thereof by the Company or
any Restricted Subsidiary of the Company, provided that such Liens were not
incurred in contemplation of such acquisition; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens existing on the date of this Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (viii) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (iv) of Section 4.09 hereof; (ix) Liens
securing Permitted Refinancing Indebtedness where the Liens securing the
Permitted Refinancing Indebtedness were permitted under this Indenture; (x)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Restricted Subsidiary; and (xi) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
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, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date no earlier 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, replaced, defeased or refunded; and (iii)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Principals" means Roger L. Barnett, DLJ Merchant Banking Partners II,
L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, L.P.,
DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ
Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK Investment Plan 1997
Partners and DLJ First ESC L.P.
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<PAGE>
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means a public offering of Equity Interests
(other than Disqualified Stock) of (i) the Company or (ii) Acquisition Corp. or
Holding to the extent the net proceeds thereof are contributed to the Company
as a capital contribution, that, in each case, results in net proceeds to the
Company of at least $25.0 million.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 25, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Notes" means the Regulation S Temporary Global
Notes or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes
that are deposited with and registered in the name of the Depositary or its
nominee, representing a series of Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes
that are deposited with and registered in the name of the Depositary or its
nominee, representing a series of Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or partner, 80% (or more) owned Subsidiary, or spouse
or immediate family member (in the case of an individual) of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clause (A).
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
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"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is
deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Rule 144A.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time 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 or limited liability company (a)
the sole general partner or the managing general partner or managing member 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).
"Subsidiary Guarantor" means any Restricted Subsidiary that executes a
supplemental indenture providing for the Guarantee of the payment of the Notes
by such Restricted Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA and as may be amended from time to time and the rules and
regulations thereunder.
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"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A-1 attached hereto that bears the Global Note Legend and that has
the "Schedule of Exchanges of Interests in the Global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with 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 Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
Section 4.09 hereof, the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall be permitted only if (i) such Indebtedness is permitted
under the covenant described under Section 4.09 hereof and (ii) no Default or
Event of Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"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.
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"Wholly Owned Subsidiary" of any Person means a 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 Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"..................................................4.11
"Asset Sale Offer".......................................................3.09
"Authentication Order"...................................................2.02
"Change of Control Offer"................................................4.15
"Change of Control Payment"..............................................4.15
"Change of Control Payment Date" ........................................4.15
"Covenant Defeasance"....................................................8.03
"Event of Default".......................................................6.01
"Excess Proceeds"........................................................4.10
"incur"..................................................................4.09
"Legal Defeasance" ......................................................8.02
"Offer Amount"...........................................................3.09
"Offer Period"...........................................................3.09
"Paying Agent"...........................................................2.03
"Permitted Debt".........................................................4.09
"Purchase Date"..........................................................3.09
"Registrar"..............................................................2.03
"Restricted Payments"....................................................4.07
SECTION 1.03. TRUST INDENTURE ACT TERMS.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
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All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note
Legend thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Notes issued in definitive form shall be substantially in
the form of Exhibit A-1 attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the
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direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S
Temporary Global Note, which shall be deposited on behalf of the purchasers of
the Notes represented thereby with the Trustee, at its New York, New York
office, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel Bank, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The
Restricted Period shall be terminated upon the receipt by the Trustee of (i) a
written certificate from the Depositary, together with copies of certificates
from Euroclear and Cedel Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Note or an IAI Global Note bearing a Private Placement Legend,
all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company. Following the termination of the Restricted
Period, beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in Regulation S Permanent Global Notes
pursuant to the Applicable Procedures. Simultaneously with the authentication
of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation
S Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee, as the case may be, in connection
with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel
Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon receipt of a written order of the Company
signed by one Officer (an "Authentication Order"), authenticate Notes for
original issue up to the aggregate principal amount stated in paragraph 4 of
the Notes. The aggregate principal amount of Notes outstanding at any time may
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do
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so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with Holders or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee in writing of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company
or a Subsidiary) shall have no further liability for the money. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of the Holders of Notes and the
Company shall otherwise comply with TIA ss. 312(a).
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SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee written
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by
the Company within 120 days after the date of such notice from the Depositary
or (ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Temporary Regulation S Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person (other
than an Initial Purchaser). Beneficial interests in any Unrestricted Global
Note may be transferred to Persons who take delivery thereof in the form of
a beneficial interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to effect
the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or
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exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a Participant
or an Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above; provided that in no event shall Definitive Notes
be issued upon the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act. Upon consummation
of an Exchange Offer by the Company in accordance with Section 2.06(f)
hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to
have been satisfied upon receipt by the Registrar of the instructions
contained in the Letter of Transmittal delivered by the Holder of such
beneficial interests in the Restricted Global Notes. Upon satisfaction of
all of the requirements for transfer or exchange of beneficial interests in
Global Notes contained in this Indenture and the Notes or otherwise
applicable under the Securities Act, the Trustee shall adjust the principal
amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications and certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-
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dealer, (2) a Person participating in the distribution of the Exchange
Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof; or
(2) if the Holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate from
such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a
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certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof and, at the option of the Trustee, an Opinion of Counsel to
the effect that such transfer is in accordance with Rule 903 and Rule
904;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof and, at the option of the Trustee, an Opinion
of Counsel to the effect that such transfer is in accordance with Rule
144;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(b)
thereof; or
(G) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions
a Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct
the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be
subject to all restrictions on transfer contained therein.
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(ii) Notwithstanding Sections 2.06(c)(i)(A) and (c) hereof, a beneficial
interest in the Regulation S Temporary Global Note may not be exchanged for a
Definitive Note or transferred to a Person who takes delivery thereof in the
form of a Definitive Note prior to (x) the expiration of the Restricted Period
and (y) the receipt by the Registrar of any certificates required pursuant to
Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a
transfer pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 903 or Rule 904, in which case, the Trustee
shall receive, at its option, an Opinion of Counsel to the effect that such
transfer is in accordance with Rule 903 and Rule 904
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D),
if the Registrar so requests or if the Applicable Procedures
so require, an Opinion of Counsel in form reasonably
acceptable to the Registrar to the effect that such exchange
or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
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(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall
execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof and, at the option of the Trustee, an Opinion of Counsel to
the effect that such transfer is in accordance with Rule 903 and Rule
904;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof and, at the option of the
Trustee, an Opinion of Counsel to the effect that such transfer is in
accordance with Rule 144;
(E) if such Restricted Definitive Note is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements
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<PAGE>
of the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof;
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global Note, in the
case of clause (B) above, the 144A Global Note, in the case of clause
(c) above, the Regulation S Global Note, and in all other cases, the
IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the
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<PAGE>
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a written request from a Holder for such
an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon written request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2)
thereof and, at the option of the Trustee, an Opinion of Counsel
to the effect that such transfer is in accordance with Rule 903
and Rule 904; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a
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<PAGE>
certificate in the form of Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a written request to register such a
transfer, the Registrar shall register the Unrestricted Definitive Notes
pursuant to the written instructions from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate
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<PAGE>
principal amount equal to the principal amount of the beneficial interests in
the Restricted Global Notes tendered for acceptance by Persons that certify in
the applicable Letters of Transmittal that (x) they are not broker-dealers, (y)
they are not participating in a distribution of the Exchange Notes and (z) they
are not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends.
The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend
in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY
BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM
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<PAGE>
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to
or retained and canceled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another
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<PAGE>
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii)All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by facsimile.
(j) Compliance With Federal or State Securities Laws. Neither the
Trustee nor the Registrar shall have any duty to monitor the Company's
compliance with any federal or state securities laws.
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<PAGE>
SECTION 2.07. REPLACEMENT NOTES.
If any Note shall become mutilated, defaced or be apparently
destroyed, lost or stolen, and the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Note, the Company shall
issue and the Trustee, upon receipt of an Authentication Order, shall
authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company, shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee actually knows are so
owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary
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<PAGE>
Notes shall be substantially in the form of certificated Notes but may have
variations that the Company considers appropriate for temporary Notes, that
have been identified to the Trustee in writing by the Company and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it
has paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
provided that no Notes having a principal amount at maturity of $1,000 or less
shall be redeemed in part. In the event of partial
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<PAGE>
redemption by lot, the particular Notes to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Notes not previously
called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of, including premium, if any, and accrued interest on all
Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any money deposited with the Trustee or the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, including premium, if any, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to July 1, 2003. Thereafter, the Company shall have the option to
redeem the Notes, 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
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003...................................................................105.250%
2004...................................................................102.625%
2005 and thereafter....................................................100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time prior to July 1 , 2001, the Company may on one or more occasions
redeem up to 35% of the original aggregate principal amount of Notes at a
redemption price of 110.5% of the principal amount thereof, plus accrued
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and unpaid interest and Liquidated Damages thereon, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that at least 65% of the original aggregate principal amount of Notes
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its subsidiaries); and provided,
further, that such redemption shall occur within 90 days of the date of the
closing of such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. NO MANDATORY REDEMPTION OR SINKING FUND PAYMENTS.
The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to each of the Holders, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset
Sale Offer shall be made to all Holders. The notice, which shall govern the
terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest after the Purchase Date;
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(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Note, and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not
so accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale
Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered paid on
the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by
the
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Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
and Liquidated Damages (without regard to any applicable grace period) at the
same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company will furnish to the
Trustee and the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports, in each case, within the time periods specified
in the SEC rules and regulations. In addition, following the consummation of
the Exchange Offer, whether or not required by the rules and regulations of the
SEC, the Company shall file a copy of all such information and reports with the
SEC for public availability (unless the SEC will not accept such a filing) and
make such information available to the Trustee, securities analysts and
prospective investors upon request.
(b) The Company, the Guarantors and their respective subsidiaries
shall at all times comply with TIAss. 314(a).
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(c) For so long as any Notes remain outstanding, the Company shall
furnish to the Holders, the Trustee 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.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Subsidiary Guarantor (to the extent that such
Subsidiary Guarantor is so required under the TIA) shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event
of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Subsidiary Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company
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and each of the Subsidiary Guarantors (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been
enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment on such Equity Interests in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of
the Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value (including, without limitation,
in connection with any merger or consolidation involving the Company) any
Equity Interests of the Company or any direct or indirect parent of the Company
(other than any such Equity Interests owned by the Company or any Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except scheduled payments of
interest or principal at Stated Maturity of such Indebtedness; 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 after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clauses (i), (ii), (iii), (iv), (viii) (other than those permitted by clause
(f) of the definition of "Permitted Investments"), (ix), (xii) and (xiii) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
date of this Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company as a contribution to the Company's capital or
received by the Company from the issue or sale since the date of this Indenture
of Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or Disqualified Stock
or debt securities) sold to a Restricted Subsidiary of the Company 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 this Indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment,
plus (iv) if any Unrestricted Subsidiary (A) is redesignated as a Restricted
Subsidiary, the fair
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market value of such redesignated Subsidiary (as determined in good faith by
the Board of Directors) as of the date of its redesignation or (B) pays any
cash dividends or cash distributions to the Company or any of its Restricted
Subsidiaries, 50% of any such cash dividends or cash distributions made after
the date of this Indenture.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale or issuance (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its Equity Interests on
a pro rata basis; (v) the declaration or payment of dividends to Acquisition
Corp. or Holding for expenses incurred by Acquisition Corp. or Holding in their
capacity as holding companies or for services rendered on behalf of the
Company, including, without limitation, (a) customary salary, bonus and other
benefits payable to officers and employees of Acquisition Corp. or Holding, (b)
fees and expenses paid to members of the Board of Directors of Acquisition
Corp. or Holding, (c) general corporate overhead expenses of Acquisition Corp.
or Holding, (d) management, consulting or advisory fees paid to Acquisition
Corp. or Holding not to exceed $4.0 million in any fiscal year, and (e) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Acquisition Corp. or Holding held by any member or former
member of Acquisition Corp.'s, Holding's or the Company's (or any of their
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement, stockholders agreement or stock option agreement;
provided, however, the aggregate amount paid pursuant to the foregoing clauses
(a) through (e) does not exceed $5.0 million in any fiscal year (with any
unused amounts in any fiscal year being carried over to succeeding fiscal
years, subject to a maximum (without giving effect to the following clause (y))
of $10.0 million in any calendar year, plus (y) the aggregate cash proceeds
received by the Company from any reissuance of Equity Interests by Acquisition
Corp. or Holding to members of management of the Company and its Restricted
Subsidiaries; (vi) Investments in any Person (other than the Company or a
Restricted Subsidiary) engaged in a Permitted Business in an amount not to
exceed $5.0 million; (vii) other Investments in Unrestricted Subsidiaries
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (vii) that are at that time
outstanding, not to exceed $2.0 million; (viii) Permitted Investments; (ix) the
declaration or payment of dividends or other payments to Acquisition Corp. or
Holding pursuant to any tax sharing agreement or other arrangement among
Acquisition Corp., Holding and other members of the affiliated corporations of
which Acquisition Corp. or Holding is the common parent; (x) other Restricted
Payments in an aggregate amount not to exceed $10.0 million; (xi) so long as no
Default or Event of Default has occurred and is continuing, the declaration and
payment of dividends on Disqualified Stock issued or after the date of this
Indenture, the incurrence of which satisfied the covenant set forth in the
first paragraph of Section 4.09 hereof; (xii) the declaration or payment of
dividends to Acquisition Corp. or Holding to satisfy any required purchase
price adjustment payment arising out of the Acquisition; and (xiii) the
declaration or payment of dividends or other payments to Acquisition Corp. or
Holding in an amount not to exceed $2.0 million dollars to satisfy redemption
obligations in respect of Equity Interests of Acquisition Corp. that are held
by management of Acquisition Corp., Holding or the Company; provided, that such
amount shall not be applied against expenses incurred pursuant to clause (v)(e)
above.
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The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation (as
determined in good faith by the Board of Directors). 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 Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee; such determination will 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 Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, together with a copy of any fairness opinion
or appraisal required by this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of this Indenture, (b) the Credit
Agreement as in effect as of the date of this 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 in the aggregate (as
determined in the good faith judgment of the Company's Board of Directors) with
respect to such dividend and other payment restrictions than those contained in
the Credit Agreement as in effect on the date of this Indenture, (c) this
Indenture and the Notes, (d) any applicable law, rule, regulation or order, (e)
any instrument of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
incurred 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 by the terms of this Indenture to be incurred, (f)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (e) above on the property
so acquired, (h) Permitted Refinancing Indebtedness, provided that the material
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, in the good faith judgment of the
Company's Board of Directors, taken as a whole, to the Holders
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of Notes than those contained in the agreements governing the Indebtedness
being refinanced, (i) contracts for the sale of assets, including, without
limitation, 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, (j)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business and (k) other
Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to the provisions of Section
4.09 hereof.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its 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)
and that the Company shall not issue any Disqualified Stock and shall not
permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock or preferred stock and the
Company's Restricted Subsidiaries may incur Indebtedness (including Acquired
Debt) and issue Disqualified Stock or preferred stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions shall not apply to the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company of Indebtedness and letters of
credit pursuant to the Credit Agreement; provided that the aggregate principal
amount of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) then classified as having been incurred in reliance on this clause
(i) that remains outstanding under the Credit Agreement after giving effect to
such incurrence does not exceed the sum of $20.0 million;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries 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
improvement of property, plant or equipment used in the business of the Company
or such Restricted Subsidiary (whether through the direct purchase of assets or
the Capital Stock of any Person owning such Assets), in an aggregate principal
amount or accreted value, as applicable, not to exceed $10.0 million;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets or a
new Restricted Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Subsidiaries and was not incurred in
connection with, or in contemplation of, such acquisition by the Company or one
of its Subsidiaries; provided further that the principal amount (or
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accreted value, as applicable) of such Indebtedness, together with any other
outstanding Indebtedness incurred pursuant to this clause (v), does not exceed
$5.0 million;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness that
was permitted by this Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Restricted Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the Company
or a Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries 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
or (ii) exchange rate risk with respect to any agreement or Indebtedness of
such Person payable in a currency other than U.S. dollars;
(ix) the Guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred by another provision of this Section
4.09;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(xi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including, without
limitation, to letters of credit in respect to workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, asset or Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Subsidiary for the purpose of financing such
acquisition; provided that (x) such Indebtedness is not reflected on the
balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote or footnotes to financial statements and
not otherwise reflected on the balance sheet will not be deemed to be reflected
on such balance sheet for purposes of this clause (x)) and (y) the maximum
assumable liability in respect of such Indebtedness shall at no time exceed 50%
of the gross proceeds including non-cash proceeds (the fair market value of
such non-cash proceeds being measured at the time received and without giving
effect to any such subsequent changes in value) actually received by the
Company and/or such Restricted Subsidiary in connection with such disposition;
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(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary in
the ordinary course of business;
(xiv) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 million at any time outstanding;
and
(xv) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, including Attributable Debt incurred
after the date of this Indenture, in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xv), not to exceed $20.0
million.
For purposes of determining compliance with this Section 4.09, 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 (xv) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.09,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this Section 4.09 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. In addition, the
Company may, at any time, change the classification of an item of Indebtedness
(or any portion thereof) to any other clause or to the first paragraph hereof
provided that the Company would be permitted to incur such item of Indebtedness
(or portion thereof) pursuant to such other clause or the first paragraph
hereof, as the case may be, at such time of reclassification. Accrual of
interest, accretion or amortization of original issue discount and the
accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this Section 4.09.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents within 180 days (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision; and provided further
that the 75% limitation referred to in clause (ii) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Sale complied with the aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or any such Restricted Subsidiary may apply such Net
Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness of
the Company or any Indebtedness of any Restricted Subsidiary or (b) to the
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acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce the revolving Indebtedness under
the Credit Agreement or otherwise invest such Net Proceeds in any manner that
is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company will be required to make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes 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
this Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 4.10, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction") unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
either aggregate consideration in excess of $5.0 million or an aggregate
consideration in excess of $3.0 million where there are no disinterested
members of the Board of Directors, an opinion as to the fairness to the Holders
of such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing; provided
that the following shall not be deemed Affiliate Transactions: (q) customary
directors' fees, indemnification or similar arrangements or any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(r) transactions between or among the Company and/or its Restricted
Subsidiaries, (s) Permitted Investments and Restricted Payments that are
permitted by Section 4.07 hereof, (t) customary loans, advances, fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any of its Restricted Subsidiaries,
(u) transactions pursuant to any contract or
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agreement in effect on the date of this Indenture as the same may be amended,
modified or replaced from time to time so long as any such amendment,
modification or replacement is no less favorable to the Company and its
Restricted Subsidiaries than the contract or agreement as in effect on the
Issue Date, (v) transactions between the Company or its Restricted Subsidiaries
on the one hand, and Donaldson, Lufkin & Jenrette Securities Corporation or its
Affiliates ("DLJ") on the other hand, involving the provision of financial,
advisory, placement or underwriting services by DLJ; provided that fees payable
to DLJ do not exceed the usual and customary fees of DLJ for similar services,
(w) insurance arrangements among Acquisition Corp., Holding and its
Subsidiaries that are not less favorable to the Company or any of its
Subsidiaries than those that are in effect on the date hereof provided such
arrangements are conducted in the ordinary course of business consistent with
past practices, (x) payments under any tax sharing agreement or other
arrangement among Acquisition Corp., Holding and other members of the
affiliated group of corporations of which either is the common parent and (y)
payments in connection with the Refinancing (including the payment of fees and
expenses with respect thereto).
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired.
SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than a Permitted Business, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described in this Section 4.15 (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 60 days following
any Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes on the date specified in such notice, which date
shall be no earlier than 30 days 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 this Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1
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under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to such Change of Control Offer, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this
Indenture by virtue thereof.
(b) On the Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof.
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary may enter into a sale and leaseback
transaction if (i) the Company or such Restricted Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to Section 4.09 hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof;
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, Section 4.10 hereof.
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to incur Indebtedness or Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company or any Restricted
Subsidiary unless either such Restricted Subsidiary (x) is a Subsidiary
Guarantor or (y) simultaneously executes and delivers a supplemental Indenture
to this Indenture and becomes a Subsidiary Guarantor, which Guarantee shall be
senior to or pari passu with such Restricted Subsidiary's other Indebtedness or
Guarantee of or pledge to secure such other Indebtedness. Notwithstanding the
foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall
provide by its terms that it shall be automatically and unconditionally
released and discharged upon any sale, exchange or transfer, to any Person not
an Affiliate of the Company, of all of the Company's stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of
this Indenture. The form of such Guarantee will be attached as an exhibit to
this Indenture.
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SECTION 4.18. ADDITIONAL GUARANTEES.
(i) If the Company or any of its Restricted Subsidiaries shall, after
the date of this Indenture, transfer or cause to be transferred, including by
way of any Investment, in one or a series of transactions (whether or not
related), any assets, businesses, divisions, real property or equipment having
an aggregate fair market value (as determined in good faith by the Board of
Directors) in excess of $10.0 million to any Restricted Subsidiary that is not
a Subsidiary Guarantor or a Foreign Subsidiary, (ii) if the Company or any of
its Restricted Subsidiaries shall acquire another Restricted Subsidiary other
than a Foreign Subsidiary having total assets with a fair market value (as
determined in good faith by the Board of Directors) in excess of $10.0 million,
or (iii) if any Restricted Subsidiary other than a Foreign Subsidiary shall
incur Acquired Debt in excess of $10.0 million, then the Company shall, at the
time of such transfer, acquisition or incurrence (i) cause such transferee,
acquired Restricted Subsidiary or Restricted Subsidiary incurring Acquired Debt
(if not then a Subsidiary Guarantor) to execute a Note Guarantee of the
Obligations of the Company under the Notes, (ii) such Subsidiary Guarantor and
the Trustee shall execute and deliver a supplemental indenture, in the form
attached hereto, evidencing such Subsidiary Guarantor's Guarantee of the
Obligations of the Company under the Notes and (iii) deliver to the Trustee an
Opinion of Counsel, in accordance with the terms of this Indenture.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof or (b) would (together with
its Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio
immediately after such transaction (after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period) than the Fixed Charge Coverage Ratio of the Company and its
subsidiaries immediately prior to the transaction. The foregoing clause (iv)
will not prohibit (a) a merger between the Company and a Wholly Owned
Subsidiary of Acquisition Corp. or Holding created for the purpose of holding
the Capital Stock of the Company, (b) a merger between the Company and a Wholly
Owned Subsidiary or (c) a merger between the Company and an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
state of the United States so long as, in each case, the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby. The
Indenture will also provide that the Company may not, directly or indirectly,
lease all
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or substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this Section 5.01 will not
be applicable to a sale, assignment, transfer, conveyance or other disposition
of assets between or among the Company and its Wholly Owned Restricted
Subsidiaries.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes;
(b) default in payment when due of the principal of or premium, if
any, on the Notes;
(c) failure by the Company to comply with the provisions described
under Section 4.10 or 4.14 hereof;
(d) failure by the Company for 30 days after notice from the Trustee
or at least 25% in principal amount of the Notes then outstanding to comply
with the provisions described under Sections 4.07 or 4.09 hereof;
(e) failure by the Company for 60 days after notice from the Trustee
or holders of at least 25% in principal amount of the Notes then outstanding to
comply with any of its other agreements in this Indenture or the Notes;
(f) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists,
or is created after the date of this Indenture, which default (a) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal
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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;
(g) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; and
(h) the Company, any of its Restricted Subsidiaries that are
Significant Subsidiaries, or any group of Restricted Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary, pursuant to or within
the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company, any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary, in an involuntary case;
(ii) appoints a custodian of the Company, any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary, or for all or substantially all of the property of the Company,
any of its Restricted Subsidiaries that are Significant Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, in an involuntary case;
(iii) orders the liquidation of the Company, any of its
Restricted Subsidiaries that are Significant Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive
days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (h) or (i) of Section 6.01 hereof with respect to the Company, any
Restricted Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the then outstanding Notes may declare all the Notes
to be due and payable immediately. Upon any such declaration, the Notes shall
become due and payable immediately. Notwithstanding the foregoing, if an
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Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs
with respect to the Company, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived.
If an Event of Default occurs on or after July 1, 2003 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to July 1, 2003
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 1 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Notes to the date of payment that would otherwise be due but for
the provisions of this sentence):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1998................................................................110.500%
1999................................................................109.450%
2000................................................................108.400%
2001................................................................107.350%
2002................................................................106.300%
</TABLE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in
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aggregate principal amount of the then outstanding Notes may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest
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remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding. SECTION 6.10......PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, and Liquidated Damages, if any,
and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
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SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in its exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture and the Trustee need
perform only those duties and obligations that are specifically set forth
in this Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any statements, certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the statements,
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
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(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any statement or document
believed by it to be genuine and to have been signed or presented by the proper
Person or parties. The Trustee need not investigate any fact or matter stated
in the statement or document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) In no event shall the Trustee be required to take notice of any
default or breach hereof or any Event of Default hereunder, except for Events
of Default specified in Sections 6.01(a) and (b) hereof, unless and until the
Trustee shall have received from a Holder or from the Company express written
notice of the circumstances constituting the breach, default or Event of
Default and stating that said circumstances constitute an Event of Default
hereunder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as
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trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee assumes no responsibility for the correctness of, and
makes no representation as to the validity or adequacy of, this Indenture or
the Notes, it shall not be accountable for the Company's use of the proceeds
from the Notes or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, or if appropriate notice is provided in writing in
accordance with Section 7.02(g), as applicable, the Trustee shall mail to
Holders of Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium, if any, or interest on any Note, the Trustee may
withhold the notice if and so long as a committee of its Board of Directors,
executive committee or a trust committee of directors or Responsible Officers
in good faith determines that withholding the notice is in the interests of the
Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each July 1 beginning with the July 1 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
ss. 313(b)(2). The Trustee shall also transmit by mail all reports as required
by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by or on behalf of it in addition to the compensation for its services.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties
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under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company or any Holder or any
other person) or liability in connection with the exercise or performance of
any of its powers or duties hereunder, except to the extent any such loss,
liability or expense may be attributable to its negligence or bad faith. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except for money or property held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor
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Trustee takes office, the Holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Notes to receive solely from the trust fund described in
Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages on such Notes when such payments are due, (b) the Company's obligations
with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Company's obligations in connection therewith and (d) this Article 8. Subject
to compliance with this Article 8, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to
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this Section 8.03 hereof, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not
constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States 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 and Liquidated Damages, if
any, and interest on the outstanding Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be, and the
Company must specify in writing whether the Notes are being defeased to
maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding
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;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes 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;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article 8
concurrently with such borrowing) or insofar as Sections 6.01(h) or 6.01(i)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary assumptions and exclusions) to the
effect that on the 91st day following the deposit, the trust funds will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
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any analogous New York State law provision to any other applicable federal of
New York bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel (which opinion may be subject to
customary assumptions and exclusions), each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any and all
taxes, fees or other charge imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04 hereof or
the principal and interest received in respect thereof other than any such
taxes, fees or other charges which by law are for the account of the Holders of
the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as Trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may
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at the expense of the Company cause to be published once, in the New York Times
and The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT,
SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of the Company's or a Subsidiary
Guarantor's obligations to the Holders of the Notes by a successor to the
Company or a Subsidiary Guarantor pursuant to Article 5 or Article 10 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to allow any Subsidiary Guarantor to execute a supplemental
indenture and/or a Note Guarantee with respect to the Notes.
Upon the request of the Company which shall be in writing and signed
by an Officer of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company and the Subsidiary
Guarantors in the execution of any amended or supplemental Indenture authorized
or permitted by the terms of this
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Indenture and make any further appropriate agreements and stipulations that may
be therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10
and 4.15 hereof), the Note Guarantees, if any, and the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07
hereof, any existing Default or Event of Default (other than a Default or Event
of Default in the payment of the principal of, premium, if any, or interest on
the Notes, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture, the Note
Guarantees, if any, or the Notes may be waived with the consent of the Holders
of a majority in principal amount of the then outstanding Notes voting as a
single class (including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall
determine which Notes are considered to be "outstanding" for purposes of this
Section 9.02.
Upon the request of the Company which shall be in writing and signed
by an Officer of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt
by the Trustee of the documents described in Section 7.02 hereof, the Trustee
shall join with the Company in the execution of such amended or supplemental
Indenture unless such amended or supplemental Indenture directly affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as
a single class may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Notes. However, without the consent
of each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes, except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof;
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(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of (a) past Defaults or (b) the rights of Holders of Notes to receive
payments of principal of, interest, or premium, if any, on the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.10 or 4.15 hereof); or
(h) amend this Section 9.02.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in
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addition to the documents required by Section 11.04 hereof, an Officer's
Certificate and an Opinion of Counsel stating that the execution of such
amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10.
NOTE GUARANTEES
SECTION 10.01. GUARANTEE.
Subject to this Article 10, and upon execution of a Supplemental
Indenture and Note Guarantee, each Subsidiary Guarantor shall, jointly and
severally, unconditionally guarantee to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Subsidiary Guarantors shall
be jointly and severally obligated to pay the same immediately. Each Note
Guarantee shall be a guarantee of payment and not a guarantee of collection.
The obligations of a Subsidiary Guarantor hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor. Each Subsidiary
Guarantor waives diligence, presentment, demand of payment, filing of claims
with a court in the event of insolvency or bankruptcy of the Company, any right
to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Note Guarantee shall not be
discharged except by complete performance of the obligations contained in the
Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Subsidiary Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company
or the Subsidiary Guarantors, any amount paid by either to the Trustee or such
Holder, the Note Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.
Subsidiary Guarantors shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. As between
the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes of a Note
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article 6 hereof,
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such obligations (whether or not due and payable) shall forthwith become due
and payable by the Subsidiary Guarantors for the purpose of this Note
Guarantee. The Subsidiary Guarantors shall have the right to seek contribution
from any non-paying Subsidiary Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Note Guarantee.
SECTION 10.02. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.
Each Subsidiary Guarantor, and by its acceptance of Notes, each
Holder, shall confirm that it is the intention of all such parties that the
Note Guarantee of such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law to the extent applicable to any Note Guarantee. To effectuate the
foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors
hereby irrevocably agree that the obligations of such Subsidiary Guarantor
under its Note Guarantee and this Article 10 shall be limited to the maximum
amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Subsidiary Guarantor that are relevant
under such laws, and after giving effect to any collections from, rights to
receive contribution from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under this Article 10, result in the obligations of such Subsidiary
Guarantor under its Note Guarantee not constituting a fraudulent transfer or
conveyance.
SECTION 10.03. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 10.01, a notation
of such Note Guarantee substantially in the form included in Exhibit F shall be
endorsed by an Officer of such Subsidiary Guarantor on each Note authenticated
and delivered by the Trustee and a Supplemental Indenture shall be executed on
behalf of such Subsidiary Guarantor by its President or one of its Vice
Presidents. The Note Guarantee set forth in Section 10.01 shall remain in full
force and effect notwithstanding any failure to endorse on each Note a notation
of such Note Guarantee.
If an Officer whose signature is on the Supplemental Indenture or on
the Note Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Note Guarantee is endorsed, the Note
Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Note Guarantee set
forth in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 10.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person) another
Person whether or not affiliated with such Subsidiary Guarantor unless:
(a) subject to Section 10.05 hereof, the Person formed by or surviving
any such consolidation or merger (if other than a Subsidiary Guarantor or the
Company) unconditionally assumes all the obligations of such Subsidiary
Guarantor, pursuant to a supplemental indenture in form and
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substance reasonably satisfactory to the Trustee, under the Notes, the
Indenture and the Note Guarantee on the terms set forth herein or therein; and
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the Note
Guarantee endorsed upon the Notes and the due and punctual performance of all
of the covenants and conditions of this Indenture to be performed by the
Subsidiary Guarantor, such successor Person shall succeed to and be substituted
for the Subsidiary Guarantor with the same effect as if it had been named
herein as a Subsidiary Guarantor. Such successor Person thereupon may cause to
be signed any or all of the Note Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Note Guarantees so issued shall
in all respects have the same legal rank and benefit under this Indenture as
the Note Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Note Guarantees had been issued
at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clauses (a) and (b) above, nothing contained in this Indenture or in any of the
Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with
or into the Company or another Subsidiary Guarantor, or shall prevent any sale
or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or another Subsidiary Guarantor.
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the assets of
any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary 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 Subsidiary Guarantor) will be released and relieved
of any obligations under its Note Guarantee; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof.
Upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made
by the Company in accordance with the applicable provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any
Subsidiary Guarantor from its obligations under its Note Guarantee.
Any Subsidiary Guarantor not released from its obligations under its
Note Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Subsidiary Guarantor
under this Indenture as provided in this Article 10.
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ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address.
If to the Company:
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier No.: 423 624-3301
Attention: Chief Financial Officer
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telecopier No.: 214-746-7777
Attention: R. Scott Cohen
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Telecopier No.: 212-858-2952
Attention: Terence Rawlins
With a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166-0153
Telecopier No.: 212-878-8375
Attention: David W. Bernstein, Esq. and
Bonnie A. Barsamian, Esq.
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The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section
11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
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(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied;
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied; and
(d) such additional evidence of compliance with a condition or covenant as
the Trustee may reasonably request.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or Indebtedness agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or Indebtedness agreement may not be used to
interpret this Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
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SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of June 25, 1998
AKI, INC.
BY:
-------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
BY:
-------------------------------
Name:
Title:
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EXHIBIT A-1
(Face of Global Note)
===============================================================================
CUSIP/CINS____________
10 1/2% Senior Notes due 2008
No. _______ $_________
AKI, INC.
promises to pay to _______________, or registered assigns, the principal sum of
Dollars on July 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
DATED:
AKI, INC.
BY:____________________________
Name:
Title:
This is one of the Global Notes referred to in the within-mentioned Indenture:
IBJ Schroder Bank & Trust Company,
as Trustee
By:_________________________
Name:
===============================================================================
A1-1
<PAGE>
(Back of Note)
10 1/2% [Series A] [Series B] Senior Notes due 2008
[INSERT THE FOLLOWING IF THE NOTE IS ISSUED IN GLOBAL FORM.]
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Debenture may not be transferred except as a whole by the Depositary
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL in as much as the registered owner hereof, Cede & Co., has an
interest herein.]
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS OF
THE INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. AKI, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 10 1/2% per
annum from June 25, 1998 until maturity and shall pay the Liquidated Damages
payable pursuant to Section 5 of the Registration Rights Agreement referred to
below. The Company shall pay interest and Liquidated Damages, if any,
semi-annually in arrears on January 1 and July 1 of each year (the "Interest
Payment Date"), or if any such day is not a Business Day, on the next
succeeding Business Day. Interest on the Notes will accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be January
1, 1999. The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of
the rate then in effect; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 15 or June
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as
A1-2
<PAGE>
to principal, premium and Liquidated Damages, if any, and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest and Liquidated Damages may be made by check mailed to the Holders at
their addresses set forth in the register of Holders, and provided that payment
by wire transfer of immediately available funds will be required with respect
to principal of and interest, premium and Liquidated Damages, if any, on, all
Global Notes. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of June 25, 1998 (the "Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling. The Notes are general, unsecured obligations of the Company
limited to $115.0 million in aggregate principal amount, plus amounts, if any,
issued to pay Liquidated Damages on outstanding Notes as set forth in Paragraph
2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Paragraph 5, the Company
shall not have the option to redeem the Notes prior to July 1, 2003.
Thereafter, the Company shall have the option to redeem the Notes, 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 thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003...................................................................105.250%
2004...................................................................102.625%
2005 and thereafter....................................................100.0000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to July 1, 2001, the Company may on one or more
occasions redeem up to 35% of the original aggregate principal amount of Notes
at a redemption price of 110.5% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that at least 65% of the original aggregate principal amount of Notes
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its Subsidiaries); and provided,
further, that such redemption shall occur within 90 days of the date of the
closing of such Public Equity Offering.
A1-3
<PAGE>
(c) Any redemption pursuant to this subparagraph 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described in Section 4.15 of the Indenture (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 60
days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed, pursuant to the procedures required by the
Indenture and described in such notice.
(b) Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or any such Restricted Subsidiary may apply such Net
Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness of
the Company or any Indebtedness of any Restricted Subsidiary or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce the revolving Indebtedness under
the Credit Agreement 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 $10.0 million, the Company will be required to make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes 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. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero. Holders of Notes that are the subject
of an offer to purchase may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may
A1-4
<PAGE>
be registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or portion
of a Note selected for redemption, except for the unredeemed portion of any
Note being redeemed in part. Also, the Company need not exchange or register
the transfer of any Notes for a period of 15 days before a selection of Notes
to be redeemed or during the period between a record date and the corresponding
Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and any existing Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, or to allow any
Person to execute a supplemental indenture to the Indenture and/or a Note
Guarantee with respect to the Notes.
12. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event
of Default": (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (b) default in payment when due
of the principal of or premium, if any, on the Notes; (c) failure by the
Company to comply with the provisions described under Section 4.10 or 4.15 of
the Indenture; (d) failure by the Company for 30 days after notice from the
Trustee or at least 25% in principal amount of the Notes then outstanding to
comply with the provisions described under Sections 4.07 or 4.09 of the
Indenture; (e) failure by the Company for 60 days after notice from the Trustee
or holders of at least 25% in principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture or the Notes; (f)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment
of which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the date
of the Indenture, which default (i) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express 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; (g) failure by
the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; and (h) certain events of bankruptcy or insolvency as
described in the Indenture.
A1-5
<PAGE>
If any Event of Default (other than certain events of bankruptcy or
insolvency) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the then outstanding Notes may declare all the Notes
to be due and payable immediately. Upon any such declaration, the Notes shall
become due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes shall be due and payable immediately without further
action or notice. The Holders of a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of
all of the Holders rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived. The Company
is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of June 25, 1998, between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
A1-6
<PAGE>
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: (423) 624-3301
Attention: Chief Financial Officer
A1-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
--------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No:
-------------------------
Signature Guarantee.
A1-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature:
--------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No:
-------------------------
Signature Guarantee.
A1-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE1
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in of this Global Signature of
Principal Amount Principal Amount Note following such authorized officer of
of this of this decrease Trustee or Note
Date of Exchange Global Note Global Note (or increase) Custodian
---------------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
1 This should be included only in the Notes is issued in global form.
A1-10
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
===============================================================================
CUSIP/CINS____________
10 1/2% Senior Notes due 2008
No._________________ $___________
AKI, INC.
promises to pay to _______________, or registered assigns, the principal sum of
Dollars on July 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
DATED:
AKI, INC.
BY:
--------------------------------
Name:
Title:
This is one of the Global Notes referred to in the within-mentioned Indenture:
IBJ Schroder Bank & Trust Company,
as Trustee
By: ______________________________
Name:
===============================================================================
A2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
10 1/2% [Series A] [Series B] Senior Notes due 2008
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a)
INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF THE
SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT
OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
A2-2
<PAGE>
1. INTEREST. AKI, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 10 1/2% per
annum from June 25, 1998 until maturity and shall pay the Liquidated Damages
payable pursuant to Section 5 of the Registration Rights Agreement referred to
below. The Company shall pay interest and Liquidated Damages, if any,
semi-annually in arrears on January 1 and July 1 of each year (the "Interest
Payment Date"), or if any such day is not a Business Day, on the next
succeeding Business Day. Interest on the Notes will accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be January
1, 1999. The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of
the rate then in effect; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the December 15 or June
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages, if any, on, all Global Notes. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of June 25, 1998 (the "Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling. The Notes are general, unsecured obligations of the Company
limited to $115.0 million in aggregate principal amount, plus amounts, if any,
issued to pay Liquidated Damages on outstanding Notes as set forth in Paragraph
2 hereof.
A2-3
<PAGE>
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Paragraph 5, the Company
shall not have the option to redeem the Notes prior to July 1, 2003.
Thereafter, the Company shall have the option to redeem the Notes, 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 thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003...................................................................105.250%
2004...................................................................102.625%
2005 and thereafter....................................................100.0000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to July 1, 2001, the Company may on one or more
occasions redeem up to 35% of the original aggregate principal amount of Notes
at a redemption price of 110.5% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings;
provided that at least 65% of the original aggregate principal amount of Notes
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its Subsidiaries); and provided,
further, that such redemption shall occur within 90 days of the date of the
closing of such Public Equity Offering.
(c) Any redemption pursuant to this subparagraph 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described in Section 4.15 of the Indenture (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 60
days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed, pursuant to the procedures required by the
Indenture and described in such notice.
(b) Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or any such Restricted Subsidiary may apply such Net
Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness of
the Company or any Indebtedness of any Restricted Subsidiary or (b)
A2-4
<PAGE>
to the acquisition of a controlling interest in another business, the making of
a capital expenditure or the acquisition of other long-term assets, in each
case, in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce the revolving Indebtedness under
the Credit Agreement 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 $10.0 million, the Company will be required to make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes 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. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero. Holders of Notes that are the subject
of an offer to purchase may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and
the Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and any existing Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to
A2-5
<PAGE>
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, or to allow any Person to execute a supplemental indenture to
the Indenture and/or a Note Guarantee with respect to the Notes.
12. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event
of Default": (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (b) default in payment when due
of the principal of or premium, if any, on the Notes; (c) failure by the
Company to comply with the provisions described under Section 4.10 or 4.15 of
the Indenture; (d) failure by the Company for 30 days after notice from the
Trustee or at least 25% in principal amount of the Notes then outstanding to
comply with the provisions described under Sections 4.07 or 4.09 of the
Indenture; (e) failure by the Company for 60 days after notice from the Trustee
or holders of at least 25% in principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture or the Notes; (f)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment
of which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the date
of the Indenture, which default (i) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express 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; (g) failure by
the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; and (h) certain events of bankruptcy or insolvency as
described in the Indenture.
If any Event of Default (other than certain events of bankruptcy or
insolvency) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the then outstanding Notes may declare all the Notes
to be due and payable immediately. Upon any such declaration, the Notes shall
become due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes shall be due and payable immediately without further
action or notice. The Holders of a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of
all of the Holders rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived. The Company
is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
A2-6
<PAGE>
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of June 25, 1998, between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: (423) 624-3301
Attention: Chief Financial Officer
A2-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
--------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No:
-------------------------
Signature Guarantee.
A2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature:
--------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No:
-------------------------
Signature Guarantee.
A2-9
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary
Global Note for an interest in another Global Note, or of other Restricted
Global Notes for an interest in this Regulation S Temporary Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in of this Global Signature of
Principal Amount Principal Amount Note following such authorized officer of
of this of this decrease Trustee or Note
Date of Exchange Global Note Global Note (or increase) Custodian
---------------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Telecopier no.: 212-858-2952
Attention: Terence Rawlins
Re: 10 1/2% Senior Notes due 2008
Reference is hereby made to the Indenture, dated as of June 25, 1998
(the "Indenture"), between AKI, Inc. (the "Company"), as issuer, and IBJ
Schroder Bank & Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A
and such Transfer is in compliance with any applicable blue sky securities laws
of any state of the United States. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the 144A Global Note
and/or the Definitive Note and in the Indenture and the Securities Act.
B-1
<PAGE>
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities
Act and, accordingly, the Transferor hereby further certifies that (i) the
Transfer is not being made to a Person in the United States and (x) at the time
the buy order was originated, the Transferee was outside the United States or
such Transferor and any Person acting on its behalf reasonably believed and
believes that the Transferee was outside the United States or (y) the
transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on
its behalf knows that the transaction was prearranged with a buyer in the
United States, (ii) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the
Securities Act and (iii) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note , the Temporary Regulation S Global Note and/or
the Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary
thereof; or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act; or
(d) [ ] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or
Rule 904, and the Transferor hereby further certifies that it has not
engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Note or Restricted Definitive Notes and the requirements of the
exemption claimed, which certification is supported by (1) a
certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount
of Notes at the time of transfer of less than $250,000, an Opinion of
Counsel provided by the Transferor or the Transferee (a copy of which
the Transferor has attached to this certification), to the effect that
B-2
<PAGE>
such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of
the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the IAI Global Note and/or the
Definitive Notes and in the Indenture and the Securities Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
[Insert Name of Transferor]
BY:
--------------------------------
Name:
Title:
Dated: __________, ____
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] IAI Global Note (CUSIP ________), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] IAI Global Note (CUSIP ________), or
(iv) [ ] Unrestricted Global Note (CUSIP ________), or
(b) [ ] a Restricted Definitive Note, or
(c) [ ] an Unrestricted Definitive Note, in accordance with the terms of
the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: (423) 624-3301
Attention: Chief Financial Officer
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Telecopier no.: 212-858-2952
Attention: Terence Rawlins
Re: 10 1/2% Senior Notes Due 2008
Reference is hereby made to the Indenture, dated as of June 25, 1998
(the "Indenture"), between AKI, Inc. (the "Company"), as issuer, and IBJ
Schroder Bank & Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the
United States Securities Act of 1933, as amended (the "Securities Act"), (iii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the beneficial interest in an Unrestricted Global Note
is being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the
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<PAGE>
Definitive Note is being acquired for the Owner's own account without transfer,
(ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Restricted Global Notes and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Definitive
Note is being acquired in compliance with any applicable blue sky securities
laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] "144A Global Note", "Regulation S Global Note", "IAI Global
Note" with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any
applicable blue
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<PAGE>
sky securities laws of any state of the United States. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the beneficial
interest issued will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the relevant Restricted Global Note and
in the Indenture and the Securities Act.
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<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
BY:
--------------------------------
Name:
Title:
Dated: __________, ____
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
AKI, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
IBJ Schroder Bank & Trust Company
One State Street, 11th Floor
New York, New York 10004
Telecopier no.: 212-858-2952
Attention: Terence Rawlins
Re: 10 1/2% Senior Notes due 2008
Reference is hereby made to the Indenture, dated as of June 25, 1998
(the "Indenture"), among AKI, Inc. (the "Company"), as issuer and IBJ Schroder
Bank & Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set
forth in the Indenture and the undersigned agrees to be bound by, and
not to resell, pledge or otherwise transfer the Notes or any interest
therein except in compliance with, such restrictions and conditions
and the United States Securities Act of 1933, as amended (the
"Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we
should sell the Notes or any interest therein, we will do so only (A)
to the Company or any subsidiary thereof, (B) in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (c) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or
D-1
<PAGE>
has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and,
if such transfer is in respect of a principal amount of Notes, at the
time of transfer of less than $250,000, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer
is in compliance with the Securities Act, (D) outside the United
States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the provisions of Rule 144(k) under
the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to
any person purchasing the Definitive Note or beneficial interest in a
Global Note from us in a transaction meeting the requirements of
clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as
you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend to the
foregoing effect. We further understand that any subsequent transfer
by us of the Notes or beneficial interest therein acquired by us must
be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.
5. We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is
an institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
---------------------------------------
[Insert Name of Accredited Investor]
By:
------------------------------------
Name:
Title:
Dated: __________________, ____
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF NOTE GUARANTEE
For value received, each Subsidiary Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and
subject to the provisions in the Indenture dated as of June 25, 1998 (the
"Indenture") between AKI, Inc. and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"), (a) the due and punctual payment of the principal of,
premium and Liquidated Damages, if any, and interest on the Notes (as defined
in the Indenture), whether at maturity, by acceleration, redemption or
otherwise, the due and punctual payment of interest on overdue principal and
premium, and, to the extent permitted by law, interest, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms of the Indenture and (b) in case
of any extension of time of payment or renewal of any Notes or any of such
other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. Each Holder of a Note, by
accepting the same, (a) agrees to and shall be bound by such provisions and (b)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
[Name of Subsidiary Guarantor(s)]
By:
----------------------------------
Name:
Title:
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EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Subsidiary Guarantor"), AKI,
Inc., (the "Company"), and IBJ Schroder Bank & Trust Company, as trustee under
the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of June 25, 1998 providing for
the issuance of an aggregate principal amount of up to $115.0 million of 10
1/2% Senior Notes due 2008 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Subsidiary Guarantor shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Note Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Subsidiary Guarantor hereby agrees as
follows:
(a) To jointly (with other Subsidiary Guarantors, if any) and
severally Guarantee to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of
the Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful,
and all other obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be promptly paid in
full or performed, all in accordance with the terms hereof
and thereof; and
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(ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due
of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Subsidiary Guarantors shall be jointly and
severally obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent
by any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the
Indenture.
(e) If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Subsidiary Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to
either the Company or the Subsidiary Guarantors, any amount paid by
either to the Trustee or such Holder, this Note Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and
effect.
(f) The Subsidiary Guarantor shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
(g) As between the Subsidiary Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and
(y) in the event of any declaration of acceleration of such
obligations as provided in Article 6 of the Indenture, such
obligations (whether or not due and payable) shall forthwith become
due and payable by the Subsidiary Guarantors for the purpose of this
Note Guarantee.
(h) The Subsidiary Guarantors shall have the right to seek contribution
from any non-paying Subsidiary Guarantor so long as the exercise of
such right does not impair the rights of the Holders under the Note
Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect to any
maximum amount and any other contingent and fixed liabilities that are
relevant under any applicable
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Bankruptcy or fraudulent conveyance laws, and after giving effect to
any collections from, rights to receive contribution from or payments
made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under Article 10 of
the Indenture shall result in the obligations of such Subsidiary
Guarantor under its Note Guarantee not constituting a fraudulent
transfer or conveyance.
3. EXECUTION AND DELIVERY. Each Subsidiary Guarantor agrees that the Note
Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
4. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) The Subsidiary Guarantor may not consolidate with or merge with
or into (whether or not such Subsidiary Guarantor is the
surviving Person) another corporation, Person or entity whether
or not affiliated with such Subsidiary Guarantor unless:
(i) subject to Section 10.04 of the Indenture, the Person formed
by or surviving any such consolidation or merger (if other
than a Subsidiary Guarantor or the Company) unconditionally
assumes all the obligations of such Subsidiary Guarantor,
pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes, the
Indenture and the Note Guarantee on the terms set forth
herein or therein; and
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Note Guarantee endorsed upon the
Notes and the due and punctual performance of all of the
covenants and conditions of the Indenture to be performed by the
Subsidiary Guarantor, such successor corporation shall succeed to
and be substituted for the Subsidiary Guarantor with the same
effect as if it had been named herein as a Subsidiary Guarantor.
Such successor corporation thereupon may cause to be signed any
or all of the Note Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee. All the Note
Guarantees so issued shall in all respects have the same legal
rank and benefit under the Indenture as the Note Guarantees
theretofore and thereafter issued in accordance with the terms of
the Indenture as though all of such Note Guarantees had been
issued at the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in
the Indenture or in any of the Notes shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into
the Company or another Subsidiary Guarantor, or shall prevent any
sale or conveyance of the property of a Subsidiary Guarantor as
an entirety or substantially as an entirety to the Company or
another Subsidiary Guarantor.
5. RELEASES.
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(a) In the event of a sale or other disposition of all of the assets
of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all to the capital
stock of any Subsidiary Guarantor, then such Subsidiary Guarantor
(in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of such
Subsidiary 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 Subsidiary Guarantor)
will be released and relieved of any obligations under its Note
Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable
provisions of the Indenture, including, without limitation,
Section 4.10 of the Indenture. Upon delivery by the Company to
the Trustee of an Officers' Certificate and an Opinion of Counsel
to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of the Indenture,
including, without limitation, Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order
to evidence the release of any Subsidiary Guarantor from its
obligations under its Note Guarantee.
(b) Any Subsidiary Guarantor not released from its obligations under
its Note Guarantee shall remain liable for the full amount of
principal of and interest on the Notes and for the other
obligations of any Subsidiary Guarantor under the Indenture as
provided in Article 10 of the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the
Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the
Notes, any Note Guarantees, the Indenture or this Supplemental
Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a
waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained
herein, all of which recitals are made solely by the Subsidiary
Guarantor and the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[SUBSIDIARY GUARANTOR]
By:
----------------------------------
Name:
Title:
AKI, Inc.
By:
----------------------------------
Name:
Title:
[EXISTING GUARANTORS]
By:
----------------------------------
Name:
Title:
IBJ Schroder Bank & Trust Company
as Trustee
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit 4.3
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated as of June 25, 1998
BY AND BETWEEN
AKI, Inc.
AND
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of June 25, 1998 by and between AKI, Inc., a Delaware corporation (the
"Company") and Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial
Purchaser") who has agreed to purchase the Company's 10 1/2% Senior Notes due
2008 (the "Series A Notes") pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated June 22,
1998 (the "Purchase Agreement"), by and between the Company and the Initial
Purchaser. In order to induce the Initial Purchaser to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchaser set forth in Section 2 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated June 25, 1998, between the
Company and IBJ Schroder Bank & Trust Company, as Trustee, relating to the
Series A Notes and the Series B Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Affiliated Market Maker: A Broker-Dealer who is deemed to be an Affiliate
of the Company.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date hereof.
Certificated Securities: Definitive Notes, as defined in the Indenture.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of
this Agreement upon the occurrence of (a) the filing and effectiveness under the
Act of the Exchange Offer Registration Statement relating to the Series B Notes
to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the period required pursuant to Section
3(b) hereof and (c) the delivery by the Company to the Registrar under the
Indenture of the Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser proposes to
sell the Series A Notes (i) to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and (ii) in offshore transactions
pursuant to Regulation S under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indemnified Party: As defined in Section 8(c).
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Indemnifying Party: As defined in Section 8(c).
Prospectus: The prospectus included in a Registration Statement at the time
such Registration Statement is declared effective, as amended or supplemented by
any prospectus and by all other amendments thereto, including post-effective
amendments, and all material incorporated by reference into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Rule 144A: Rule 144A promulgated under the Act.
Series B Notes: The Company's new 10 1/2% Senior Notes due 2008 to be
issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4(a) hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in
effect on the date of the Indenture.
Transfer Restricted Securities: Means (i) each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act and (ii) each Series B Note issued to a Broker-Dealer until the date on
which such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein)
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause the Exchange Offer Registration Statement to
be filed with the Commission as soon as practicable after the Closing Date, but
in no event later than 45 days after the Closing Date (such 45th day being the
"Filing Deadline"), (ii) use its reasonable best efforts to cause such Exchange
Offer Registration Statement to become effective on or prior to 180 days after
the Closing Date (such 180th day being the "Effectiveness Deadline"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) subject to the limitations set forth in Section 6(c)(xii) cause all
necessary filings, if any,
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in connection with the registration and qualification of the Series B Notes to
be made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company shall use its reasonable best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be less than 20
Business Days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws; provided that to the extent that
any securities laws or regulations conflict with the provisions of this
Registration Rights Agreement, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Agreement. No securities other than the Series B Notes
shall be included in the Exchange Offer Registration Statement. The Company
shall use its reasonable best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993). Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by
Broker-Dealers, the Company agrees to use its reasonable best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Section 6(a)
and (c) hereof and in conformity with the requirements of this Agreement, the
Act and the policies, rules and regulations of the Commission as announced from
time to time, for a
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period of 180 days from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto. The Company shall provide sufficient
copies of the latest version of such Prospectus to such Broker-Dealers, promptly
upon request, and in no event later than one business day after such request, at
any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law or Commission policy (after the Company has complied with the
procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer
Restricted Securities shall notify the Company in writing within 20 days
following the Consummation Deadline that (A) such Holder was prohibited by
applicable law or Commission policy from participating in the Exchange Offer,
(B) such Holder may not resell the Series B Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Series A Notes acquired directly from the Company or any of its Affiliates, then
the Company shall:
(x) cause to be filed, on or prior to 45 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
and (ii) the date on which the Company receives the notice specified in
clause (a)(ii) above, (such earlier date being the "Filing Deadline"), a
shelf registration statement pursuant to Rule 415 under the Act (which may
be an amendment to the Exchange Offer Registration Statement (the "Shelf
Registration Statement")), relating to all Transfer Restricted Securities,
and
(y) shall use its reasonable best efforts to cause such Shelf
Registration Statement to become effective on or prior to 180 days after
the Filing Deadline for the Shelf Registration Statement (such 180th day
being the "Effectiveness Deadline"). If, after the Company has filed an
Exchange Offer Registration Statement that satisfies the requirements of
Section 3(a) above, the Company is required to file and make effective a
Shelf Registration Statement solely because the Exchange Offer is not
permitted under applicable federal law (i.e., clause (a)(i) above), then
the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above; provided, however, that, in
such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and other securities required to be
registered therein pursuant to Section 6(b)(ii) hereof, the Company shall use
its reasonable best efforts to keep any Shelf Registration Statement required by
this Section 4(a) continuously effective, supplemented, amended and current as
required by, and subject to, the provisions of Sections 6(b) and (c) hereof, and
in conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for as
long as the Initial Purchaser is deemed to be an affiliate of the Company but in
no event less than the shorter of (i) two years (as extended pursuant to Section
6(d) following the Closing or (ii) the date on which all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement.
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No Holder of Transfer Restricted Securities may include any of its Transfer
Restricted Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 20 days after receipt of a request therefor, the information specified in
Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to liquidated damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such information. Each selling Holder agrees
to promptly furnish additional information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
(c) Holders of Transfer Restricted Securities that do not give the written
notice within the 20 day period set forth in Section 4(a) hereof, if required to
be given, will no longer have any registration rights pursuant to this Section 4
and will not be entitled to any Liquidated Damages pursuant to Section 5 hereof
in respect of the Company's obligations with respect to the Shelf Registration
Statement.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company hereby agrees to pay to each Holder
of Transfer Restricted Securities affected thereby liquidated damages in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.25 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided, however, that the Company
shall in no event be required to pay liquidated damages for more than one
Registration Default at any given time. Notwithstanding anything to the contrary
set forth herein, (1) upon filing of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (i)
above, (2) upon the effectiveness of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the case of (ii)
above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above,
or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled thereto, in
the manner provided for the payment of interest in the Indenture, on each
Interest Payment Date, as more
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fully set forth in the Indenture and the Notes. Notwithstanding the fact that
any securities for which liquidated damages are due cease to be Transfer
Restricted Securities, all obligations of the Company to pay liquidated damages
with respect to securities shall survive until such time as all such obligations
with respect to such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company shall (x) comply with all applicable provisions of Section
6(c) below, (y) use its reasonable best efforts to effect such exchange and to
permit the resale of Series B Notes by Broker-Dealers that tendered in the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of its market making activities or other trading activities
(other than Series A Notes acquired directly from the Company or any of its
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company hereby agrees to seek a no-action
letter or other favorable decision from the Commission allowing the Company
to Consummate an Exchange Offer for such Transfer Restricted Securities.
The Company hereby agrees to pursue the issuance of such a decision from
the Commission staff level. In connection with the foregoing, the Company
hereby agrees to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker-Dealer) shall furnish, upon the request of the
Company, prior to Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer, each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes shall
acknowledge and agree that, if the resales are of Series B Notes obtained
by such Holder in exchange for Series A Notes acquired directly from the
Company or an Affiliate thereof, then such Holder (1) could not, under
Commission policy as in effect on the date of this Agreement, rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective
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registration statement containing the selling security holder information
required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission including (A) a statement that the Company is registering the
Exchange Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and (C)
any other undertaking or representation required by the Commission as set
forth in any no-action letter obtained pursuant to clause (i) above, if
applicable.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Company shall:
(i) comply with all the provisions of Section 6(c) below and use its
reasonable best efforts to effect such registration to permit the sale of
the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance
with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement
for this purpose and issue the Series B Notes to the purchaser(s) of
securities subject to the Shelf Registration Statement in the names as such
purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use its reasonable best efforts to
cause such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration
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Statement effective for the applicable period set forth in Section 3 or 4
hereof, as the case may be; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Act, and to comply fully with Rules 424, 430A and
462, as applicable, under the Act in a timely manner; and comply with the
provisions of the Act applicable to the Company with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise each Holder whose Transfer Restricted Securities are
included in the Shelf Registration Statement, each Holder who is required
to deliver a prospectus in connection with sales or market making
activities (an "Affiliated Market Maker") and the Initial Purchaser
promptly and, if requested by any of such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment thereto,
when the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company shall use its reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Holder whose Transfer Restricted Securities are
included in the Shelf Registration Statement and Affiliated Market Maker in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration Statement
or Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Persons in connection with such
sale, if any, for a period of at least three Business Days, and the Company
will not file any such Registration Statement or Prospectus or any
amendment or
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supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which such
Persons shall reasonably object within three Business Days after the
receipt thereof. Such Person shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading or fails to
comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder whose Transfer Restricted
Securities are included in the Shelf Registration Statement and Affiliated
Market Maker in connection with such exchange or sale, if any, make the
Company's representatives available for discussion of such document and
other customary due diligence matters, and include such information in such
document prior to the filing thereof as such Persons may reasonably
request;
(vii) make available upon execution of a customary confidentiality
agreement, at reasonable times, for inspection by each Holder whose
Transfer Restricted Securities are includable in the Shelf Registration
Statement and Affiliated Market Maker and any attorney or accountant
retained by such Persons, all financial and other records, pertinent
corporate documents of the Company and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such Persons, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent
to the filing thereof and prior to its effectiveness;
(viii) if requested by any whose Transfer Restricted Securities are
included in the Shelf Registration Statement in writing or any Affiliated
Market Maker, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Persons may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities, and the use of the
Registration Statement or Prospectus for market making activities, and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish each Holder whose Transfer Restricted Securities are
included in the Shelf Registration Statement, and each Affiliated Market
Maker, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver each Holder whose transfer Restricted Securities have
been included in a Shelf Registration Statement and Affiliated Market
Maker without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use
(in accordance with law) of the Prospectus and any amendment or
supplement thereto by each selling Person in connection with the
offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto and all market
making activities of such Affiliated Market Maker, as the case may be;
(xi) upon the request of (i) the Holders of a majority in aggregate
principal amount of Series A Notes, (ii) a majority in aggregate principal
amount of Transfer Restricted Securities included in a Shelf Registration
Statement, (iii) an Affiliated Market Maker or (iv) the Initial Purchaser,
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<PAGE>
enter into such agreements (including underwriting agreements) and make
such representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
such Person in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection, and also in
connection with market making activities by any Affiliated Market Maker,
the Company shall:
(A) upon request of any such Person, furnish (or in the case of
paragraphs (2) and (3), use its reasonable best efforts to cause to be
furnished) to each such Person, upon Consummation of the Exchange
Offer or upon the effectiveness of the Shelf Registration Statement,
as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company
confirming, as of the date thereof, the matters set forth in
Sections 9(a) and 9(b) of the Purchase Agreement and such other
similar matters as such Persons may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in paragraph
(e) of Section 9 of the Purchase Agreement and such other matter
as such Persons may reasonably request, and in any event
including a statement substantially to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company and have
considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that, on the basis
of the foregoing (relying as to materiality to the extent such
counsel deems appropriate upon the statements of officers and
other representatives of the Company (and without independent
check or verification), no facts came to such counsel's attention
that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement
or any post-effective amendment thereto became effective and, in
the case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included
in any Registration Statement contemplated by this Agreement or
the related Prospectus; and
(3) a customary comfort letter dated the date of
Consummation of the Exchange Offer, if the Company can reasonably
obtain such letter, or as of the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(g) of the Purchase
Agreement, and
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<PAGE>
(B) deliver such other documents and certificates as may be
reasonably requested by such Persons to evidence compliance with the
matters covered in clause (A) above and with any customary conditions
contained in the any agreement entered into by the Company pursuant to
this clause (xi);
(C) make appropriate officers of the Company available at
reasonable times with adequate notice to the selling Holders for
meetings with prospective purchasers of the Transfer Restricted
Securities and prepare and present to potential investors customary
"road show" material in a manner consistent with other new issuances
of other securities similar to the Transfer Restricted Securities;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling
Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and register such Transfer
Restricted Securities in such denominations and such names as the selling
Holders may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use its reasonable best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities that are
in a form eligible for deposit with the Depository Trust Company;
(xvi) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its reasonable best efforts to cause the Trustee to
execute all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
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<PAGE>
(xviii) provide promptly to each Holder and Affiliated Market Maker,
upon request, each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security and each Affiliated Market Maker agrees that, upon
receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the
Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Person will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until (i) such Person has received copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(iv)
hereof, or (ii) such Person is advised in writing by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "Recommencement Date"). Each Person receiving a Suspension Notice
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Person's possession that have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Person's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by a number of days equal to the number of days in the period from and including
the date of delivery of the Suspension Notice to the date of delivery of the
Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of, or compliance
with, this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including, without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities laws and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing certificates for the Series B
Notes to be issued in the Exchange Offer and printing of Prospectuses, whether
for exchanges, sales, market making or otherwise), messenger and delivery
services and telephone expenses; (iv) all fees and disbursements of counsel for
the Company and the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Series B Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchaser and the Holders of Transfer Restricted Securities who are
tendering Series A Notes into in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham &
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Watkins, unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder, (ii)
its directors and officers and (iii) each Person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any
Holder, from and against any and all losses, claims, damages, liabilities,
judgments, (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder or any prospective purchaser of Series B Notes or registered Series A
Notes, or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Holders.
(b) Each Holder of Transfer Restricted agrees, severally and not jointly,
to indemnify and hold harmless (i) the Company, (ii) its directors and officers
and (iii) each Person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) the Company to the same extent as the
foregoing indemnity from the Company set forth in section (a) above, but only
with reference to information relating to such Holder furnished in writing to
the Company by such Holder expressly for use in any Registration Statement. In
no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"Indemnified Party"), the Indemnified Party shall promptly notify the person
against whom such indemnity may be sought (the "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any Indemnified Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Indemnifying Party, (ii) the Indemnifying Party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
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Indemnified Party or (iii) the named parties to any such action (including any
impleaded parties) include both the Indemnified Party and the Indemnifying
Party, and the Indemnified Party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right to assume the defense of such action
on behalf of the Indemnified Party). In any such case, the Indemnifying Party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Indemnified Parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company, in the case of parties indemnified pursuant to Section 8(b). The
Indemnifying Party shall indemnify and hold harmless the Indemnified Party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than twenty Business Days after the Indemnifying Party shall have received a
request from the Indemnified Party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
Indemnifying Party) and, prior to the date of such settlement, the Indemnifying
Party shall have failed to comply with such reimbursement request. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the Indemnified Party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the Indemnified
Party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the Indemnified Party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the Indemnified Party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an Indemnified Party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph
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of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
The Company agrees that the indemnity and contribution provisions of this
Section 8 shall apply to Affiliated Market Makers to the same extent, on the
same conditions, as it applies to Holders.
SECTION 9. RULE 144A and RULE 144
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the
Exchange Act , to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure by the
Company to comply with its obligations under Sections 3 and 4 hereof may result
in material irreparable injury to the Initial Purchaser or the Holders or
Affiliated Market Makers for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchaser or any Holder or Affiliated
Market Maker may obtain such relief as may be required to specifically enforce
the Company's obligations under Sections 3 and 4 hereof. The Company further
agrees to waive the defense in any action for specific performance where a
remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof.
15
<PAGE>
The Company has not previously entered into any agreement granting any
registration rights with respect to its securities to any Person. The rights
granted to the Holders hereunder do not in any way conflict with, and are not
inconsistent with, the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof that relate exclusively to the rights of
Holders whose Transfer Restricted Securities are being tendered pursuant to the
Exchange Offer, and that does not affect directly or indirectly the rights of
other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders and Affiliated Market Makers shall
be third party beneficiaries to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders and Affiliated Market Makers hereunder.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing, by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
AKI, Inc.
1815 East Main Street
Chattanooga, TN 37404
Telecopier No.: 423-622-4634
Attention: Corporate Secretary
and
AKI, Inc.
120 East 56th Street
New York, NY
Telecopier No.: 212-223-5776
Attention: President
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, TX 75201
Telecopier No.: 214-746-7777
Attention: R. Scott Cohen
16
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation (in the form attached hereto as Exhibit A) and
shall be addressed to: Louise Guarneri (Compliance Department), 277 Park
Avenue, New York, New York 10172.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including, without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
AKI, INC.
By:
------------------------------
Name:
Title:
18
<PAGE>
The foregoing Registration Rights Agreement is hereby confirmed and
accepted as of the date first above written by Donaldson, Lufkin & Jenrette
Securities Corporation, as the Initial Purchaser.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
------------------------------
Name:
Title:
19
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: AKI, Inc.
Re: 10 1/2% Series A Notes due 2008
Date: , 199
For your information only (NO ACTION REQUIRED):
Today, , 199 , we filed [an Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within
Business Days of the date hereof.
20
<PAGE>
Exhibit 10.1
AHC I ACQUISITION CORP.
1998 STOCK OPTION PLAN
A. PURPOSES
AHC I ACQUISITION CORP., a Delaware corporation (the "Company"),
desires to afford certain of its key employees and directors, and the key
employees and directors of any parent corporation or subsidiary corporation of
the Company now existing or hereafter formed or acquired, who are responsible
for the continued growth of the Company, an opportunity to acquire a
proprietary interest in the Company, and thus to create in such key employees
an increased interest in and a greater concern for the welfare of the Company
and its subsidiaries.
The Company, by means of this 1998 Stock Option Plan (the "Plan"),
seeks to retain the services of persons now holding key positions and to secure
the services of persons capable of filling such positions.
The stock options ("Options") offered pursuant to the Plan are a
matter of separate inducement and are not in lieu of any salary or other
compensation for the services of any key employee.
The Options granted under the Plan are intended to be either incentive
stock options ("Incentive Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options that do not
meet the requirements of Incentive Options ("Non-Qualified Options"). The
Company makes no warranty, however, as to the qualification of any Option as an
Incentive Option.
2. NUMBER OF SHARES SUBJECT TO THE PLAN
The total number of shares of common stock of the Company which may be
purchased or acquired pursuant to the exercise of Options granted under the
Plan shall not exceed, in the aggregate, 80,000 shares of the authorized common
stock, par value $.01 per share, of the Company (the "Shares"); provided, that
the maximum number of Shares which may be purchased or acquired pursuant to the
exercise of Options granted to one key employee or director under the Plan is
32,500.
Shares available for issuance acquired under the Plan may be either
authorized but unissued Shares or Shares of issued stock held in the Company's
treasury, or both, at the discretion of the Company. If and to the extent that
Options granted under the Plan expire or terminate without having been
exercised, the Shares covered by such expired or terminated Options may again
be subject to an Option under the Plan.
Except as provided in Article 18 and subject to Article 3, the Company
may, from time to time during the period beginning on June 17, 1998 (the
"Effective Date"), the date of approval by the board of directors of the
Company (the "Board of Director's"), and ending on June 16, 2008, (the
"Termination Date"), grant Incentive Options and Non-Qualified Options to
certain key
<PAGE>
employees of the Company or any subsidiary corporation of the Company under the
terms hereinafter set forth.
As used in the Plan, the terms "parent corporation" and "subsidiary
corporation" shall mean a corporation within the definitions of such terms
contained in Sections 424(e) and 424(f) of the Code, respectively.
3. ADMINISTRATION
The Board of Directors shall administer the Plan, provided that the
Board of Directors may, from time to time, designate from any of its members a
Compensation Committee, which shall be the Compensation Committee of the Board
of Directors (the "Committee"), to administer the Plan. A majority of the
members of the Committee shall constitute a quorum, and the act of a majority
of the members of the Committee shall be the act of the Committee. Any member
of the Committee may be removed at any time either with or without cause by
resolution adopted by the Board of Directors, and any vacancy on the Committee
at any time may be filled by resolution adopted by the Board of Directors. If
the Board of Directors administers the Plan, then reference herein, or in any
option agreement granting Options pursuant to the Plan, to the Committee shall
mean the Committee or the Board of Directors, as appropriate.
Subject to the express provisions of the Plan, the Committee shall
have authority, in its discretion, to determine the key employees to whom
Options shall be granted (the "Optionholders"), the time when such Options
shall be granted, the number of Shares which shall be subject to each Option,
the purchase price or exercise price of each Option, the period(s) during which
such Options shall be exercisable (whether in whole or in part) and the other
terms and provisions thereof (which need not be identical).
Subject to the express provisions of the Plan, the Committee also
shall have authority to construe the Plan and the Options granted thereunder,
to amend the Plan and the Options granted thereunder, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the Options (which need not be identical) granted thereunder and
to make all other determinations necessary or advisable for administering the
Plan.
The Committee may establish performance standards for determining the
periods during which Options shall be exercisable, including without limitation
standards based on the earnings of the Company and its subsidiaries for various
fiscal periods. The Committee shall define such performance criteria and, from
time to time, the Committee in its sole discretion and in administering the
Plan may make adjustments to such performance criteria for any fiscal period so
that extraordinary or unusual charges or credits, acquisitions, mergers,
consolidations, and other corporate transactions and other elements of or
factors influencing the calculations of earnings or any other performance
standard do not distort or affect the operation of the Plan in a manner
inconsistent with the achievement of its purpose.
The determination of the Committee on matters referred to in this
Article 3 shall be conclusive.
<PAGE>
The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion or computation received from any such legal counsel, consultant or
agent. Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company. No member or former member of
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any award of Options granted hereunder.
4. ELIGIBILITY
Options may be granted only to key employees or directors of the
Company or any parent or subsidiary corporation of the Company.
The Plan does not create a right in any employee or director to
participate in the Plan, nor does it create a right in any employee or director
to have any Options granted to him or her.
5. OPTION PRICE AND PAYMENT
The price for each Share purchasable under any Option granted
hereunder shall be such amount as the Committee shall determine in good faith
to be the fair market value (as defined below) per Share at the date the Option
is granted; provided, however, that the exercise price shall not be less than
$1.00 per share; and provided further, that in the case of an Incentive Option
granted to a key employee who, at the time such Incentive Option is granted,
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any subsidiary corporation or
parent corporation of the Company, the purchase price for each Share shall not
be less than one hundred ten percent (110%) of the fair market value per Share
at the date the Incentive Option is granted. In determining the stock ownership
of a key employee for any purpose under the Plan, the rules of Section 424(d)
of the Code shall be applied, and the Committee may rely on representations of
fact made to it by the key employee and believed by it to be true.
For purposes of the Plan, "fair market value," with respect to any
date of determination, means:
(i) if the Shares are listed or admitted to trading on a
national securities exchange in the United States or reported through The
Nasdaq Stock Market ("Nasdaq") then the closing sale price on such exchange or
Nasdaq on such date or, if no trading occurred or quotations were available on
such date, then on the closest preceding date on which the Shares were traded
or quoted; or
(ii) if not so listed or reported but a regular, active
public market for the Shares exists (as determined in the sole discretion of
the Committee, whose decision shall be conclusive and binding), then the
average of the closing bid and ask quotations per Share in the over-the-counter
market for such Shares in the United States on such date or, if no such
quotations are available on such date, then on the closest date preceding such
date. For purposes of
<PAGE>
the foregoing, a market in which trading is sporadic and the ask quotations
generally exceed the bid quotations by more than 15% shall not be deemed to be
a "regular, active public market."
If the Committee determines that a regular, active public market does
not exist for the Shares, the Committee shall determine the fair market value
of the Shares in its good faith judgment based on the total number of shares of
Common Stock then outstanding, taking into account all outstanding options,
warrants, rights or other securities exercisable or exchangeable for, or
convertible into, shares of Common Stock.
For purposes of this Plan, the determination by the Committee of the
fair market value of a Share shall be conclusive.
Upon the exercise of an Option granted hereunder, the Company shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash or by certified check; provided,
however, that in lieu of cash, the holder of an Option may, if and to the
extent the terms of such Option so provide and to the extent permitted by
applicable law, exercise an Option in whole or in part, by delivering to the
Company (a) shares of common stock of the Company (in proper form for transfer
and accompanied by all requisite stock transfer tax stamps or cash in lieu
thereof) owned by such holder having a fair market value equal to the exercise
price applicable to that portion of the Option being exercised or (b) such
other form of payment as the Committee shall permit in its sole discretion at
the time of grant of the Option.
6. USE OF PROCEEDS
The cash proceeds of the sale of Shares pursuant to the Plan are to be
added to the general funds of the Company and used for its general corporate
purposes as the Board of Directors shall determine.
7. TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
An Option shall be exercisable at such times, in such amounts and
during such period or periods as the Committee shall determine at the date of
the grant of such Option; provided, however, that an Option shall not be
exercisable after the expiration of ten (10) years from the date such Option is
granted; and provided, further, that an Incentive Option granted to a key
employee who, at the time such Incentive Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any subsidiary corporation or parent
corporation of the Company, shall not be exercisable after the expiration of
five (5) years from the date such Incentive Option is granted.
The Committee shall have the right to accelerate, in whole or in part,
from time to time, conditionally or unconditionally, rights to exercise any
Option granted hereunder.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
<PAGE>
Except as otherwise provided under the Code, to the extent that the
aggregate fair market value of stock for which Incentive Options (under all
stock option plans of the Company and of any parent corporation or subsidiary
corporation of the Company) are exercisable for the first time by a key
employee during any calendar year exceeds one hundred thousand dollars
($100,000), such Options shall be treated as Non-Qualified Options. For
purposes of this limitation, (a) the fair market value of the stock is
determined as of the time the Option is granted, and (b) Options will be taken
into account in the order in which they were granted.
In no event shall an Option granted hereunder be exercised for a
fraction of a Share.
8. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the Optionholder
as to all or part of the Shares covered thereby by the giving of written notice
of the exercise thereof to the Corporate Secretary of the Company at the
principal business office of the Company, specifying the number of Shares to be
purchased and specifying a business day not more than fifteen (15) days from
the date such notice is given for the payment of the purchase price against
delivery of the Shares being purchased. Subject to the terms of Articles 13,
14, 15 and 16, the Company shall cause certificates for the Shares so purchased
to be delivered to the Optionholder at the principal business office of the
Company, against payment of the full purchase price, on the date specified in
the notice of exercise.
9. NON-TRANSFERABILITY OF OPTIONS
No Option granted hereunder shall be transferable, whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution and any Option granted hereunder shall be exercisable during the
lifetime of the Optionholder only by such Optionholder. Except to the extent
provided above, Options may not be assigned, transferred, pledged, hypothecated
or disposed of in any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment or similar process, and any purported
assignment in contravention hereof shall be void and of no effect.
Notwithstanding the foregoing, at the discretion of the Committee, a
Non-Qualified Option may be transferred by a key employee solely to such key
employee's spouse, siblings, parents, children and grandchildren or trusts for
the benefit of such persons or partnerships, corporations, limited liability
companies or other entities owned solely by such persons, subject to any
restrictions included in the award of the Non-Qualified Option.
10. TERMINATION OF EMPLOYMENT
Upon termination of employment of any Optionholder with the Company
and all subsidiary corporations, an Option previously granted to the
Optionholder, unless otherwise specified by the Committee in the Option, shall,
to the extent not theretofore exercised, terminate and become null and void,
provided that:
(a) if the Optionholder shall die while in the employ of such
corporation or during either the six (6) month or thirty (30) day period,
whichever is applicable, specified in
<PAGE>
clauses (b) and (c) below, and at a time when such Optionholder was entitled to
exercise an Option as herein provided, the legal representative of such
Optionholder, or such person who acquired such Option by bequest or inheritance
or by reason of the death of the Optionholder, shall have the right to exercise
such Option so granted, to the extent not theretofore exercised, in respect of
any or all of such number of Shares that such Optionholder is entitled to
purchase pursuant to such Option at the time of such Optionholder's death, at
any time up to and including one (1) year after the date of death;
(b) if the employment of any Optionholder to whom such Option
shall have been granted shall terminate by reason of the Optionholder's
disability (as defined below), and while such Optionholder is entitled to
exercise such Option as herein provided, such Optionholder shall have the right
to exercise such Option so granted, to the extent not theretofore exercised, in
respect of any or all of such number of Shares that such Optionholder is
entitled to purchase pursuant to such Option at the time of such termination,
at any time up to and including six (6) months after the date of termination of
employment; and
(c) if the employment of any Optionholder to whom such Option
shall have been granted shall terminate by reason of dismissal by the employer
other than for cause (as defined below), and while such Optionholder is
entitled to exercise such Option as herein provided, such Optionholder shall
have the right to exercise such Option so granted, to the extent not
theretofore exercised, in respect of any or all of such number of Shares that
such Optionholder is entitled to purchase pursuant to such Option at the time
of such termination, at any time up to and including thirty (30) days after the
date of termination of employment.
If an Optionholder (i) voluntarily terminates his or her employment,
or (ii) is discharged for cause, any Option granted hereunder shall, unless
otherwise specified by the Committee in the Option, forthwith terminate with
respect to any unexercised portion thereof.
If an Option granted hereunder shall be exercised by the legal
representative of a deceased or disabled Optionholder, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason of
death of any Optionholder, written notice of such exercise shall be accompanied
by a certified copy of letters testamentary or equivalent proof of the right of
such legal representative or other person to exercise such Option.
For all purposes of the Plan, the term "for cause" shall mean, (i)
with respect to an Optionholder who is a party to a written employment
agreement with the Company, which agreement contains a definition of "for
cause" or "cause" (or words of like import) for purposes of termination of
employment thereunder by the Company, "for cause" or "cause" as defined in the
most recent of such agreements, or (ii) in all other cases, as determined by
the Committee, in its sole discretion, that one or more of the following has
occurred: (A) any intentional or willful failure, or failure due to bad faith,
by such Optionholder to substantially perform his or her employment duties
which shall not have been corrected within 30 days following written notice
thereof, (B) any misconduct by such Optionholder which is significantly
injurious to the Company or any of its subsidiaries or affiliates, (C) any
breach by such Optionholder of any covenant contained in the instrument
pursuant to which an Option is granted, (D) such Optionholder's conviction of,
or entry of a plea of nolo contendere in respect of, any felony or a
<PAGE>
misdemeanor which results in, or is reasonably expected to result in, economic
or reputational injury to the Company or any of its subsidiaries or affiliates.
For all purposes of the Plan, the term "disability" means (i) with
respect to an Optionholder who is a party to a written employment agreement
with the Company, which agreement contains a definition of "disability" or
"permanent disability" (or words of like import) for purposes of termination of
employment thereunder by the Company, "disability" or "permanent disability" as
defined in the most recent of such agreements, or (ii) in all other cases,
means such Optionholder's inability to perform substantially his or her duties
and responsibilities to the Company or any of its subsidiaries by reason of
physical or mental illness, injury, infirmity or condition: (A) for a
continuous period for 120 days or one or more periods aggregating 150 days in
any twelve-month period; (B) at such time as such Optionholder is eligible to
receive disability income payments under any long-term disability insurance
plan maintained by the Company or any of its subsidiaries; or (C) at such
earlier time as such Optionholder or the Company submits medical evidence, in
the form of a physician's certification, that such Optionholder has a physical
or mental illness, injury, infirmity or condition that will likely prevent such
Optionholder from substantially performing his duties and responsibilities for
120 days or longer.
A termination of employment shall not be deemed to occur by reason of
(i) the transfer of an Optionholder from employment by the Company to
employment by a subsidiary corporation of the Company or (ii) the transfer of
an Optionholder from employment by a subsidiary corporation of the Company to
employment by the Company or by another subsidiary corporation of the Company.
Notwithstanding anything to the contrary contained in this Article 10,
in no event shall any person be entitled to exercise any Option after the
expiration of the period of exercisability of such Option as specified therein.
11. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
In the event of any change in the outstanding Shares through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
reverse split, split-up, split-off, spin-off, combination of shares, exchange
of shares, or other like change in capital structure of the Company, the
Committee shall make such adjustments to each outstanding Option that it, in
its sole discretion, deems appropriate. The term "Shares" after any such change
shall refer to the securities, cash and/or property then receivable upon
exercise of an Option. In addition, in the event of any such change, the
Committee shall make any further adjustment as may be appropriate to the
maximum number of Shares which may be acquired under the Plan pursuant to the
exercise of Options, the maximum number of Shares for which Options may be
granted to any individual under the Plan, the minimum exercise price per Share
for Options to be granted under the Plan, and the number of Shares and prices
per Share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the determination of
the Committee as to these matters shall be conclusive.
12. RIGHT TO TERMINATE EMPLOYMENT
<PAGE>
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation thereof to continue the employment of any Optionholder
and it shall not impose any obligation on the part of any Optionholder to
remain in the employ of the Company or of any subsidiary corporation thereof.
13. SECURITIES LAW MATTERS
Except as hereinafter provided, the Committee may require an
Optionholder, as a condition upon exercise of any Option granted hereunder, to
execute and deliver to the Company a written statement, in form satisfactory to
the Committee, in which the Optionholder represents and warrants that Shares
are being acquired for such Optionholder's own account for investment only and
not with a view to the resale or distribution thereof. The Optionholder shall,
at the request of the Committee, be required to represent and warrant in
writing that any subsequent resale or distribution of Shares by the
Optionholder shall be made only pursuant to either (i) a Registration Statement
on an appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), which Registration Statement has become effective and is
current with regard to the Shares being sold, or (ii) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Optionholder shall, prior to any offer of sale or sale of such
Shares, obtain a prior favorable written opinion of counsel, in form and
substance satisfactory to counsel for the Company, as to the application of
such exemption thereto. The foregoing restriction shall not apply to (i)
issuances by the Company so long as the Shares being issued are registered
under the Securities Act and a prospectus in respect thereof is current or (ii)
re-offerings of Shares by affiliates of the Company (as defined in Rule 405 or
any successor rule or regulation promulgated under the Securities Act) if the
Shares being re-offered are registered under the Securities Act and a
prospectus in respect thereof is current.
14. ISSUE OF CERTIFICATES, LEGENDS, PAYMENT OF EXPENSES
Subject to Articles 13, 15 and 16, upon any exercise of an Option
which may be granted hereunder and payment of the purchase price, a certificate
or certificates for the Shares shall be issued by the Company in the name of
the person exercising the Option and shall be delivered to or upon the order of
such person.
The Company may endorse such legend or legends upon the certificates
for Shares issued pursuant to the Plan and, if a transfer agent has been
engaged by the Company, may issue such "stop transfer" instructions to its
transfer agent in respect of such Shares as, in its discretion, it determines
to be necessary or appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act, or (ii)
implement the provisions of the Plan and any agreement between the Company and
the Optionholder with respect to such Shares, or (iii) permit the Company to
determine the occurrence of a disqualifying disposition, as described in
Section 421(b) of the Code, of Shares transferred upon exercise of an Incentive
Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer.
<PAGE>
All Shares issued as provided herein shall be fully paid and
non-assessable to the extent permitted by law.
15. WITHHOLDING TAXES
The Company will require, as a condition to an Optionholder exercising
an Option granted hereunder, that the Optionholder reimburse the corporation
that employs such Optionholder for any taxes required by any government to be
withheld or otherwise deducted and paid by such corporation in respect of the
issuance or disposition of such Shares. In lieu thereof, the corporation that
employs such Optionholder shall have the right to withhold the amount of such
taxes from any other sums due or to become due from such corporation to the
Optionholder upon such terms and conditions as the Committee shall prescribe.
The corporation that employs such Optionholder may, in its discretion, hold the
stock certificate to which such Optionholder is entitled upon the exercise of
an Option as security for the payment of such withholding tax liability, until
cash sufficient to pay that liability has been accumulated.
16. LISTING OF SHARES AND RELATED MATTERS
The Committee may delay the issuance or delivery of Shares pursuant to
any Option granted hereunder if it determines that listing, registration or
qualification of Shares or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the grant of an Option under the Plan or the issuance of Shares
thereunder, until such listing, registration, qualification, consent or
approval shall have been effected or obtained, or otherwise provided for, free
of any conditions not acceptable to the Committee.
17. AMENDMENT OF THE PLAN
The Committee may, from time to time, amend the Plan, provided that no
amendment shall be made, without the approval of the stockholders of the
Company, that will (i) increase the total number of Shares reserved for Options
under the Plan or the amount of Options that may be granted to any key employee
(in each case, other than an increase resulting from an adjustment provided for
in Article 11), (ii) reduce the exercise price of any Option granted hereunder
below the price required by Article 5, (iii) modify the provisions of the Plan
relating to eligibility, or (iv) materially increase the benefits accruing to
participants under the Plan. The rights and obligations under any Option
granted before amendment of the Plan or any unexercised portion of such Option
shall not be adversely affected by amendment of the Plan or such Option without
the consent of the holder of such Option.
18. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors may at any time suspend or terminate the Plan.
The Plan, unless sooner terminated by action of the Board of Directors, shall
terminate at the close of business on the Termination Date. Options may not be
granted while the Plan is suspended or after it is terminated. Rights and
obligations under any Option granted while the Plan is in effect shall not
<PAGE>
be altered or impaired by suspension or termination of the Plan, except upon the
consent of the person to whom the Option was granted. The power of the
Committee to construe and administer any Options granted prior to the
termination or suspension of the Plan under Article 3 nevertheless shall
continue after such termination or during such suspension.
19. GOVERNING LAW
The Plan and such Options as may be granted thereunder and all related
matters shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware from time to time obtaining.
20. PARTIAL INVALIDITY
The invalidity or illegibility of any provision hereof shall not be
deemed to affect the validity of any other provision.
21. EFFECTIVE DATE
The Plan shall become effective at 9:00 a.m., New York City Time, on
the Effective Date, provided the Plan is approved by the stockholders of the
Company at an annual meeting or any special meeting of stockholders of the
Company within 12 months of the Effective Date, and such approval of
stockholders shall be a condition to the right of each eligible key employee to
receive any Options under the Plan. Any Options granted under the Plan prior to
such approval of stockholders shall be effective as of the date of the grant
(unless, with respect to any Option, the Committee specifies otherwise at the
time of the grant), but no such Option may be exercised prior to such
stockholder approval, and if stockholders fail to approve the Plan as specified
hereunder, any such Option shall be cancelled.
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
"Special" Option
AHC I Acquisition Corp.
120 East 56th Street
New York, New York 10022
June 17, 1998
Roger L. Barnett
120 East 56th Street
New York, New York 10022
Re: Grant of Incentive Stock Option
Dear Mr. Barnett:
The Board of Directors of AHC I Acquisition Corp. (the
"Company") has authorized and approved the 1998 Stock Option Plan (the "Plan"),
which has been submitted to the stockholders of the Company for their approval.
The Plan provides for the grant of options to certain key employees and
directors of the Company and any parent and subsidiary corporations of the
Company. Pursuant to the Plan, the Compensation Committee of the Board of
Directors of the Company (the "Committee") has approved the grant to you of an
option to purchase shares of Common Stock, par value $.01 per share, of the
Company (the "Shares") on the terms and subject to the conditions set forth in
the Plan and in this grant letter; provided that if the Plan is not approved by
the stockholders of the Company, this grant letter shall nevertheless be
effective as of the date hereof as a stand-alone option, subject to the terms
and conditions set forth herein and the terms and conditions of the Plan, which
are hereby incorporated by reference into this grant letter for purposes of
this proviso. A copy of the Plan is annexed hereto as Exhibit A and shall be
deemed a part hereof as if fully set forth herein. Unless the context otherwise
requires, all terms defined in the Plan shall have the same meanings when used
herein. The Shares purchasable pursuant to this Option are subject to
restrictions set forth in the Stockholders Agreement (as defined in Paragraph 8
hereof). Such Shares may be required to be surrendered to the Company under
certain circumstances described in the Stockholders Agreement.
<PAGE>
1. Grant of Option. The Company hereby grants to you, as a
matter of separate inducement and not in lieu of any salary or other
compensation for your services, the right and option (the "Option") to
purchase, in accordance with the terms and conditions set forth in the Plan,
but subject to the limitations set forth herein and in the Plan, an aggregate
of 16,250 Shares of the Company (the "Total Shares") at a price of $1.00 per
Share, such option price being, in the judgment of the Committee, not less than
one hundred percent (100%) of the fair market value of such Share at the date
hereof. Except to the extent that in a given year the Option vests with respect
to Shares having a value greater than $100,000 (computed as of the date of
grant), the Option is intended to qualify as an "incentive stock option" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
but it is specifically understood that no warranty is made to you as to such
qualification.
2. Vesting of Option.
a. Time Vesting. Subject to the provisions and limitations set
forth herein and in the Plan, this Option may be exercised by you during a
period commencing on June 30, 1999 as follows:
i) this Option may not be exercised by you during
the period commencing on the date hereof and ending on June 29, 1999;
ii) up to 5,417 Shares (i.e., one-third of the Total
Shares) may be purchased by you on or after June 30, 1999;
iii) up to an additional 5,417 Shares (i.e.,
one-third of the Total Shares) may be purchased by you on or after June 30,
2000; and
iv) the balance of the Total Shares may be purchased
by you on or after June 30, 2001.
b. Change of Control. For purposes hereof, a "Change In
Control" of the Company occurs if: (a) any "Person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
("Exchange Act")), other than (i) DLJ Merchant Banking II, Inc. or any of its
affiliates or any combination thereof (collectively, the "DLJ Entities"), (ii)
Roger L. Barnett or any of his affiliates or any combination thereof
(collectively, the "Barnett Parties"), or (iii) any combination of the DLJ
Entities and the Barnett Parties, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 50% of the total combined voting power of all classes of capital stock of
the Company normally entitled to vote for the election of directors of the
Company; or (b) the Board of Directors shall approve a sale of all or
substantially all of the assets of the Company, in one transaction or a series
of related transactions, other than to an entity owned or controlled by the
2
<PAGE>
DLJ Entities or the Barnett Parties or any combination thereof.
Upon a Change In Control, each Option may, at the discretion
of the Committee, be terminated within a specified number of days after notice
to the holder of such Option, in which case each such holder will receive, in
respect of each Share for which such Option then is exercisable, an amount
equal to the excess of the then fair market value of such Share over the
exercise price per Share, payable in the same consideration received by the
stockholders of the Company upon the closing of such transaction.
To the extent not previously exercised or exercisable, upon a
Change In Control, this Option shall immediately become exercisable to purchase
16,250 Shares of the Company (i.e., 100% of the Total Shares).
c. Maximum Limitation. Notwithstanding anything to the
contrary set forth herein but subject to Section 11 of the Plan, in no event
shall this Option become exercisable for more than 16,250 Shares (i.e., 100% of
the Total Shares) in the aggregate.
3. Termination of Option. The unexercised portion of the
Option granted herein will automatically and without notice terminate and
become null and void upon the earliest to occur of the following:
a. the expiration of ten (10) years from the date of grant of
this Option;
b. the date of termination of your employment if your
employment (i) is terminated by you or (ii) is terminated by the Company or
subsidiary corporation of the Company for cause (as defined in the Plan);
c. the expiration of 30 days from the date of termination by
the Company or its subsidiaries of your employment other than for cause (as
defined in the Plan), except that this Option will be exercisable during such
30-day period only to the extent that it would have been exercisable
immediately prior to the termination of your employment;
d. the expiration of 6 months after the termination of your
employment by reason of your disability (as defined in the Plan), except that
this Option will be exercisable during such 6-month period only to the extent
that it would have been exercisable immediately prior to the termination of
your employment; or
e. the expiration of one (1) year after your death if your
death occurs during your employment or during the six (6) month or thirty (30)
day period, as the case may be, specified in clauses (c) and/or (d) above,
except that this Option will be exercisable during such 1-year period only to
the extent that it would have been exercisable immediately prior to your death;
3
<PAGE>
provided, however, that none of the events described above shall extend the
period of exercisability of this Option beyond the day immediately preceding
the tenth anniversary of the date hereof.
4. Non-transferability of Option. This Option is not
transferable by you otherwise than by will or the laws of descent and
distribution, and is exercisable, during your lifetime, only by you. This
Option may not be assigned, transferred (except by will or the laws of descent
and distribution), pledged or hypothecated in any way (whether by operation of
law or otherwise) and shall not be subject to execution, attachment or similar
proceeding. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof, and the levy of
any attachment or similar proceeding upon the Option, shall be null and void
and without effect.
5. Exercise of Option.
a. Purchase of Shares. Any exercise of this Option shall be
in writing addressed to the Secretary of the Company at the principal place of
business of the Company, shall be substantially in the form attached hereto as
Exhibit B and shall be accompanied by (i) a certified or bank cashier's check
to the order of the Company in an amount equal to, or (ii) to the extent
permitted by applicable law, shares of common stock, par value $.01 per share,
of the Company (in proper form for transfer and accompanied by all requisite
stock transfer tax stamps or cash in lieu thereof) owned by you having a fair
market value (as defined in the Plan) as of the date immediately prior to the
exercise of the Option equal to, the full amount of the purchase price of the
Shares so purchased.
b. Legends. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the Shares purchased pursuant to the
exercise of this Option shall bear an appropriate legend in form and substance,
as determined by the Company, giving notice of applicable restrictions on
transfer under or in respect of such laws. Further, you hereby acknowledge that
the Company may endorse a legend upon the certificate evidencing the Shares as
the Company, in its sole discretion, determines to be necessary and appropriate
to implement the terms of the Plan.
c. Investment Intent. You hereby covenant and agree with the
Company that if, at the time of exercise of this Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall include a prospectus which is current with respect to the
Shares subject to this Option (i) that you will represent that you are
purchasing the Shares for your own account and not with a view to the resale or
distribution thereof and (ii) that any subsequent offer for sale or sale of any
such Shares shall be made either pursuant to (x) a
4
<PAGE>
Registration Statement on an appropriate form under the Act, which Registration
Statement shall have become effective and shall be current with respect to the
shares being offered and sold, or (y) a specific exemption from the
registration requirements of the Act, but in claiming such exemption, you
shall, if requested by the Company, prior to any offer for sale or sale of such
Shares, obtain a favorable written opinion from counsel for or approved by the
Company as to the applicability of such exemption.
6. Withholding Taxes. As provided in the Plan, the Company
may withhold or cause to be withheld from sums due or to become due to you from
the Company or a subsidiary corporation or affiliate thereof an amount
necessary to satisfy its obligation (if any) to withhold taxes incurred by
reason of the exercise of this Option or the disposition of Shares acquired
hereunder, or may require you to reimburse the Company in such amount and may
make such reimbursement a condition to the delivery of the Shares pursuant to
the exercise of this Option.
7. Agreement Subject to the Plan. You and the Company agree
that this agreement is subject to, and that you and the Company will both be
bound by, all terms, conditions, limitations and restrictions contained in the
Plan, which shall be controlling in the event of any conflicting or
inconsistent provisions.
8. Stockholders Agreement. It is a condition to the
effectiveness of this Option and the obligation of the Company to issue any
Shares hereunder that you shall have executed, on or prior to the date hereof,
the Stockholders Agreement, dated as of December 15, 1997, as amended, by and
among the Company and the stockholders named therein, and it is hereby
acknowledged that you have executed such Stockholders Agreement.
Please indicate your acceptance of all the terms and
conditions of this Option and the Plan by signing and returning a copy of this
letter.
Very truly yours,
AHC I ACQUISITION CORP.
By:
----------------------------------
David M. Wittels,
Vice President
ACCEPTED:
5
<PAGE>
- -------------------------------------
Signature of Employee
- -------------------------------------
Name of Employee - Please Print
Date: , 1998
-------------
<PAGE>
Exhibit A
1998 Employee Stock Option Plan
<PAGE>
Exhibit B
Exercise Letter
[Date]
AHC I Acquisition Corp.
120 East 56th Street
New York, New York 10022
Attention: Corporate Secretary
Re: Special Incentive Stock Option
Under the 1998 Stock Option Plan
Dear Sir:
I am the holder of a Special Option granted to me under the
above-referenced Plan by AHC I Acquisition Corp. (the "Company") on _______,
199_ to purchase ____________ shares of Common Stock of the Company ("Shares")
at a price of $________ per share. I hereby exercise that option with respect
to ___________ Shares, the total purchase price for which is $____________.
On _______________ [a business day not more than 15 days from
the date of this letter], I will present [a certified check payable to the
order of the Company in the amount of $_____________] [shares of common stock,
par value $.01 per share, of the Company (in proper form for transfer and
accompanied by all requisite stock transfer tax stamps or cash in lieu thereof)
owned by me with a fair market value (as defined in the Plan)] representing the
total purchase price for the Shares. The certificate or certificates
representing the Shares should be registered in my name and upon the
presentation of that check][such shares of common stock], the Shares should be
[delivered to me] [forwarded to me at the address indicated below].
I hereby agree to pay the full amount of all withholding
taxes which the Company or any subsidiary or parent corporation is required to
withhold in connection with the exercise of this option or the disposition of
Shares acquired hereunder and further authorize the Company, or the subsidiary
or parent corporation, to withhold from any cash compensation paid to me or in
my behalf an amount sufficient to discharge the federal, state or local income,
employment or excise tax withholding obligation to which the Company, or the
subsidiary or parent corporation, becomes subject by reason of the exercise of
this option, but only to the extent I shall not have paid such amount to the
Company or any parent or subsidiary corporation. I agree that the corporation
by which I am employed may, in its discretion, hold the stock certificate to
which I
<PAGE>
become entitled upon exercise of this option, as security for the
payment of the aforementioned withholding tax liability, until cash sufficient
to pay that liability has been accumulated.
Please acknowledge receipt of the exercise of my stock option
on the attached copy of this letter.
Very truly yours,
-------------------------------
Signature
-------------------------------
Please Print Name
-------------------------------
Address
-------------------------------
-------------------------------
-------------------------------
Social Security Number
RECEIPT ACKNOWLEDGED:
AHC I ACQUISITION CORP.
By:
- -----------------------------------
Name:
- -----------------------------------
Title:
- -----------------------------------
<PAGE>
Exhibit 10.3
Execution Copy
AHC I Acquisition Corp.
120 East 56th Street
New York, New York 10022
June 17, 1998
Roger L. Barnett
120 East 56th Street
New York, New York 10022
Re: Grant of Incentive Stock Option
Dear Mr. Barnett:
The Board of Directors of AHC I Acquisition Corp. (the
"Company") has authorized and approved the 1998 Stock Option Plan (the "Plan"),
which has been submitted to the stockholders of the Company for their approval.
The Plan provides for the grant of options to certain key employees and
directors of the Company and any parent and subsidiary corporations of the
Company. Pursuant to the Plan, the Compensation Committee of the Board of
Directors of the Company (the "Committee") has approved the grant to you of an
option to purchase shares of Common Stock, par value $.01 per share, of the
Company (the "Shares") on the terms and subject to the conditions set forth in
the Plan and in this grant letter; provided that if the Plan is not approved by
the stockholders of the Company, this grant letter shall nevertheless be
effective as of the date hereof as a stand-alone option, subject to the terms
and conditions set forth herein and the terms and conditions of the Plan, which
are hereby incorporated by reference into this grant letter for purposes of
this proviso. A copy of the Plan is annexed hereto as Exhibit A and shall be
deemed a part hereof as if fully set forth herein. Unless the context otherwise
requires, all terms defined in the Plan shall have the same meanings when used
herein. The Shares purchasable pursuant to this Option are subject to
restrictions set forth in the Stockholders Agreement (as defined in Paragraph 8
hereof). Such Shares may be required to be surrendered to the Company under
certain circumstances described in the Stockholders Agreement.
<PAGE>
1. Grant of Option. The Company hereby grants to you, as a
matter of separate inducement and not in lieu of any salary or other
compensation for your services, the right and option (the "Option") to
purchase, in accordance with the terms and conditions set forth in the Plan,
but subject to the limitations set forth herein and in the Plan, an aggregate
of 16,250 Shares of the Company (the "Total Shares") at a price of $1.00 per
Share, such option price being, in the judgment of the Committee, not less than
one hundred percent (100%) of the fair market value of such Share at the date
hereof. Except to the extent that in a given year the Option vests with respect
to Shares having a value greater than $100,000 (computed as of the date of
grant), the Option is intended to qualify as an "incentive stock option" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
but it is specifically understood that no warranty is made to you as to such
qualification.
2. Vesting of Option. Subject to the provisions and
limitations set forth herein and in the Plan, the number of Shares of stock for
which this Option may be exercised shall be determined in accordance with this
Section 2.
a. Establishment of EBITDA Targets. For each of the fiscal
years ending on June 30, of 1999, 2000 and 2001, the Company has established
target amounts (each a "Target Amount"), floor amounts (each, a "Floor Amount")
and ceiling amounts (each, a "Ceiling Amount") for EBITDA (as defined below)
set forth below:
Fiscal Year Floor Amount Target Amount Ceiling Amount
- ----------- ------------ ------------- --------------
1999 $24,300,000 $27,000,000 $29,700,000
2000 27,000,000 30,000,000 33,000,000
2001 28,800,000 32,000,000 35,200,000
b. If EBITDA Equals Target Amount. Subject to adjustment in
accordance with Section 2(e) and subject to Section 2(g), if the EBITDA of the
Company for a fiscal year is equal to or greater than the Target Amount for
such fiscal year, this Option may be exercised to purchase 5,417 Shares (5,416
Shares with respect to the fiscal year ended June 30, 2001) (i.e., one-third of
the Total Shares).
c. If EBITDA Is At Least Equal to Floor Amount But Less Than
Target Amount. Subject to adjustment in accordance with Section 2(e) and
subject to Section 2(g), if the EBITDA of the Company for a fiscal year is at
least equal to the Floor Amount, but less than the Target Amount, for such
fiscal year, then this Option may be exercised to purchase a number of Shares
equal to the product of (x) 5,417 (5,416 Shares with respect to the fiscal year
ended June 30, 2001) (i.e., one-third of the Total Shares) and (y) a fraction,
the numerator of which shall be equal to the excess of the EBITDA of the
Company for such fiscal year over the Floor Amount for such fiscal year and the
denominator of which is equal to the excess of Target
2
<PAGE>
Amount for such fiscal year over the Floor Amount for such fiscal year.
d. Carryback to Prior Year. If the EBITDA of the Company for
the fiscal year ended June 30, 2000 or 2001 exceeds the Target Amount for such
fiscal year (such excess, less any amount carried forward pursuant to Section
2.e. below, an "Excess Amount"), and the Target Amount for the immediately
preceding fiscal year (the "Prior Year") exceeded the EBITDA of the Company for
the Prior Year (such excess, a "Prior Year Shortfall Amount"), the (i) Excess
Amount for such fiscal year may be carried back to the Prior Year (but in an
amount not in excess of the lesser of (x) the Prior Year Shortfall Amount and
(y) the difference between the Ceiling Amount and the Target Amount for such
fiscal year), (ii) the EBITDA for such Prior Year shall be redetermined, and
(iii) the number of Shares for which this Option may be exercised shall be
increased based upon the EBITDA for the Prior Year as so redetermined.
e. Carryforward from Prior Year. If (i) the Floor Amount for
the fiscal year ended June 30, 2000 or 2001 (a "Current Year") exceeds the
EBITDA of the Company for such Current Year, this Option shall not become
exercisable for any Shares in respect of such Current Year and (ii) if the
EBITDA of the Company for a fiscal year is at least equal to the Floor Amount,
but less than the Target Amount, for such fiscal year, this Option may be
exercised to purchase a number of Shares as determined in accordance with
clause (c) above; provided, however, that if the EBITDA of the Company for the
Prior Year exceeded the Target Amount for the Prior Year (such excess, less any
amount carried back pursuant to Section 2.d. above, a "Carryforward Amount"),
then you may elect that (i) the Carryforward Amount for the Prior Year shall be
carried forward to such Current Year (but in an amount not in excess of the
lesser of (x) the amount by which the Target Amount for the Current Year
exceeds the EBITDA of the Company for such Current Year and (y) the difference
between the Ceiling Amount and the Target Amount for the Prior Year), (ii) the
EBITDA for the Current Year shall be redetermined to be an amount equal to the
sum of the EBITDA for such Current Year and the amount so carried forward
pursuant to clause (i), (iii) the EBITDA for the Prior Year shall be
redetermined to be an amount equal to the EBITDA for such Prior Year, reduced
by the amount carried forward pursuant to clause (i), and (iv) the number of
Shares for which this Option may be exercised shall be adjusted based upon the
EBITDA for the Current Year and the Prior Year as so redetermined in accordance
with clauses (ii) and (iii), respectively.
f. Change In Control. For purposes hereof, a "Change In
Control" of the Company occurs if: (a) any "Person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
("Exchange Act")), other than (i) DLJ Merchant Banking II, Inc. or any of its
affiliates or any combination thereof (collectively, the "DLJ Entities"), (ii)
Roger L. Barnett or any of his affiliates or any combination thereof
(collectively, the "Barnett Parties"), or (iii) any combination of the DLJ
Entities and the Barnett Parties, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 50% of the total combined voting power of all classes of capital stock of
3
<PAGE>
the Company normally entitled to vote for the election of directors of the
Company; or (b) the Board of Directors shall approve a sale of all or
substantially all of the assets of the Company, in one transaction or a series
of related transactions, other than to an entity owned or controlled by the DLJ
Entities or the Barnett Parties or any combination thereof.
Upon a Change In Control, each Option may, at the discretion
of the Committee, be terminated within a specified number of days after notice
to the holder of such Option, in which case each such holder will receive, in
respect of each Share for which such Option then is exercisable after taking
into account the vesting of this Option as a result of such Change In Control
as provided herein, an amount equal to the excess of the then fair market value
of such Share over the exercise price per Share, payable in the same
consideration received by the stockholders of the Company upon the closing of
such transaction.
To the extent not previously exercised or exercisable, upon a
Change In Control, this Option shall immediately become exercisable to purchase
that number of Shares of the Company subject to the Option hereunder that would
otherwise be exercisable upon the achievement of Target Amounts of EBITDA for
fiscal years of the Company that have not been concluded at the time of the
Change In Control; provided, however, that upon such a Change In Control the
DLJ Entities shall have realized aggregate cash proceeds from the sale or other
disposition of their equity interests (whether common or preferred) in the
Company to third parties not affiliated with the DLJ Entities of at least the
following:
(i) if the Change In Control occurs prior to
December 15, 1999, the DLJ Entities shall have realized an amount equal to at
least 200% of their Equity Investment (as defined);
(ii) if the Change In Control occurs on or after
December 15, 1999 but prior to December 15, 2000, the DLJ Entities shall have
realized an amount equal to at least 300% of their Equity Investment; and
(iii) if the Change In Control occurs on or after
December 15, 2000, the DLJ Entities shall have realized an amount equal to at
least 350% of their Equity Investment.
"Equity Investment" shall mean the aggregate amount invested by the
DLJ Entities in equity interests (whether common or preferred) in the Company
or any of its affiliates.
g. Maximum Limitation. Notwithstanding anything to the
contrary set forth herein but subject to Section 11 of the Plan, in no event
shall this Option become exercisable for more than 16,250 Shares (i.e., 100% of
the Total Shares) in the aggregate.
h. Definition of EBITDA. For purposes of this Section 2,
"EBITDA" for a fiscal
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<PAGE>
year (i) shall mean the income from operations of the Company and its
subsidiaries for such fiscal year, determined in accordance with U.S. generally
accepted accounting principles consistently applied in accordance with the
accounting methodologies and procedures of the Company and its subsidiaries
plus depreciation and amortization of the Company and its subsidiaries for such
period to the extent any such expense was deducted in computing such income
from operations, (ii) shall exclude any expense or charge relating to the "Cash
Bonus," if any, earned by you pursuant to, and as such term is defined in, that
certain Executive Employment Agreement between an indirect subsidiary of the
Company and you dated the date hereof, and (iii) shall be subject to adjustment
as set forth in paragraph i. below.
i. Determinations of the Committee. From time to time, in
administering the Plan the Committee shall make adjustments in the EBITDA for a
fiscal year, which adjustments shall be in amounts as determined in the
Committee's reasonable discretion, so that extraordinary charges or credits
(provided that all adjustments, if any, in respect of acquired businesses shall
be governed by paragraph (j) below) do not distort or affect the operation of
the Plan in a manner inconsistent with its purpose, which inconsistency shall
be determined by the Committee in its reasonable discretion. The determinations
of the Committee as provided above shall be final, conclusive and binding on
all parties, including optionholders, absent proof of error.
j. Adjustment to Floor Amount, Target Amount and Ceiling
Amount. An adjustment to the Floor Amount, Target Amount and Ceiling Amount
shall be made for each fiscal year (including the fiscal year in which the
transaction occurs) following any acquisition, merger, consolidation or other
similar corporate transaction that is consummated, such adjustment to the
Target Amount to be equal to management's forecast (as presented to the Board)
of incremental acquired EBITDA for such fiscal year (or portion thereof with
respect to the fiscal year in which the transaction occurs) and appropriate
adjustments to the corresponding Floor Amount and Ceiling Amount, where (1) the
Company or any direct or indirect parent or subsidiary corporation is the
acquiror and (2) DLJ Merchant Banking Partners II, L.P. or any of its
affiliated funds and entities make an additional investment in an amount
exceeding $1 million in the aggregate (an "Additional Investment") in the
equity (whether common or preferred) of the Company or any direct or indirect
parent or subsidiary corporation of the Company. No such adjustment to Floor
Amounts, Target Amounts and Ceiling Amounts shall be made following any
acquisition, merger, consolidation or other similar corporate transaction,
where (1) the Company or any direct or indirect parent or subsidiary
corporation is the acquiror and (2) no Additional Investment is made. An
Additional Investment shall not be deemed to have been made with respect to the
potential acquisition of the sampling assets of Big Flower Press or its
subsidiaries unless the aggregate amount of such investment is at least equal
to $10 million in the aggregate.
k. Notice. As soon as practicable following receipt by the
Company of audited financial statements of the Company for a fiscal year, the
Company shall notify you of the
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<PAGE>
amount of EBITDA achieved by the Company for such fiscal year. Upon receipt of
such notice by you, this Option shall become exercisable in respect of the
number of Shares determined in accordance with Section 2 hereof.
l. Vesting of Remaining Shares. Notwithstanding anything to
the contrary herein, on June 16, 2006, this Option shall become exercisable for
the excess of (i) the number of Total Shares over (ii) the number of Shares, if
any, for which this Option shall have become exercisable pursuant to paragraphs
b., c., d., e. or f. of this Section 2.
m. Fractional Shares. In no event shall you exercise this
Option for a fraction of a Share.
3. Termination of Option. The unexercised portion of the
Option granted herein will automatically and without notice terminate and
become null and void upon the earliest to occur of the following:
a. the expiration of ten (10) years from the date of grant of
this Option;
b. the date of termination of your employment if your
employment (i) is terminated by you or (ii) is terminated by the Company or
subsidiary corporation of the Company for cause (as defined in the Plan);
c. the expiration of 30 days from the date of termination by
the Company or its subsidiaries of your employment other than for cause (as
defined in the Plan), except that this Option will be exercisable during such
30-day period only to the extent that it would have been exercisable
immediately prior to the termination of your employment;
d. the expiration of 6 months after the termination of your
employment by reason of your disability (as defined in the Plan), except that
this Option will be exercisable during such 6-month period only to the extent
that it would have been exercisable immediately prior to the termination of
your employment; or
e. the expiration of one (1) year after your death if your
death occurs during your employment or during the six (6) month or thirty (30)
day period, as the case may be, specified in clauses (c) and/or (d) above,
except that this Option will be exercisable during such 1-year period only to
the extent that it would have been exercisable immediately prior to your death;
provided, however, that none of the events described above shall extend the
period of exercisability of this Option beyond the day immediately preceding
the tenth anniversary of the date hereof.
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<PAGE>
4. Non-transferability of Option. This Option is not
transferable by you otherwise than by will or the laws of descent and
distribution, and is exercisable, during your lifetime, only by you. This
Option may not be assigned, transferred (except by will or the laws of descent
and distribution), pledged or hypothecated in any way (whether by operation of
law or otherwise) and shall not be subject to execution, attachment or similar
proceeding. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof, and the levy of
any attachment or similar proceeding upon the Option, shall be null and void
and without effect.
5. Exercise of Option.
a. Purchase of Shares. Any exercise of this Option shall be
in writing addressed to the Secretary of the Company at the principal place of
business of the Company, shall be substantially in the form attached hereto as
Exhibit B and shall be accompanied by (i) a certified or bank cashier's check
to the order of the Company in an amount equal to, or (ii) to the extent
permitted by applicable law, shares of common stock, par value $.01 per share,
of the Company (in proper form for transfer and accompanied by all requisite
stock transfer tax stamps or cash in lieu thereof) owned by you having a fair
market value (as defined in the Plan) as of the date immediately prior to the
exercise of the Option equal to, the full amount of the purchase price of the
Shares so purchased.
b. Legends. If the Company, in its sole discretion, shall
determine that it is necessary, to comply with applicable securities laws, the
certificate or certificates representing the Shares purchased pursuant to the
exercise of this Option shall bear an appropriate legend in form and substance,
as determined by the Company, giving notice of applicable restrictions on
transfer under or in respect of such laws. Further, you hereby acknowledge that
the Company may endorse a legend upon the certificate evidencing the Shares as
the Company, in its sole discretion, determines to be necessary and appropriate
to implement the terms of the Plan.
c. Investment Intent. You hereby covenant and agree with the
Company that if, at the time of exercise of this Option, there does not exist a
Registration Statement on an appropriate form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall include a prospectus which is current with respect to the
Shares subject to this Option (i) that you will represent that you are
purchasing the Shares for your own account and not with a view to the resale or
distribution thereof and (ii) that any subsequent offer for sale or sale of any
such Shares shall be made either pursuant to (x) a Registration Statement on an
appropriate form under the Act, which Registration Statement shall have become
effective and shall be current with respect to the shares being offered and
sold, or (y) a specific exemption from the registration requirements of the
Act, but in claiming such exemption, you shall, if requested by the Company,
prior to any offer for sale or sale of such Shares, obtain a favorable written
opinion from counsel for or approved by the Company as to
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<PAGE>
the applicability of such exemption.
6. Withholding Taxes. As provided in the Plan, the Company
may withhold or cause to be withheld from sums due or to become due to you from
the Company or a subsidiary corporation or affiliate thereof an amount
necessary to satisfy its obligation (if any) to withhold taxes incurred by
reason of the exercise of this Option or the disposition of Shares acquired
hereunder, or may require you to reimburse the Company in such amount and may
make such reimbursement a condition to the delivery of the Shares pursuant to
the exercise of this Option.
7. Agreement Subject to the Plan. You and the Company agree
that this agreement is subject to, and that you and the Company will both be
bound by, all terms, conditions, limitations and restrictions contained in the
Plan, which shall be controlling in the event of any conflicting or
inconsistent provisions; provided, that Section 2 hereof shall be controlling
in the event of any conflicting or inconsistent provisions of the Plan.
8. Stockholders Agreement. It is a condition to the
effectiveness of this Option and the obligation of the Company to issue any
Shares hereunder that you shall have executed, on or prior to the date hereof,
the Stockholders Agreement, dated as of December 15, 1997, as amended, by and
among the Company and the stockholders named therein, and it is hereby
acknowledged that you have executed such Stockholders Agreement.
Please indicate your acceptance of all the terms and
conditions of this Option and the Plan by signing and returning a copy of this
letter.
Very truly yours,
AHC I ACQUISITION CORP.
By:
-------------------------------------
David M. Wittels,
Vice President
ACCEPTED:
- ---------------------------------
Signature of Employee
- ---------------------------------
Name of Employee - Please Print
Date: , 1998
---------------
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<PAGE>
Exhibit A
1998 Employee Stock Option Plan
<PAGE>
Exhibit B
Exercise Letter
[Date]
AHC I Acquisition Corp.
120 East 56th Street
New York, New York 10022
Attention: Corporate Secretary
Re: Standard Incentive Stock Option
Under the 1998 Stock Option Plan
Dear Sir:
I am the holder of a "Standard" Option granted to me under
the above-referenced Plan by AHC I Acquisition Corp. (the "Company") on
_______, ____ to purchase ____________ shares of Common Stock of the Company
("Shares") at a price of $____ per share. I hereby exercise that option with
respect to ___________ Shares, the total purchase price for which is
$____________.
On _______________ [a business day not more than 15 days from
the date of this letter], I will present [a certified check payable to the
order of the Company in the amount of $_____________] [shares of common stock,
par value $.01 per share, of the Company (in proper form for transfer and
accompanied by all requisite stock transfer tax stamps or cash in lieu thereof)
owned by me with a fair market value (as defined in the Plan)] representing the
total purchase price for the Shares. The certificate or certificates
representing the Shares should be registered in my name and upon the
presentation of [that check] [such shares of common stock], the Shares should
be [delivered to me] [forwarded to me at the address indicated below].
I hereby agree to pay the full amount of all withholding
taxes which the Company or any subsidiary or parent corporation is required to
withhold in connection with the exercise of this option or the disposition of
Shares acquired hereunder and further authorize the Company, or the subsidiary
or parent corporation, to withhold from any cash compensation paid to me or in
my behalf an amount sufficient to discharge the federal, state or local income,
employment or excise tax withholding obligation to which the Company, or the
subsidiary or parent corporation, becomes subject by reason of the exercise of
this option, but only to the extent I shall not have paid such amount to the
Company or any parent or subsidiary corporation. I agree that the
B-1
<PAGE>
corporation by which I am employed may, in its discretion, hold the stock
certificate to which I become entitled upon exercise of this option, as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated.
Please acknowledge receipt of the exercise of my stock option
on the attached copy of this letter.
Very truly yours,
-------------------------------------
Signature
-------------------------------------
Please Print Name
-------------------------------------
Address
-------------------------------------
-------------------------------------
-------------------------------------
Social Security Number
RECEIPT ACKNOWLEDGED:
AHC I ACQUISITION CORP.
By:
- -------------------------------------
Name:
- -------------------------------------
Title:
- -------------------------------------
B-2
<PAGE>
Exhibit 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), dated June
17, 1998, by and between Arcade Marketing, Inc., a Delaware corporation (the
"Corporation"), and Roger L. Barnett (the "Executive").
WHEREAS, the Corporation desires to employ the Executive, and the
Executive desires to be employed by the Corporation, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the obligations
undertaken by the parties pursuant hereto and other good and valuable
consideration, the Corporation and the Executive agree as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
during the Term (as defined below) the Corporation will employ the Executive,
and the Executive will be employed exclusively by the Corporation. The
Executive will hold the offices of President and Chief Executive Officer of the
Corporation and, with the consent of the Executive, such additional offices as
the Board of Directors of the Corporation (the "Board") may from time to time
determine. The Executive will devote his full-time business efforts to the
Corporation and the Corporation agrees that the Executive may engage in any
other business or activity or have any business pursuits or interests, provided
that such other business, activity, pursuit or interest does not (i) materially
interfere or conflict with the performance of Executive's duties hereunder or
(ii) result in a breach of any other provision of this Agreement. The Executive
shall report directly to the Board. Executive's services hereunder shall be
performed at the Corporation's principal executive offices in New York City and
the Executive agrees to travel from time to time and to render his services in
other locations in which the Corporation does business consistent with its
reasonable business needs.
2. Term. Unless sooner terminated pursuant to this Agreement, the
initial term of the Executive's employment shall be from the date hereof and
shall end on June 30, 2001. Such initial term shall be extended for successive
terms of one year each unless either party advises the other, at least 90 days
prior to the end of the initial term
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or annual extension, as the case may be, that it will not agree to extend this
Agreement. The initial term, as so extended, is referred to in this Agreement
as the "Term."
3. Compensation.
(a) During the Term, the Corporation will pay the Executive a
salary (the "Base Salary") at the annual rate (pro-rated for portions of any
year) of $500,000, subject to increase in the sole discretion of the Board or a
duly authorized committee thereof. The Base Salary will be paid to Executive in
accordance with the Corporation's regular payroll policy for senior executives
of the Corporation.
(b) For each of the fiscal years ending on June 30 of 1999,
2000 and 2001, the Corporation has established target amounts (each, a "Target
Amount") for EBITDA (as defined below) as set forth below:
Fiscal Year Target Amount
1999 $27,000,000
2000 $30,000,000
2001 $32,000,000
(c) For each of the fiscal years ending on June 30 of 1999,
2000 and 2001, the Executive shall be entitled to a cash bonus (the "Cash
Bonus") equal to 100% of the Base Salary if the EBITDA of the Corporation is at
least equal to the Target Amount.
(d) "EBITDA" for a fiscal year (i) shall mean income from
operations of the Corporation and its subsidiaries for such fiscal year,
determined in accordance with U.S. generally accepted accounting principles
consistently applied in accordance with the accounting methodologies and
procedures of the Corporation and its subsidiaries plus depreciation and
amortization of the Corporation and its subsidiaries for such period to the
extent any such expense was deducted in computing such income from operations,
(ii) shall include any expense or charge relating to the Cash Bonus, if any,
earned by the Executive pursuant to clause (c) above (i.e., EBITDA for a fiscal
year excluding such expense or charge relating to such Cash Bonus must exceed
the Target Amount for such fiscal year by at least the amount of such expense
or charge or no Cash Bonus will be earned) and (iii) shall be subject to
adjustment as set forth in paragraph (e) below.
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(e) From time to time, the Board shall make such adjustments
in the EBITDA for a fiscal year, which adjustments shall be in amounts as
determined in the Board's reasonable discretion, so that extraordinary charges
or credits (provided that all adjustments, if any, in respect of acquired
businesses shall be governed by paragraph (f) below) do not distort or affect
the calculation in a manner inconsistent with its purpose, which inconsistency
shall be determined by the Board in its reasonable discretion. The
determinations of the Board as provided above shall be final, conclusive and
binding on all parties, including Executive, absent proof of error.
(f) An adjustment to the Target Amount for each fiscal year
(including the fiscal year in which the transaction occurs) shall be made
following any acquisition, merger, consolidation or other similar corporate
transaction that is consummated, such adjustment to be equal to management's
forecast (as presented to the Board) of incremental acquired EBITDA for such
fiscal year (or portion thereof with respect to the fiscal year in which the
transaction occurs), where (1) the Corporation or any direct or indirect parent
or subsidiary corporation is the acquiror and (2) DLJ Merchant Banking Partners
II, L.P. or any of its affiliated funds and entities make an additional
investment in an amount exceeding $1 million in the aggregate (an "Additional
Investment") in the equity (whether common or preferred) of the Corporation or
any direct or indirect parent or subsidiary corporation of the Corporation. No
such adjustment to Target Amounts shall be made following any acquisition,
merger, consolidation or other similar corporate transaction, where (1) the
Corporation or any direct or indirect parent or subsidiary corporation is the
acquiror and (2) no Additional Investment is made. An Additional Investment
shall not be deemed to have been made with respect to the potential acquisition
of the sampling assets of Big Flower Press or its subsidiaries unless the
aggregate amount of such investment is at least equal to $10 million in the
aggregate.
(g) The Cash Bonus for any fiscal year, if any, will be paid
to Executive in accordance with the Corporation's regular payroll policy for
senior executives of the Corporation within 90 days after the end of the
applicable fiscal year.
4. Executive Benefits.
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(a) During the Term, the Executive shall be entitled to
participate in such retirement, profit sharing and pension plans and life and
other insurance programs, as well as other benefit programs, which are
available to senior executives of the Corporation, subject to the Corporation's
policies with respect to all of such benefits or insurance programs or plans;
provided, however, that except as expressly set forth herein, the Corporation
shall not be obligated to institute or maintain any particular benefit or
insurance program or plan or aspect thereof.
(b) The Executive shall be entitled to four weeks vacation
per annum during the Term, to be scheduled at mutually agreeable times and to
be taken in accordance with the Corporation's policies.
(c) The Corporation shall reimburse the Executive or pay all
reasonable, commercial first class travel and entertainment expenses undertaken
on behalf of the Corporation in accordance with the Corporation's policies,
including requirements with respect to reporting and documentation of such
expenses.
(d) The Corporation shall reimburse the Executive for, or pay
on Executive's behalf, reasonable attorneys' fees and expenses incurred in
connection with the preparation, review, negotiation, execution and delivery of
this Agreement and any other option agreement or other document or instrument
executed in connection herewith.
5. Death; Disability.
(a) Death. The Term shall immediately terminate upon the
Executive's death; provided, that the obligations of the Corporation upon the
Executive's death shall be as set forth in Section 6(c)(i)(x).
(b) Disability. If during the Term of this Agreement the
Executive becomes unable to perform substantially his duties and
responsibilities to the Corporation or any of its subsidiaries for a period of
six months or nine months in any consecutive twelve month period by reason of
physical or mental illness, injury, infirmity or condition ("Disability"): (i)
the Base Salary otherwise payable during the Disability Period (as herein
defined) shall nevertheless be payable on the terms set forth herein to the
Executive as a disability benefit ("Disability
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Benefit") but shall be reduced by disability insurance proceeds (as adjusted to
an equivalent taxable benefit) pursuant to any benefit plan of the Corporation
as provided in Section 4(a) or pursuant to any individual disability policy
with respect to such Disability; and (ii) the Corporation shall not have the
right to terminate this Agreement due to such Disability prior to the
expiration of the Disability Period. Any dispute as to the existence of a
Disability shall be resolved by an independent physician mutually acceptable to
the Corporation and the Executive and such resolution shall be final,
conclusive and binding on all parties. As used herein, the term "Disability
Period" shall mean the period commencing on the first day of the calendar month
following the month during which such Disability occurs and ending on the first
to occur of the following: (i) the expiration of this Agreement; (ii) if the
Disability is continuous throughout the six consecutive months following the
month during which the Disability occurs, then the last day of such sixth
consecutive calendar month; and (iii) if the Disability is intermittent during
any 12 calendar months following the month during which the Disability
initially occurs, then the last day of such 12th calendar month. The
Corporation shall have the right to terminate the Term at the expiration of the
Disability Period if and only if the Disability of the Executive is then
continuing. Upon such termination, the obligation of the Corporation shall be
set forth in Section 6(c)(i)(y).
6. Other Termination.
(a) Termination by the Corporation. The Corporation shall
have the right, at its election, to terminate the Executive's employment under
this Agreement by written notice to the Executive for "Cause" (as defined
below). As used herein, Cause shall be deemed to exist where (i) the Board
shall have notified the Executive in writing of its reasonable determination
that there shall have occurred any intentional or willful failure, or failure
due to bad faith, by the Executive to substantially perform its duties
hereunder or that the Executive has materially breached any of his covenants
under this Agreement; (ii) the Executive's conviction of, or entry of a plea of
nolo contendere in respect of, any felony or a misdemeanor that (in the case of
a misdemeanor) results in, or is reasonably expected to result in, economic or
reputational injury to the Corporation or any parent or subsidiary corporation
or any affiliate thereof; (iii) the Executive shall have engaged in any
misconduct that is significantly injurious to
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<PAGE>
the Corporation or any parent or subsidiary corporation or any affiliate
thereof; or (iv) the Board shall have determined in its reasonable judgment
that the Executive has committed one or more acts that indicates alcohol or
drug abuse by the Executive that is significantly injurious to the
Corporation's business or reputation (including its relationships with its
customers, suppliers or employees). The Corporation may terminate this
Agreement only if the Corporation shall have given written notice to the
Executive specifying the claimed Cause, and in the case of (i) above, the
Executive fails to correct (if correctable) the claimed breach within 30 days
after the receipt of the applicable notice. In addition, the Corporation shall
have the right, at its election, to terminate the Executive's employment under
this Agreement for any reason other than Cause and, in such event, the
Corporation shall pay the Executive the amounts set forth in (c)(i)(z) below.
(b) Termination by the Executive. The Executive shall have
the right, at his election, to terminate this Agreement for "Good Reason" (as
defined below) by written notice to the Corporation to that effect. As used
herein, Good Reason shall mean any of the following (without the Executive's
consent): (i) any relocation of the Executive's principal office at the
Corporation to a location outside of New York City, except for required travel
in connection with the Corporation's business; (ii) any reduction in the
Executive's title or any substantial reduction in the Executive's duties or
responsibilities; and (iii) any failure to pay the Executive his compensation
under Sections 3 and 4 when due pursuant to the terms of this Agreement. The
Executive may terminate this Agreement for Good Reason only if the Executive
shall have given written notice to the Corporation specifying the claimed Good
Reason, and the Corporation fails to correct (if correctable) the claimed
breach within 30 days after the receipt of the applicable notice.
(c) Effect of Termination.
(i) Upon termination of the Executive's employment under
this Agreement by reason of the causes described below, the following shall be
applicable to sums otherwise due to the Executive, notwithstanding anything to
the contrary herein:
(w) should this Agreement be terminated by the
Corporation for Cause or by the Executive for any
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<PAGE>
reason, other than Good Reason, the Executive shall have no right to any
further compensation beyond the date of termination of the Agreement; provided,
that Executive's Base Salary shall accrue and be paid through the date of such
termination and Executive shall be entitled to any bonus payment due pursuant
to Section 3(c) for the fiscal year prior to the fiscal year in which such
termination occurred;
(x) should this Agreement be terminated by reason of
the Executive's death, the Executive's Base Salary shall accrue and be paid
through the date of death; to the extent not previously paid, any bonus payment
due pursuant to Section 3(c) for the fiscal year prior to the fiscal year in
which death occurred shall be paid; and any bonus payment due pursuant to
Section 3(c) for the fiscal year in which death occurred shall be prorated to
reflect only that portion of the year during which the Executive performed
services hereunder, shall be payable only upon achievement of the Target Amount
for such fiscal year and shall be paid within 90 days following the end of such
fiscal year;
(y) should this Agreement be terminated by reason of
Disability pursuant to Section 5(b), the Executive's Base Salary shall accrue
and be paid through the end of the Disability Period; to the extent not
previously paid, any bonus payment due pursuant to Section 3(c) for the fiscal
year prior to the fiscal year in which Disability occurred shall be paid; any
bonus payment due pursuant to Section 3(c) for the fiscal year in which
Disability occurred shall be prorated to reflect only that portion of the year
prior to the end of the Disability Period, shall be payable only upon
achievement of the Target Amount for such fiscal year and shall be paid within
90 days following the end of such fiscal year; and
(z) should this Agreement be terminated by the
Executive for Good Reason, or by the Corporation for any reason other than
Cause or the Executive's death or Disability, the Executive's Base Salary shall
accrue and be paid through the date of such termination; and to the extent not
previously paid, any bonus payment due pursuant to Section 3(c) for the fiscal
year prior to the fiscal year in which termination occurred shall be paid. In
addition, in such event, the Executive shall be entitled to receive severance
payments in an amount equal to his Base Salary for the fiscal year prior to the
fiscal year in which such
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<PAGE>
termination occurred and any bonus payment, if any, due or paid pursuant to
Section 3(c) for the fiscal year prior to the fiscal year in which such
termination occurred. Such Base Salary and bonus payment, if any, shall be
payable to Executive in the following manner: (i) one-half of such amount shall
be due and payable upon such termination and (ii) one-half of such amount shall
be due and payable in twelve equal monthly installments after such termination.
Notwithstanding the foregoing, in the event the Executive breaches the
provisions of Section 8, 9, 10, 11 or 12 hereof, then the Corporation shall
have no obligation to pay any amounts due under the preceding sentences of this
clause (z) in respect of the period from and after the date on which such
breach occurs.
(ii) In the event of termination of the Executive's
employment under this Agreement, whether by the Corporation or the Executive,
or pursuant to the expiration of this Agreement in accordance with Section 2,
the Executive shall be deemed to have resigned all offices and directorships
held with the Corporation and any direct or indirect parent or subsidiary
corporation and any affiliate thereof and shall deliver such resignations or
other instruments as reasonably requested by the Corporation in connection with
or evidencing such resignations; provided that such resignations shall not be
deemed to constitute a waiver of any right to indemnification accrued to the
benefit of the Executive prior thereto.
(iii) In all cases of termination, whether by the
Corporation or the Executive, or pursuant to the expiration of this Agreement
in accordance with Section 2, the Corporation will reimburse the Executive for
all out-of-pocket expenses with respect to which the Executive is entitled
pursuant to Section 4(c) through the date of termination. All payments shall be
made for purposes of this Section 6(c) at the time they would have been made if
this Agreement had not been terminated.
(iv) In the event of termination of the Executive's
employment under this Agreement, whether by the Corporation or the Executive,
or pursuant to the expiration of the Agreement in accordance with Section 2,
the payments, if any, required to be provided to Executive pursuant to this
Section 6 shall be in full and complete satisfaction of any and all obligations
owing to Executive pursuant to this Agreement.
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7. Mitigation. The Corporation acknowledges that upon any termination
of the Executive's employment, the Executive shall not have any obligation to
seek or obtain other employment in any position to mitigate any damages to
which the Executive may be entitled by reason of any termination of this
Agreement (whether by the Corporation without Cause or otherwise).
8. Return of Property and Nondisclosure. Upon termination or
expiration of his employment, the Executive will promptly deliver to the
Corporation all data, lists, information, memoranda, documents and all other
property belonging to the Corporation or containing "Confidential Information"
or "Trade Secrets" of the Corporation (both as defined below), including, among
other things, that which relates to services performed by the Executive for the
Corporation, or was created or obtained by the Executive while performing
services for the Corporation or by virtue of the Executive's relationship with
the Corporation. Except as required in order to perform his obligations under
this Agreement, the Executive shall not, without the express prior written
consent of the Corporation, disclose or divulge to any other person or entity,
or use or modify for use, directly or indirectly, in any way, for any person or
entity any of the Corporation's Confidential Information or Trade Secrets at
any time (during or after the Executive's employment) during which data or
information continues to constitute Confidential Information or a Trade Secret.
For purposes of this Agreement, "Confidential Information" of the Corporation
shall mean any valuable, competitively sensitive data and information related
to the Corporation's business other than Trade Secrets that are not generally
known by or readily available to the Corporation's competitors other than as a
result of a disclosure directly or indirectly by the Executive. "Trade Secrets"
shall mean information or data of the Corporation including, but not limited
to, technical or non-technical data, financial information, programs, devices,
methods, techniques, drawings, processes, financial plans, product plans, or
lists of actual or potential customers or suppliers, that: (a) derive economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from their disclosure or use; and (b) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of "trade
secret" mandated under applicable law, the latter
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definition shall govern for purposes of interpreting the Executive's
obligations under this Agreement. Except for disclosure required by law or to
permit enforcement of this Agreement, the terms of this Agreement shall be
deemed Confidential Information of the Corporation and shall not be discussed
or disclosed by the Executive with any person other than the Executive's
spouse, attorney or accountant, provided that such discussions or disclosures
shall be conditioned upon the agreement of the person to whom the terms are
disclosed to maintain the confidentiality of such terms.
9. Noncompetition. The Executive acknowledges that he has substantial
experience and expertise in the business of the Corporation and that, as such,
the services to be performed by him are of a special, unique, unusual,
extraordinary and intellectual character. The Executive further acknowledges
that the nature of the services, position and expertise of the Executive are
such that he is capable of competing with the Corporation. In consideration of
this Employment Agreement, the Executive shall not, without the prior written
consent of the Board, during the "Restricted Period" (a) directly or indirectly
be employed by or render any advice or services, whether or not for
compensation, to any "Person" engaged in any "Competitive Business," (b)
directly or indirectly engage in any Competitive Business, (c) directly or
indirectly be interested, whether or not for compensation, in any Competitive
Business as an individual, partner, shareholder, creditor, director, officer,
principal, agent, employee, trustee, consultant, advisor or in any other
relationship or capacity; provided, however, that in the case of a Competitive
Business whose shares of common stock are traded on a national securities
exchange in the United States or in the over-the-counter market, the Executive
may acquire, directly or indirectly, an interest in such shares of common stock
not to exceed five percent (5%) of the outstanding shares of common stock of
such company. For purposes of this Section, "Restricted Period" shall mean
while the Executive is employed by the Corporation and for a period of two
years thereafter; provided, that if the Corporation terminates the employment
of the Executive without Cause or if the Executive terminates his employment
for Good Reason, the Restricted Period shall not extend beyond the lesser of
(i) one year following termination of the Executive's employment hereunder and
(ii) the period during which the Corporation is making payments to the
Executive pursuant to Section 6(c)(i)(z), unless the Corporation shall cease
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making such payments as the result of the Executive's prior material breach of
the provisions of Sections 8, 9, 10, 11 or 12 hereof. For purposes of this
Section, any "Competitive Business" shall mean any Person that is engaged in
the manufacturing of, acting as the selling agent or other representative for a
manufacturer of, or otherwise selling and causing (on such Person's behalf,
other than as the ultimate customer) the manufacturing of, olfactory,
cosmetic/skincare (including but not limited to treatment, makeup and lipstick)
and flavor sampling products, nail and haircare sampling products and single
dosage sampling products in the United States, Canada, Europe, South America,
Asia, Australia and the Middle East. For purposes of this Section, "Person"
shall mean any corporation, partnership, association, trust, individual or any
other entity. In the event that any provision of this Section is considered by
a court of competent jurisdiction to be excessive in its duration, in the area
to which it applies or in any other respect, it shall be considered modified
and valid for such duration, for such area and in such other respects as such
court may determine reasonable under the circumstances.
10. Nonsolicitation. While he is employed by the Corporation, and for
a period of two years thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Corporation as approved by
the Board, solicit or attempt to solicit any employee, consultant, contractor
or other personnel of the Corporation to terminate, alter or lessen that
party's affiliation with the Corporation or to violate the terms of any
agreement or understanding with the Corporation except in the furtherance of
the Executive's duties hereunder.
11. Original Material. The Executive acknowledges that the
compensation paid to the Executive by the Corporation during the Executive's
employment by the Corporation is intended to and does compensate the Executive
for the Executive's originality, innovativeness and inventiveness as it relates
to the Corporation or its business. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating to the Corporation or its business, including, without limitation,
computer apparatus, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed, made,
conceived, authored or reduced to practice by
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the Executive alone or jointly with others during the term of Executive's
employment with the Corporations shall be the property of and belong
exclusively to the Corporation. The Executive shall promptly and fully disclose
to the Corporation the origination or development by the Executive of any such
material, shall provide the Corporation with any information that it may
reasonably request about such material and shall execute such agreements,
assignments or other instruments as may be reasonably requested by the
Corporation to reflect such ownership by the Corporation.
12. Post-Employment Property. The Executive agrees that any and all
intellectual property that the Executive invents, discovers, originates, makes,
conceives, creates or authors either solely or jointly with others and that is
the result of or is substantially derived from Confidential Information or
Trade Secrets and is reduced to writing, drawings or practice within two years
after the termination of the Executive's employment by the Corporation for any
reason, with or without Cause, shall be the sole and exclusive property of the
Corporation. The Executive shall promptly and fully disclose all such property
to the Corporation, shall provide the Corporation with any information that it
may reasonably request about such property and shall execute such agreements,
assignments or other instruments as may be reasonably requested by the
Corporation to reflect such ownership by the Corporation.
13. Taxes, etc. All compensation payable to Executive hereunder is
stated in gross amount and such compensation and all other compensation payable
or deemed to be payable to Executive hereunder or pursuant to any other
compensation, benefit or similar plan or arrangement of the Corporation or any
direct or indirect parent or subsidiary corporation shall be subject to all
applicable withholding taxes, other normal payroll and any other amounts
required to be withheld by any federal, state, local or foreign statute, law,
regulation, ordinance or order (collectively, "Withholding Amounts"). To the
extent not withheld by the Corporation or any direct or indirect parent or
subsidiary corporation, the Executive shall be liable for and shall remit to
the Corporation or any direct or indirect parent or subsidiary corporation any
such Withholding Amounts; provided that in lieu thereof, the Corporation or any
direct or indirect parent or subsidiary corporation shall have the right to
setoff any such Withholding Amounts against any and all amounts owed or payable
to the Executive.
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14. Specific Remedies. In the event of the violation or threatened
violation by the Executive of any of the covenants or provisions of Sections 8,
9, 10, 11 or 12 hereof, the Corporation shall have (i) the right and remedy of
specific enforcement and performance of Sections 8, 9, 10, 11 and 12, including
injunctive relief, it being acknowledged and agreed that any such violation or
threatened violation will cause irreparable injury to the Corporation and that
monetary damages will not provide an adequate remedy to the Corporation, and
(ii) rights to any and all damages available as a matter of law.
15. Notices. Any notices required to be given hereunder shall be in
writing and shall be deemed given when personally delivered, telexed or sent
certified mail, return receipt requested, or sent via express air delivery
service, to the parties at the addresses set forth below, or at such other
address as a party shall have given notice thereof to the other party:
Executive:
Roger L. Barnett
120 East 56th Street
New York, NY 10022
(Marked "Private & Confidential")
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Neale Albert
Corporation:
Arcade Marketing, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Attention: Chief Financial Officer
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: R. Scott Cohen
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16. General.
(a) This Agreement shall be governed by and construed under
the laws and decisions of the State of New York with respect to contracts and
agreements which are entirely made and entered into therein.
(b) This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
previous written and oral agreements between the parties with respect to the
subject matter set forth herein.
(c) This Agreement may not be modified or amended except by a
writing signed by both of the parties hereto.
(d) Any provision of this Agreement that is deemed invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and
subject to this section, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
provisions hereof in such jurisdiction or rendering that or any other provision
of this Agreement invalid, illegal or unenforceable in any other jurisdiction.
If the covenant should be deemed invalid, illegal or unenforceable because its
scope is considered excessive, such covenant shall be modified so that the
scope of the covenant is reduced only to the minimum extent necessary to render
the modified covenant valid, legal and enforceable.
(e) The following provisions of this Agreement shall survive
its expiration or termination for any reason: Sections 7, 8, 9, 10, 11, 12, 13,
14, 15 and 16.
(f) This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same agreement.
(g) The headings and titles to the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed a part of
or affect the construction or interpretation of any provisions hereof.
(h) All references to Sections shall, unless otherwise
specified, be to Sections of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
ARCADE MARKETING, INC.
By:
---------------------------------
David M. Wittels,
Vice President
---------------------------------
Roger L. Barnett
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EXECUTION
COUNTERPART
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as
of May 12, 1998, by and between ARCADE, INC. (the "Company"), a Tennessee
corporation, and BARRY MILLER (the "Executive"), a residing at 169 Lelawood
Circle, Nashville, Tennessee 37209; --
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of, among
other things, manufacturing, marketing and distributing olfactory, cosmetics
and flavor sampling products and related items (the "Products"),
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company on the terms and conditions of
this Agreement, and
WHEREAS, the Executive is not a party to any other contract
or subject to the terms of any other agreement, which contract or agreement
would prohibit his from being a party to this agreement or otherwise being
employed by the Company;
NOW, THEREFORE, in consideration of the respective agreements
of the parties contained herein, it is agreed as follows:
1. Employment Term. The term of this Agreement shall commence
on May 13, 1998 (the "Effective Date") and shall expire on June 30, 2001 (the
"Initial Employment Term"); provided, however, that the Initial Employment Term
shall be automatically extended for successive additional twelve-month periods
(each an "Extended Employment Term") provided that neither party gives written
notice to the other of termination not less than ninety (90) days prior to the
end of the Initial Employment Term or any Extended Employment Term. (The
Initial Employment Term and any Extended Employment Term sometimes hereinafter
collectively called the "Employment Term").
2. Employment.
(a) Subject to the provisions of Section 7 hereof, the
Company agrees to employ the Executive during the Employment Term. During the
Employment Term, the Executive shall be employed as the Chief Operating Officer
of the Company or in such other senior executive capacity as may later be
decided by the Chief Executive Officer ("CEO"). The Executive shall perform the
duties, undertake the responsibilities and exercise the authority customarily
performed,
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undertaken and exercised by persons situated in a similar executive capacity.
The Executive shall report to the CEO of the Company. The Executive's offices
shall be located in Chattanooga, Tennessee; however, the Executive shall
undertake such travel as is reasonable and customary in the execution of the
Executive's duties hereunder.
(b) During the Employment Term, excluding periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full time, attention, knowledge and skills, faithfully and
diligently to the best of his ability, to the business and affairs of the
Company.
3. Compensation.
(a) Base Salary. During the Employment Term, the Company
agrees to pay or cause to be paid to the Executive an annual base salary of
$220,000.00 or as may be increased from time to time in the sole discretion of
the CEO of the Company (hereinafter referred to as the "Base Salary"). Such
Base Salary shall be earned and accrued on a per day basis and be payable in
accordance with the Company's customary practices applicable to its executives.
(b) Annual Review. Within the period from June 1 through
July 31 of each year during the Employment Term, the CEO of the Company shall
conduct a review of the Executive's performance and compensation; provided,
however, that the Company shall have no obligation to increase the Executive's
compensation as a result of any such review.
(c) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Term, an annual bonus (the "Annual Bonus") in a maximum amount not to exceed
one hundred percent (100%) of the Base Salary. The amount of the Annual Bonus
to which the Executive will be entitled will be based on whether the Company
meets certain financial performance goals which shall be determined by the
Company in its sole discretion after consultation with the Executive, all to be
as set forth in a bonus plan to be promulgated by the Company prior to the
beginning of each fiscal year of the Company. It is anticipated that during the
fiscal year of the Company ending June 30, 1999, fifty percent (50%) of the
Executive's Annual Bonus will be based on whether the Company meets certain
cost reduction goals and fifty percent (50%) will be based on whether the
Company meets certain cash flow targets. The Annual Bonus shall be payable
(sixty) 60 days after the end of the relevant fiscal year of the Company,
beginning with the fiscal year ending June 30, 1999. The Executive acknowledges
that the performance of his duties are subject to the direction of the CEO of
the Company (or other officer designated in writing by the CEO) and that his
entitlement to an Annual Bonus as set forth herein shall have no impact on the
discretion of the CEO in delegating authority and duties to the Executive; the
Executive agrees that he will not be entitled to claim that the Company failed
to permit him to maximize the amount of the Annual Bonus in the management of
the Company's business or in its delegation of authority and duties to him.
(d) 401(k) Contribution. The Company will make a matching
contribution to the Executive's account in the Company's 401(k) plan of up to
sixty-one (61%) of any contribution made by the Executive, which percentage may
be increased or decreased from time
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to time to be consistent with any change in the Company's policy regarding
matching contributions for executives.
(e) Stock Options. The Company will grant to the Executive
options to purchase up to 25,000 shares of the one million (1,000,000) shares
of issued and outstanding common capital stock of the Company (the "Company
Stock"), pursuant to an agreement or agreements which shall be satisfactory to
the Company in its sole discretion in both form and substance and which shall
contain the following terms:
(i) options to purchase up to 12,500 shares of the
Company Stock which shall vest over a four (4) year period based solely on the
length of time that the Executive is employed by the Company;
(ii) options to purchase up to 12,500 shares of the
Company Stock, which options shall be earned and, to the extent earned, shall
immediately vest over a period of four (4) full fiscal years of the Company
based on whether the Company meets certain financial performance goals in each
of those four (4) fiscal years of the Company, such goals to be determined by
the Company annually in its sole discretion; and
(iii) such other terms and conditions as shall be
satisfactory to the Company in its sole discretion.
4. Employee Benefits. During the Employment Term, the
Executive shall be entitled to participate in all employee benefit plans,
practices and programs maintained by the Company and made available to
employees generally, including, without limitation, any retirement, profit
sharing, savings, medical, hospitalization, disability, dental, life or travel
accident insurance benefit plans, but only to the extent maintained by the
Company. Unless otherwise provided herein the compensation and benefits under,
and the Executive's participation in, such plans, practices and programs shall
be on the same basis and terms as are applicable to executive employees of the
Company generally.
5. Expenses.
(a) The Executive shall be entitled to receive, in
accordance with normal Company practices, prompt reimbursement of all expenses
reasonably incurred by him in connection with the performance of his duties
hereunder or for promoting, pursuing or otherwise furthering the business or
interests of the Company.
(b) If the Executive should move his residence to
Chattanooga, Tennessee, the Company will reimburse the Executive for reasonable
moving expenses for himself and his family, real estate brokerage fees incurred
by the Executive in connection with such move and closing costs in connection
with the purchase of his residence in Chattanooga, Tennessee, such expenses,
fees and costs not to exceed $40,000.00 in the aggregate.
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6. Vacation and Sick Leave.
(a) The Executive shall be entitled to annual vacation in
accordance with the policies periodically established for similarly situated
executives of the Company; provided, however, that in no event shall the
Executive's annual vacation entitlement be less than three (3) weeks per year,
provided that the operation of the business of the Company so permits.
(b) The Executive shall be entitled to sick leave (without
loss of pay) in accordance with the Company's policies in effect from time to
time.
7. Termination. During the Employment Term, the Executive's
employment hereunder may be terminated under the following circumstances:
(a) Cause. The Company may terminate the Executive's
employment at any time for "Cause". For purposes of this Agreement, a
termination of employment is for "Cause" if:
(i) the Executive has been convicted of a felony
crime, or
(ii) the Company makes a written finding that the
Executive intentionally engaged in conduct which is demonstrably and materially
injurious to the Company.
(b) Disability. If the Executive fails, because of
physical or mental illness or other incapacity, for a period of ninety (90)
days in the aggregate during any twelve month period to substantially perform
his duties under this Agreement ("Disability"), the Company may terminate the
Executive's employment.
(c) Death. The Executive's employment shall terminate
immediately upon the death of the Executive.
(d) Upon Notice by Company. The Company may terminate the
Executive's employment at any time without Cause by giving a Notice of
Termination.
(e) Upon Notice by Executive. The Executive may terminate
his employment at any time by giving a Notice of Termination not less than
sixty (60) days prior to the Termination Date.
8. Compensation Upon Termination. Upon termination of the
Executive's employment during the Employment Term, the Executive shall be
entitled to the following benefits:
(a) If the Executive's employment with the Company shall
be terminated (1) by the Company for Disability, or (2) by reason of the
Executive's death, the Company shall pay the Executive (i) his Base Salary
which has been earned and is accrued but unpaid through the Termination Date,
(ii) his Annual Bonus prorated for the number of weeks in such fiscal year
during
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which the Executive has been employed by the Company under this Agreement,
(iii) reimbursement for reasonable and necessary expenses incurred by the
Executive on behalf of the Company during the period ending on the Termination
Date; and (iv) accrued vacation pay. The prorated Annual Bonus shall be payable
not later than ninety (90) days following the end of the Company's fiscal year.
(b) If the Executive's employment with the Company shall
be terminated (1) by the Company for Cause, or (2) by the Executive, the
Company shall pay the Executive (i) his Base Salary which has been earned and
is accrued but unpaid through the Termination Date, and (ii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date.
(c) If the Executive's employment with the Company shall
be terminated by the Company other than by reason of death, Cause or Disability
or other than pursuant to Section 1, the Executive shall be entitled to the
following:
(i) the Company shall pay the Executive (i) his Base
Salary which has been earned but is accrued and unpaid through the Termination
Date, (ii) if such termination occurs less than sixty (60) days prior to the
end of the Company's fiscal year, his Annual Bonus prorated for the number of
weeks in such fiscal year during which the Executive has been employed by the
Company under this Agreement, (iii) reimbursement for reasonable and necessary
expenses incurred by the Executive on behalf of the Company during the period
ending on the Termination Date, and (iv) accrued vacation pay and sick leave;
and
(ii) the Company shall pay the Executive as severance
pay and in lieu of any further compensation for periods subsequent to the
Termination Date, six months of his Base Salary, payable in accordance with the
Company's normal payroll practices or, if the Executive so chooses, the Company
will pay the Executive a lump sum payment equivalent to six months of his Base
Salary within thirty (30) days of the Termination Date.
(d) The severance pay provided for in Section 8(c)(ii)
shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
(e) The severance pay provided for in Section 8(c)(ii) and
all other compensation paid under this Agreement shall be subject to
withholding taxes and other employment taxes as required by law with respect to
compensation paid by an employer to an employee.
9. Definitions.
(a) Notice of Termination. For purposes of the Agreement,
a "Notice of Termination" shall mean a written notice of termination of the
Executive's employment, signed by the CEO of the Company if from the Company
and by the Executive if from the Executive, which indicates the specific
termination provision in this Agreement, if any, relied upon.
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(b) Termination Date., Etc. For purposes of this
Agreement, "Termination Date" shall mean (a) in the case of the Executive's
death, his date of death, (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in
the case of a termination for Cause under Section 7(a)(ii) shall not be less
than seven (7) days from the date such Notice of Termination is given and in
the case of a termination by the Executive under Section 7(e) shall not be less
than sixty (60) days from the date such Notice of Termination is given).
10. Restrictive Covenants.
(a) Covenants Against Competition. The Executive
acknowledges that (i) the Company is currently engaged in the business of
manufacturing, marketing and distributing, directly and through licensees
(collectively, the "Activities"), olfactory, cosmetic/skincare (including but
not limited to treatment, makeup, and lipstick) and flavor sampling products
and encapsulated ingredients and printed materials as they relate to sampling,
and is in the process of developing single dosage products and engaging in the
Activities with respect to nail and hair care sampling products (collectively,
the "Company Business"); (ii) the Company Business is conducted throughout
North America, Europe (including the United Kingdom), South America, Asia and
Australia; (iii) the Executive's work for the Company will give the Executive
access to trade secrets of, and confidential information concerning the
Company; (iv) the agreements and covenants contained in this Agreement are
essential to protect the business and good will of the Company; and (v) the
Executive has means to support the Executive and the Executive's dependents
other than by engaging in the Company Business and the provisions of this
Agreement will not impair such ability. Accordingly, the Executive covenants
and agrees as follows:
(i) Non-Compete. During the period of the Executive's
employment hereunder and for a period of two years thereafter (the "Restricted
Period"), the Executive shall not (except by reason of and in the Executive's
capacity as an employee of the Company), and shall not permit any of his
affiliates to, directly or indirectly, either themselves, or as a stockholder,
partner, associate, employee, director, officer, advisor, consultant, owner,
agent, creditor, coventurer or any person, or otherwise, directly or indirectly
to establish, engage in, become employed by or associated with, any business,
trade or occupation which is competitive with the Company Business or which
involves the development, design, licensing, sale, distribution or manufacture
of any products or services which are competitive with the Company Business.
(ii) Referral of Contacts and Opportunities. During
the Restricted Period, the Executive shall refer any contacts he obtains with
respect to the Company Business and any opportunities relating to the Company
Business only to the Company.
(iii) Interference with Employment Relationships. The
Executive shall not, directly or indirectly, and will not permit his affiliates
to, during the Restricted Period, hire, solicit or cause others to hire or
solicit, or take any action which is calculated to persuade, or have the effect
of persuading, any employees, representatives or agents of the Company or its
affiliates
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(i) who are engaged in the Company Business, or (ii) whom the Executive has
become aware of, or has come in contact with, including during the course of
the negotiation of this Agreement and the consummation of the transactions
contemplated hereby, to terminate their employment or other relationship with
the Company or its affiliates.
(iv) Interference with Business Relationships. The
Executive shall not, directly or indirectly, and will not permit any of his
affiliates to, during the Restrictive Period, interfere in any way with the
relationship or prospective relationship between the Company or its affiliates
and any customer, supplier, licensee or prospect of the Company or its
affiliates. Without limiting the foregoing, the Executive shall not request,
encourage, advise or attempt to persuade in any manner (including by making
unfavorable or negative comments with respect to the Company, or its
affiliates, products or conduct of business) any customers or suppliers of the
Company or its affiliates to curtail or cancel such customer's or supplier's
business relationship with the Company or its affiliates.
(v) Confidential Information. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that, during and after the Restricted Period, the Executive shall, and shall
cause his affiliates to, keep secret and retain in strictest confidence, and
shall not use or disclose to any person whatsoever for their benefit or the
benefit of others any proprietary, confidential or secret matters used in,
associated with or related to the Company or the Company Business
("Confidential Information") including know-how, technology, financial
information, trade secrets, customer lists, names or identities, details or
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plan, business
acquisition plans, new personnel acquisition plans, methods of manufacture,
processes, formulas, designs and design projects, computer programs, inventions
and research projects of the Company, its affiliates, or any other entity which
may hereafter become an affiliate thereof, learned, acquired or developed by
the Executive while employed by the Company. Notwithstanding the foregoing,
Confidential Information shall not include information which (i) is already in
the public domain through no breach of the Executive or his affiliates of this
Agreement or any other agreement with the Company, (ii) the Executive can
provide evidence that such information was legally in his possession without
restriction prior to the Effective Date, or (iii) is disclosed in any printed
patent or other publications without breach of any duty of confidentiality.
(vi) Property of the Company. All memoranda, notes,
lists, records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof) relating to
the Company or the Company Business, including such items stored in computer
memories, microfiche or by any other means, made or compiled by or on behalf of
the Executive during the course of the Executive's employment by the Company,
or made available to the Executive during the course of the Executive's
employment by the Company relating to the Company, its affiliates or any entity
which may hereafter become an affiliate thereof (collectively, "Company
Property"), shall be the property of the Company. The Executive shall
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promptly deliver to the Company all Company Property upon the termination of the
Executive's employment with the Company, or at any other time upon request, and
shall not retain any Company Property in any form whatsoever, except that the
Executive may, at the sole discretion and with the written consent of the CEO
of the Company, retain samples of his work at the Company that do not contain
any Confidential Information.
(vii) Original Material. The Executive acknowledges
that the compensation paid to the Executive by the company during the
Executive's employment by the company is intended to and does compensate the
Executive for the Executive's originality, innovativeness and inventiveness as
it relates to the Company Business. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating to the Company Business, including computer apparatus, programs and
manufacturing techniques, whether or not protectable by patent or copyright,
that have been originated, developed, make conceived, authored or reduced to
practice by the Executive alone or jointly with others during the Executive's
employment with the Company shall be the property of and belong exclusively to
the Company. The Executive shall promptly and fully disclose to the Company the
origination or development by the Executive of any such material and shall
provide the Company with any information that it may reasonably request about
such material.
(viii) Post-Employment Property. The Executive agrees
that any and all intellectual property which the Executive invents, discovers,
originates, makes, conceives, creates or authorize either solely or jointly
with others and which is the result of or is substantially derived from
Confidential Information and is reduced to writing, drawings or practice after
the termination of the Executive's employment by the Company for any reason,
with or without cause, shall be the sole and exclusive property of the Company.
The Executive shall promptly and fully disclose all such property to the
Company.
(b) Rights and Remedies Upon Breach. If the Executive
breaches, or threatens to commit a breach of, any of the provisions contained
in Section 10 of this Agreement (the "Restrictive Covenants"), the Company
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the others and severally enforceable, and each of which
is in addition to, and not in lieu of, any other rights and remedies available
to the Company under law or in equity:
(i) Specific Performance. Recognizing that the remedy
at law for any breach or threatened breach of the covenants contained in this
Section 10 may be inadequate, in the event of any breach or threatened breach
of such covenants by the Executive, in addition to any and all other legal and
equitable remedies which may be available, the Company, or its successors or
assigns, may obtain temporary and permanent injunctive relief without the
necessity of proving actual damage by reason thereof, and, to the extent
permissible under the applicable statutes and rules of procedure, a temporary
injunction may be granted immediately upon the commencement of any such breach
and, to the extent permitted by applicable law, without notice.
8
<PAGE>
(ii) Accounting. The Company shall have the right and
remedy to require the Executive to account for and pay over to the Company all
compensation, profits, moneys, accruals, increments or other benefits derived
or received by the Executive as the result of any action constituting a breach
of the Restrictive Covenants.
(iii) Tolling. If the Executive engages in any
business in violation of the covenants set forth in this Agreement, the running
of the periods of limitation referred to in this Section 10 shall be tolled
until such violation shall cease and shall begin to run again only when the
Executive shall be in compliance with the provisions of such covenants, whether
voluntarily or pursuant to an order of a court.
(c) Independence of Covenants. The covenants contained in
this Section 10 shall be construed as independent of any other provisions of
this Agreement, and the existence of any other claim or cause of action by the
Executive against the Company shall not constitute a defense to the enforcement
of the covenants contained in this Section 10.
(d) Severability of Covenants. The Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in duration
and geographical scope and in all other respects. If any court determines that
any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, (i) the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
portions, or (ii) such Restrictive Covenants may be reduced or limited by such
court so as to make such Restrictive Covenants valid and the remainder of the
Restrictive Covenants shall not thereby be affected.
9
<PAGE>
11. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure
to the benefit of the Company, its Successors and Assigns. The term "Company"
as used herein shall include such Successors and Assigns. The term "Successors
and Assigns" as used herein shall mean a corporation or other entity acquiring
all or substantially all the assets and business of the Company, as the case
may be (including this Agreement), whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representative, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
12. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be sent by
nationally-recognized overnight delivery service or certified, registered or
express mail, postage prepaid, return receipt requested, addressed as set forth
below; receipt shall be deemed to occur on the earlier of the date of actual
receipt or receipt by the sender of confirmation that the delivery or
transmission was completed or that the addressee has refused to accept such
delivery or has changed its address without giving notice of such change as set
forth herein.
(a) if to the Company, to:
Arcade, Inc.
120 East 56th Street
New York, New York 10022
Attention: CEO
and, to:
Arcade, Inc.
1800 East Main Street
Chattanooga, Tennessee 37404
Attention: CFO
with a copy to counsel for the Company:
Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Attention: Thomas O. Helton, Esquire
(b) if to the Executive, to:
10
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Mr. Barry Miller
169 Lelawood Circle
Nashville, Tennessee 37209
with a copy to counsel for the Executive:
Mr. Kenneth Henry
One North LaSalle Street
Suite 3200
Chicago, Illinois 60602
Either party may change its address for notice hereunder by notice to
the other party hereto in accordance with the terms of this Section.
13. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a wavier or similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the state of Tennessee
without giving effect to the conflict of law principles thereof. Executive
hereby submits himself to jurisdiction in the State of Tennessee for any action
or cause of action arising out of or in connection with this Agreement, agrees
that venue for any such action shall be Hamilton County, Tennessee, and waives
any and all rights under the laws of any state to object to jurisdiction or
venue within Hamilton County, Tennessee.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
16. Entire Agreement. This Agreement constitute the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
17. References. If the Company is contacted subsequent to the
termination of the Executive, then the Company, consistent with Company policy,
will only confirm that the Executive was employed with the Company for the
dates of such employment as it existed.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
ARCADE, INC.
By__________________________
Title:______________________
Barry Miller
12
<PAGE>
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement") is entered into and
effective as of December 15, 1997 among AHC I Acquisition Corp., a Delaware
corporation (the "Company"), DLJ Merchant Banking Partners II, L.P., a Delaware
limited partnership ("DLJMBII"), each DLJMB Party (as defined below), the other
signatories hereto, and each other holder of record of Shares (as defined
below) who may hereafter be bound by the terms hereof (each DLJMB Party, the
other signatories hereto (excluding the Company) and each other Person (as
defined below) that hereafter may become a party hereto as contemplated hereby
being hereinafter referred to individually as a "Party" and collectively as the
"Parties").
W I T N E S S E T H:
WHEREAS, the Company has authorized 5,000,000 shares of common stock,
$0.01 par value per share (the "Common Shares");
WHEREAS, the Company has authorized 5,000,000 shares of preferred
stock, $0.01 par value per share (the "Preferred Shares"); and
WHEREAS, the parties hereto are entering into this Agreement in order
to define certain rights and obligations of such parties.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
GENERAL PROVISIONS;
REPRESENTATIONS AND WARRANTIES
I.1 Certain Terms. In addition to the terms defined elsewhere herein,
when used herein the following terms shall have the meanings indicated:
"Accredited Investor" shall have the meaning set forth for
such term in Regulation D.
"Adverse Person" means Persons that are competitors of the
Company, former or present suppliers, customers or employees of the Company or
any other Persons, in each case as the Board of Directors reasonably designates
as such from time to time.
<PAGE>
"Affiliate" means, with respect to any Person, any Person
controlling, controlled by, or under common control with such Person. For the
purposes of this definition, "control" means the possession of the power to
direct or cause the direction of management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Arcade Acquisition Agreement" means the Stock Purchase
Agreement, dated November 14, 1997, by and among the Company, Arcade Holding
Corporation, a Delaware corporation, and the signatories thereto, as amended by
that certain First Amendment to Securities Purchase Agreement, dated as of
December 2, 1997, and by that certain Second Stock Purchase Agreement, dated as
of December 12, 1997.
With respect to any Capital Shares, "beneficial" ownership or
"beneficially" owned shall have the same meaning as in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
"Board of Directors" means the board of directors of the
Company.
"Bridge Party" means Scratch & Sniff Funding, Inc., and its
successors, and any Permitted Minority Transferee of a Bridge Party.
"Bridge Purchase Agreement" means the Securities Purchase
Agreement, dated as of the date hereof, by and among the Company, AHC I Merger
Corp., a Delaware corporation, and Scratch & Sniff Funding, Inc., a Delaware
corporation.
"Capital Shares" means any and all shares, interests,
participations, or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation), and any and all warrants, options, or other rights to purchase
or acquire any of the foregoing.
"Common Share Equivalents" means (without duplication with
any other Common Shares or Common Share Equivalents) rights, warrants, options,
convertible securities, or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Shares or securities convertible or exchangeable into Common
Shares, whether at the time of issuance or upon the passage of time or the
occurrence of some future event.
"Demand Holder" means DLJMB.
"DLJMB Party" means each of DLJMBII, DLJ Merchant Banking
Partners II-A, L.P., DLJMB Funding II, Inc., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium
Partners-A, L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V., DLJ EAB
Partners, L.P. and UK Investment Plan 1997 Partners.
<PAGE>
"DLJMB" means all DLJMB Parties and Permitted Transferees;
provided, that DLJMBII shall have authority to act hereunder on behalf of
DLJMB.
"DLJSC" means Donaldson, Lufkin & Jenrette Securities
Corporation or any successor thereto.
"Existing Arcade Investors" means Roger L. Barnett, Craig
Barnett, Hubert Brown, Gordon W. Jones and Liberty Partners Holdings 4, L.L.C.
"Fully-Diluted Common Shares" means, at any time, the then
outstanding Common Shares of the Company plus (without duplication) all Common
Shares issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion or exchange of all
then-outstanding Common Share Equivalents.
"GAAP" means the generally accepted accounting principles in
the United States of America as in effect at the applicable time.
"Holder" means any Party that holds Shares or Common Share
Equivalents.
"Initial Holdings" means, with respect to each Party as of
the date of this Agreement, the number of Fully-Diluted Common Shares set forth
on Schedule I beside such Party's name.
"Minority Investors" means the Parties other than DLJMB.
"Permitted Minority Transferee" means DLJMB and (i) in the
case of a Bridge Party, (A) any transferee of all or any portion of the Notes
issued pursuant to the Bridge Purchase Agreement and (B) any Affiliate of such
Bridge Party or such a transferee and (ii) with respect to any other Minority
Investor, (A) any trust, the beneficiaries of which, or any corporation,
limited liability company or partnership, the stockholders of, members or
general or limited partners of which, include only such Minority Investor,
their spouse or one or more children of such Minority Investor, and (B) the
heirs, executors, administrators or testamentary trustees, legatees or
beneficiaries of such Minority Investor.
"Permitted Transferee" means in the case of any DLJMB Party,
(A) any other DLJMB Party, (B) any general or limited partner of any such
entity (a "DLJMB Partner"), and any corporation, partnership, or other entity
which is an Affiliate of any DLJMB Partner (collectively, the "DLJMB
Affiliates"), (C) any managing director, general partner, director, limited
partner, officer or employee of such DLJMB Party or a DLJMB Affiliate, or the
heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries of any of the foregoing Persons referred to in this clause (C)
<PAGE>
(collectively, "DLJMB Associates"), (D) any trust, the beneficiaries of which,
or any corporation, limited liability company or partnership, the stockholders,
members or general or limited partners of which, include only such DLJMB Party,
DLJMB Affiliates, DLJMB Associates, their spouses or their lineal descendants
and (E) a voting trustee for one or more DLJMB Parties, DLJMB Affiliates or
DLJMB Associates under the terms of a voting trust.
"Person" means any natural person, corporation, limited
liability company, limited partnership, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust, or other organization, whether or not a legal entity,
and any government or agency or political subdivision thereof.
"Qualified IPO" means a consummated initial public offering
of Common Shares which is underwritten on a firm commitment basis by a
nationally-recognized investment banking firm, the proceeds of which are
greater than $30 million.
"Registrable Securities" means the Shares, whether acquired
before or after the date hereof, and any other securities issued or issuable
with respect to such Shares by way of a share dividend or share split or in
connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; provided, that any Registrable Security will
cease to be a Registrable Security when (a) a registration statement covering
such Registrable Security has been declared effective by the SEC and it has
been disposed of pursuant to such effective registration statement or (b) (i)
it has been otherwise transferred, (ii) in connection with such transfer, the
Company has delivered a new certificate or other evidence of ownership for it
not bearing the any restrictive legend and (iii) it may be resold by the holder
thereof without (x) registration under the Securities Act or (y) volume
restrictions pursuant to Rule 144 under the Securities Act.
"Regulation D" means Regulation D as promulgated under the
Securities Act, as amended from time to time.
"SEC" means the Securities and Exchange Commission or any
successor governmental agency.
"Securities Act" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"Selling Holder" means a Party who is selling Registrable
Securities pursuant to a registration statement under the Securities Act
effected pursuant to the terms hereof.
<PAGE>
"Senior Preferred" means the 15% Senior Preferred Stock due
2012, par value $0.01 share, of the Company.
"Shares" means Common Shares, shares of Senior Preferred, or
any combination thereof.
"Subsidiary" means (i) any corporation or other entity a
majority of the Capital Shares of which having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar
functions is at the time owned, directly or indirectly, with power to vote, by
the Company or any direct or indirect Subsidiary of the Company or (ii) a
partnership in which the Company or any direct or indirect Subsidiary is a
general partner.
I.2 Representations and Warranties.
(a) Each of the Parties (as to itself only) represents and
warrants to the Company and the other Parties that:
(i) it has full power and authority to execute,
deliver, and perform this Agreement and to consummate the transactions
contemplated hereby, and the execution, delivery and performance by it of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary action;
(ii) this Agreement has been duly and validly
executed and delivered by such Party and constitutes the binding obligation of
such Party enforceable against such Party in accordance with its terms; and
(iii) the execution, delivery and performance by
such Party of this Agreement and the consummation by such Party of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (A) violate any provision of law, statute, rule,
or regulation to which it is subject, (B) violate any order, judgment, or
decree applicable to it, or (C) conflict with, or result in a breach or default
under, any term or condition of its articles or certificate of incorporation or
by-laws, certificate of limited partnership or partnership agreement or other
organizational document, as applicable, or any agreement or other instrument to
which such Party is a party or by which such Party is bound.
(b) The Company hereby represents and warrants to each Party
that:
(i) it is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, it has
full corporate power and authority under its certificate of incorporation to
execute, deliver, and perform this Agreement and to consummate the transactions
contemplated hereby, and the execution, delivery and performance by it of this
Agreement and the consummation of the
<PAGE>
transactions contemplated hereby have been duly authorized by all necessary
corporate action;
(ii) this Agreement has been duly and validly
executed and delivered by the Company and constitutes the binding obligation
thereof enforceable against the Company in accordance with its terms; and
(iii) the execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (A) violate any provision of law, statute, rule,
or regulation to which the Company is subject, (B) violate any order, judgment,
or decree applicable to the Company, or (C) conflict with, or result in a
breach or default under, any term or condition of its certificate of
incorporation or by-laws or any agreement or other instrument to which the
Company is a party or by which it is bound.
ARTICLE II
MANAGEMENT OF THE COMPANY;
ACTIVITIES OF THE PARTIES
II.1 Board of Directors.
(a) Except as otherwise provided in this Section 2.1(a), the
number of members of the Board of Directors of the Company shall be fixed at
six. DLJMB shall have the right to designate four individuals to serve as
members of the Board of Directors. The Existing Arcade Investors shall have the
right to designate (by a majority in interest of the Existing Arcade Investors)
one individual to serve as a member of the Board of Directors. In addition, the
individual serving as the Chief Executive Officer of the Company from time to
time as elected by the Board of Directors shall serve as a member of the Board
of Directors. The Parties and the Company shall take all action within their
respective powers, including, but not limited to, the nomination of candidates
as specified above, on any slate of nominees for directors proposed by the
Company, the voting of Capital Shares of the Company (to the extent that any
such Person holds Capital Shares of the Company entitled to vote thereon;
provided, that nothing set forth herein shall require any Party hereto to
exercise any right to acquire Capital Shares of the Company) and the giving of
consents, required to cause (i) the Board of Directors to include four
directors designated by DLJMB (the "DLJMB Designees"), (ii) the Board of
Directors to include one director designated by the Existing Arcade Investors
and (iii) the Board of Directors to include the Chief Executive Officer of the
Company. The Parties and the Company also shall take all such action to cause
two of the DLJMB Designees (as designated by DLJMB) to serve as members of each
committee of the Board of Directors, including, without limitation, the Audit
Committee and the Compensation
<PAGE>
Committee of the Board of Directors, and a DLJMB Designee shall serve as
chairman of each such committee. The provisions of this Section 2.1 are subject
to any rights to elect additional directors granted pursuant to the terms of
any Preferred Shares or pursuant to the terms of any indebtedness for borrowed
money of the Company or any of its Subsidiary.
(b) In the event that any director (a "Withdrawing Director")
designated in the manner set forth in Section 2.1(a) is unable to serve, or
once having commenced to serve, is removed or withdraws from the Board of
Directors, such Withdrawing Director's replacement (the "Substitute Director")
on the Board of Directors (and, if applicable, any committee) shall be
designated in accordance with Section 2.1(a). The Company and each of the
Parties agrees to take all action within its or his power, including, but not
limited to, (i) the voting of Capital Shares of the Company to cause the
election of such Substitute Director as soon as practicable following his
designation and (ii) the instructing of any directors that it previously
nominated to serve as members of the Board of Directors, as the first order of
business at the first meeting thereof after such Substitute Director has been
so designated, to vote to seat such designated Substitute Director as a
director in place of the Withdrawing Director.
(c) Each of the Parties agrees that it will at all times vote
as a stockholder of the Company (to the extent such Party has the right to vote
its Capital Shares of the Company), provide any necessary consents and use all
reasonable efforts to cause those individuals whom it has nominated to serve as
a member of, or elected to, the Board of Directors, if any, to vote as a
director of the Company in such a manner as to ensure that the terms and
intention of this Agreement, and the certificate of incorporation and the
by-laws of the Company are carried out and observed. In addition, each of the
Parties agrees that it will not vote any Capital Shares of the Company to cause
the removal from the Board of Directors of any directors designated by DLJMB or
the Existing Arcade Investors, except as set forth in Section 2.1(d) hereof.
(d) If a director designated and elected pursuant to Section
2.1(a) hereof has been designated by DLJMB or the Existing Arcade Investors and
such designating Party requests that such director be removed (with or without
cause) by written notice thereof to the other Parties, then such director shall
be removed, with or without cause, upon the affirmative vote of holders of a
majority of the outstanding Capital Shares of the Company entitled to vote
thereon, and each Party hereby agrees to vote all Capital Shares of the Company
owned or held of record by such Party to effect such removal upon such request.
No director designated by DLJMB or the Existing Arcade Investors shall
otherwise be involuntarily removed as a director of the Company (or as a member
of any committee of the Board of Directors with respect to a director
designated by DLJMB), except (i) for cause or (ii) with respect to a director
designated by the Existing Arcade Investors, at such time as the Existing
Arcade Investors cease to own at least five percent of the Fully-Diluted Common
Shares.
<PAGE>
II.2 Termination of Rights. The rights of the Existing Arcade
Investors under Section 2.1 and the obligations of the other Parties with
respect to a director designated by the Existing Arcade Investors shall
terminate upon the first to occur of (i) the termination or expiration of this
Agreement or (ii) such time as the Existing Arcade Investors cease to own at
least five percent of the Fully-Diluted Common Shares.
II.3 Quorum. The by-laws of the Company shall provide that a quorum of
the Board of Directors must include at least two DLJMB Designees.
II.4 Director's Expenses. Members of the Board of Directors shall be
entitled to reimbursement for all reasonable out-of-pocket expenses incurred in
connection with their service as directors of the Company.
II.5 Exclusive Financial Advisor and Investment Banking Advisor.
During the five-year period beginning on the date hereof, DLJSC, or any
Affiliate of DLJSC that DLJMB or DLJSC may choose in their sole discretion,
shall be engaged as the exclusive financial and investment banking advisor for
the Company and its subsidiaries pursuant to the terms of an agreement
substantially in the form of the agreement attached hereto as Exhibit A.
II.6 Certain Transactions. The Parties and the Company agree that,
without the consent of the Existing Arcade Investors, the Company shall not,
directly or indirectly, enter into any transaction, including without
limitation the purchase, sale, lease or exchange of any property (including
securities), the rendering of any service or the making of any investments,
loans or advances, with any Affiliate, except for (i) transactions on terms no
less favorable to the Company than could be obtained in an arm's-length
transaction as determined and approved in good faith by a majority of the
members of the Board of Directors, (ii) transactions contemplated by this
Agreement, the Arcade Acquisition Agreement and the Bridge Purchase Agreement,
(iii) transactions with any wholly-owned Subsidiary of the Company, (iv)
indemnification provisions of applicable laws and the Certificate of
Incorporation and By-laws of the Company, (v) arrangements entered into at, or
simultaneously with, the closing of the Arcade Acquisition Agreement and (vi)
as contemplated by Section 2.5.
ARTICLE III
PREEMPTIVE RIGHTS
III.1 Right of Participation. In the event the Company proposes to
issue or sell Common Shares or Common Share Equivalents (the "Offered
Securities"), the Company shall, no later than 20 days prior to the
consummation of such transaction (a "Preemptive Rights Transaction"), give
notice in writing of such Preemptive Rights Transaction (the "Offer Notice") to
the Parties holding Common Shares. The Offer Notice shall describe the proposed
Preemptive Rights Transaction and contain an offer
<PAGE>
(the "Preemptive Rights Offer") to sell to each such Party who certifies (to
the reasonable satisfaction of the Company) that such Party is an Accredited
Investor (an "Accredited Offeree"), at the same price and for the same
consideration to be paid by the proposed purchaser, all or part of such
Accredited Offeree's pro rata portion of the Offered Securities (which shall be
such Accredited Offeree's percentage ownership of the Fully-Diluted Common
Shares).
III.2 Procedures for Participation. Within 15 days after its receipt
of the Offer Notice, each Accredited Offeree shall deliver to the Company a
written notice (the "Acceptance Notice") specifying whether or not it desires
to accept the Offer, whereupon each Accredited Offeree, who has elected to
accept the Preemptive Rights Offer, shall be obligated to purchase its pro rata
share of the Offered Securities at the closing of the Preemptive Rights
Transaction, if and when it occurs. Except to the extent the Preemptive Rights
Offer has been duly accepted pursuant to this Section 3.2 and the Acceptance
Notice, the Company may proceed with the proposed issue or sale of the Offered
Securities, free of any right on the part of any Party under this Article III
in respect thereof during the 120 days following the expiration of such 15-day
period at a price and on terms no less favorable to the Company than those
offered to the Accredited Offerees. Common Shares or Common Share Equivalents
proposed to be issued or sold by the Company after such 120-day period shall be
reoffered to Accredited Offerees pursuant to the terms of this Article III.
III.3 Exceptions to Preemptive Rights. This Section 3 shall not apply
to issuances and sales (a) to employees, officers and/or directors of the
Company pursuant to employee benefit or similar plan or arrangement, (b) upon
exercise or conversion of any Common Share Equivalent that, when originally
issued, was subject to or exempt from the preemptive rights provided herein,
(c) distributed or set aside ratably to all holders of Common Shares or Common
Share Equivalents (or any class or series thereof) on a per share equivalent
basis, (d) pursuant to the Arcade Acquisition Agreement or other equity
investment or financing documents executed at the closing of the Arcade
Acquisition Agreement or any refinancing, extension, modification or amendment
with respect to any preferred equity or debt financing documents (provided that
any such new preferred equity is not a Common Share Equivalent), (e) pursuant
to a registered underwritten public offering or an offering pursuant to Rule
144A under the Securities Act, (f) pursuant to a merger of the Company or any
subsidiary into or with another unaffiliated entity or an acquisition by the
Company or any subsidiary of another unaffiliated business or corporation or
(g) to Roger Barnett in connection with an equity investment by him in the
Company.
ARTICLE IV
DRAG-ALONG RIGHTS
IV.1 Drag-Along Rights. Except for a sale pursuant to a registered
public
<PAGE>
offering or pursuant to Rule 144 under the Securities Act, in the event DLJMB
proposes to sell 60% or more of its Initial Holdings (DLJMB being referred to
herein as the "Seller") to a third party that is not an Affiliate of DLJMB,
then the Seller shall have the right, subject to the provisions of this Article
IV, to require the Minority Investors (collectively, the "Drag-Along Sellers"),
to include in such sale (a "Required Sale") a portion of the Fully-Diluted
Common Shares held by the Drag-Along Sellers equal to the same percentage of
the Fully-Diluted Common Shares held by the Seller to be sold by Seller.
4.2 Procedures for Participation.
(a) The Seller shall deliver notice of the Required Sale to
the Minority Investors (the "Required Sale Notice"), which shall set forth: (i)
the date of such notice (the "Notice Date"), (ii) the proposed amount of
consideration to be paid per share for the Common Shares (the "Sale Shares")
and the other terms and conditions of payment offered by the transferee in
reasonable detail, together with written proposals or agreements, if any, with
respect thereto, (iv) the aggregate number of Sale Shares and (v) the proposed
date of the Required Sale (the "Required Sale Date"), which shall be not less
than 30 nor more than 180 days after the Notice Date.
(b) The Drag-Along Sellers shall cooperate in good faith with
the Seller in connection with consummating the Required Sale (including,
without limitation, the giving of consents and the voting of any Capital Shares
of the Company held by the Drag-Along Sellers to approve such Required Sale).
On the Required Sale Date, the Drag-Along Sellers shall deliver, free and clear
of all liens, claims or encumbrances, a certificate or certificates and/or
other instrument or instruments for its Common Shares, duly endorsed and in
proper form for transfer, with the signature guaranteed, to such transferee in
the manner and at the address indicated in the Required Sale Notice and the
Seller shall cause each Drag-Along Seller's share of the purchase price to be
paid to such Drag-Along Seller.
ARTICLE V
TAG-ALONG RIGHTS
V.1 Tag-Along Rights. If DLJMB (DLJMB being referred to herein as the
"Tag-Along Seller") desires to sell (other than pursuant to a registered public
offering or pursuant to Rule 144 of the Securities Act) Common Shares in an
aggregate amount of 15% or more of the Fully-Diluted Common Shares in one or a
series of related transactions (a "Significant Sale"), then at least 30 days
prior to the closing of such Significant Sale, the Tag-Along Seller shall make
an offer (the "Participation Offer") to each Minority Investor (a "Co-Seller")
to include in the proposed Significant Sale a portion of the Fully-Diluted
Common Shares held by such Co-Seller equal to the same percentage of the
Fully-Diluted Common Shares held by the Tag-Along Seller to be
<PAGE>
sold by the Tag-Along Seller; provided that, if the consideration to be
received by the Tag-Along Seller includes any securities, only Co-Sellers who
have certified to the reasonable satisfaction of the Tag-Along Seller that they
are Accredited Investors ("Accredited Holders") shall be entitled to
participate in such transfer, unless the transferee consents otherwise.
V.2 Procedures for Participation.
(a) The Participation Offer shall describe the terms and
conditions of the proposed Significant Sale and shall be conditioned upon (i)
the consummation of the transactions contemplated in the Participation Offer
with the transferee named therein and (ii) each Co-Seller's execution and
delivery of all agreements and other documents as the Tag-Along Seller is
required to execute and deliver in connection with such Significant Sale;
provided, that such agreements and documents are reasonable and customary with
respect to the Tag-Along Seller's participation. If any Co-Seller shall accept
the Participation Offer, the Tag-Along Seller shall reduce, to the extent
necessary, the number of Common Shares it otherwise would have sold in the
proposed transfer so as to permit those Co-Sellers who have accepted the
Participation Offer to sell the number of Common Shares that they are entitled
to sell under this Section, and the Tag-Along Seller and such Co-Sellers shall
transfer the number of Common Shares specified in the Participation Offer to
the proposed transferee in accordance with the terms of such transfer as set
forth in the Participation Offer; provided, however, that in no event shall any
Co-Seller be entitled to sell a greater percentage of its Fully-Diluted Common
Shares than the percentage of Fully-Diluted Common Shares of the Tag-Along
Seller being sold by the Tag-Along Seller.
(b) Within 20 days after its receipt of the Participation
Offer, each Co-Seller shall deliver to the Tag-Along Seller a written notice
specifying whether or not it desires to accept the Participation Offer and the
number of Common Shares that each such Co-Seller desires to sell in the
Participation Offer, whereupon each such Co-Seller shall be obligated to sell
such Common Shares at the closing of such Significant Sale, if and when it
occurs. In the event no Co-Seller duly accepts the Participation Offer within
such 20-day period, the Tag-Along Seller may proceed with the proposed
transaction, free of any right on the part of a Co-Seller under this Article V
in respect thereof for a period of 120 days following the expiration of such
20-day period.
ARTICLE VI
EXCEPTIONS TO DRAG-ALONG AND TAG-ALONG RIGHTS
VI.1 Certain Events Not Deemed Transfers. In no event shall any of the
following constitute a sale of Common Shares for purposes of Article IV or V or
be subject to the terms hereof: (a) an exchange, reclassification, or other
conversion of Common Shares into any cash, securities, or other property
pursuant to a merger,
<PAGE>
consolidation, or recapitalization of the Company or any Subsidiary of the
Company with, or a sale or transfer by the Company or any Subsidiary of the
Company of all or substantially all its assets to, any Person or (b) a
conversion of outstanding Common Share Equivalents into Common Shares in
accordance with the terms thereof.
VI.2 Permitted Transferees. Notwithstanding anything in this Agreement
to the contrary, any DLJMB Party or any Permitted Transferee may, without
compliance with Article IV or V, at any time transfer any or all of its Capital
Shares to one or more Permitted Transferees or other DLJMB Party.
ARTICLE VII
TRANSFERS OF SECURITIES
No Party may transfer any Capital Shares to any Adverse Person;
provided, however, that any DLJMB Party or Permitted Transferee may at any time
transfer any or all of its Capital Shares to one or more Permitted Transferees
or other DLJMB Parties. Except pursuant to Articles IV and V of this Agreement,
prior to the date that is the earlier of (i) the consummation of a Qualified
IPO or (ii) 5 years after the date of this Agreement, no Minority Investor may
transfer any Shares or Common Share Equivalents except to (x) one or more
Permitted Minority Transferees or (y) pursuant to an offering of equity
securities registered under the Securities Act.
ARTICLE VIII
REGISTRATION
VIII.1 Request for Demand Registration.
(a) A Demand Holder may make a written request of the Company
(a "Demand Request") for registration under the Securities Act (a "Demand
Registration") of Registrable Securities.
(b) Each Demand Request shall specify the number of shares of
Registrable Securities proposed to be sold and the intended method of
distribution. Subject to Section 8.8, the Company shall file the Demand
Registration with the SEC within 60 days after receiving a Demand Request (the
"Required Filing Date") and shall use all commercially reasonable efforts to
cause the same to be declared effective by the SEC as promptly as practicable
after such filing; provided, that the Company need effect only three Demand
Registrations in respect of DLJMB, unless the Company is eligible to register
its Common Shares on Form S-3 under the Securities Act (in which event the
Company shall effect an unlimited number of Demand Registrations in respect of
DLJMB).
<PAGE>
(c) Notwithstanding anything to the contrary contained in
this Agreement, the Company shall not be required to register any Common Shares
pursuant to a Demand Request prior to the earlier of a Qualified IPO or five
years from the date of this Agreement.
VIII.2 Effective Registration and Expenses. A registration will not
count as a Demand Registration until it has become effective pursuant to the
Securities Act (unless the Demand Holder withdraw all their Registrable
Securities, in which case such demand will count as a Demand Registration
unless the Demand Holder pay all Registration Expenses in connection with such
withdrawn registration), provided that if, after it has become effective, an
offering of Registrable Securities pursuant to a registration is materially
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be deemed
not to have been effected.
VIII.3 Priority on Demand Registrations. No securities to be sold for
the account of any Person (including the Company) other than a Demand Holder
shall be included in a Demand Registration unless the managing Underwriter or
Underwriters shall advise the Demand Holder in writing that the inclusion of
such securities will not potentially impede or interfere with the offering.
Furthermore, in the event the managing Underwriter or Underwriters shall advise
the Demand Holder that even after exclusion of all securities of other Persons
pursuant to the immediately preceding sentence, the amount of Registrable
Securities proposed to be included in such Demand Registration by Demand Holder
is sufficiently large to potentially impede or interfere with the offering, the
Registrable Securities of the Demand Holder to be included in such Demand
Registration shall be allocated pro rata among the Demand Holder on the basis
of the number of Registrable Securities requested to be included in such
registration by the Demand Holder. Notwithstanding anything to the contrary
contained in this Section 8.3, the provisions of this Section 8.3 shall be
subject to the piggyback registration rights of the Minority Investors set
forth in Section 8.5 below, if applicable.
VIII.4 Multiple Demands. If the Company shall receive, within a period
of 30 days, a request to file a registration statement from more than one
Person who has the contractual right (whether exercisable alone or in
conjunction with other rights) to require the Company to file a registration
statement, all such requesting Persons shall be considered "Demand Holders" for
purposes of this Article VIII; provided, that if the first request received by
the Company is from any Demand Holder pursuant to Section 8.1(a), then only the
Demand Holder shall be considered a "Demand Holder" and no other Person who has
tendered a request shall be deemed to have requested registration of such
Person's Registrable Securities for purposes of this Agreement. In the event
the Company shall receive a request for a Demand Registration from any Persons
(including a Demand Holder) who have the contractual right to cause the Company
to do so, the Company shall promptly (and in any event within 5 days after its
receipt of such request) notify all Demand Holders thereof.
<PAGE>
VIII.5 Piggy-Back Registration.
(a) Subject to the provisions of this Agreement, if the
Company proposes to file a registration statement under the Securities Act with
respect to an offering of any Common Shares by the Company for its own account
or for the account of any of its equity holders (other than a registration
statement on Form S-4 or S-8 or any substitute form that may be adopted by the
SEC or any registration statement filed in connection with an exchange offer or
offering of securities solely to the Company's existing security holders), then
the Company shall give written notice of such proposed filing to the Parties
holding Registrable Securities as soon as practicable (but in no event less
than 30 days before the anticipated effective date of such registration
statement), and such notice shall offer the Parties the opportunity to register
such number of Registrable Securities as each such holder may request (a
"Piggyback Registration"). Subject to Section 8.5(b), the Company shall include
in each such Piggyback Registration all Registrable Securities requested by the
Parties to be included in the registration for such offering. Each such holder
of Registrable Securities shall be permitted to withdraw all or part of such
holder's Registrable Securities from a Piggyback Registration at any time prior
to the effective date thereof. For purposes of any Piggyback Registration,
Registrable Securities shall mean only Common Shares.
(b) The Company shall use all commercially reasonable efforts
to cause the managing Underwriter of a proposed underwritten offering to permit
the Registrable Securities requested to be included in the registration
statement for such offering under Section 8.5(a) or pursuant to other piggyback
registration rights granted by the Company ("Piggyback Securities") to be
included on the same terms and conditions as any similar securities included
therein. Notwithstanding the foregoing, the Company shall not be required to
include any holder's Piggyback Securities in such offering unless such holder
accepts the terms, which shall be reasonable and customary, of the underwriting
agreement between the Company and the managing Underwriter or Underwriters, and
otherwise complies with the provisions of Section 8.15 below. If the managing
Underwriter or Underwriters of a proposed underwritten offering advise the
Company in writing that in their opinion the total amount of securities,
including Piggyback Securities, to be included in such offering is sufficiently
large to potentially impede or interfere with the offering, then in such event
the securities to be included in such offering shall be allocated first to the
Company or the holder or holders initiating such request for registration, as
appropriate, and then, to the extent that any additional securities can, in the
opinion of such managing Underwriter or Underwriters, be sold without any such
potential to impede or interfere with the offering, pro rata among the holders
of Piggyback Securities on the basis of the number of Registrable Securities
requested to be included in such registration by each such holder; provided,
however, that in the event a Piggyback Registration is triggered by a Demand
Holder pursuant to Section 8.1, if the Demand Holder has sold or is selling
(other than to a Permitted Transferee) at least 50% of its Initial Holdings,
then the Registrable Securities to be included in such offering (after the
inclusion in such registration of the number of
<PAGE>
Registrable Securities of the Demand Holder triggering such 50% threshold)
shall be allocated pro rata among the Demand Holder and the Parties holding
Piggyback Securities on the basis of the number of Common Shares requested to
be included in such registration by each such holder.
VIII.6 Restrictions on Public Sale by Holder of Registrable
Securities. Each Party (whether or not such Registrable Securities are included
in a registration statement pursuant hereto) agrees not to effect any public
sale or distribution of the class of securities being registered or of any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the Securities Act, during the 14
days prior to, and during the 180-day period beginning on the effective date of
a registration statement filed pursuant hereto except as part of such
registration if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering; provided, that
such Underwriter requests all officers and directors of the Company and all
Parties to enter into similar agreements.
VIII.7 Restrictions on Public Sale by the Company and Others. The
Company agrees (a) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible
into or exchangeable or exercisable for such securities, during the 14 days
prior to, and during the 180-day period (90-day period after the Company is a
public reporting company) beginning on, the effective date of any registration
statement which includes Registrable Securities and (b) that any agreement
entered into after the date hereof pursuant to which the Company issues or
agrees to issue any privately placed securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period described in (a) above,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of any such registration, if permitted); provided, however, that the provisions
of this Section 8.7 shall not prevent the conversion or exchange of any
securities pursuant to their terms into or for other securities.
VIII.8 Deferral of Filing. The Company may defer the filing (but not
the preparation) of a registration statement required hereunder until a date
not later than 45 days after the Required Filing Date if (a) at the time the
Company receives the Demand Request, the Company or its Subsidiaries are
engaged in confidential negotiations or other confidential business activities,
disclosure of which would be required in such registration statement (but would
not be required if such registration statement were not filed), and the Board
of Directors of the Company determines in good faith that such disclosure would
be materially detrimental to the Company and its stockholders. A deferral of
the filing of a registration statement pursuant to this Section 8.8 shall be
lifted, and the requested registration statement shall be filed forthwith, if
the negotiations or other activities are disclosed or terminated. In order to
defer the filing of a registration statement pursuant to this Section 8.8, the
Company shall promptly, upon determining to seek such deferral, deliver to each
Demand Holder a certificate
<PAGE>
signed by the President or Chief Executive Officer of the Company stating that
the Company is deferring such filing pursuant to this Section 8.8 and the basis
therefor in reasonable detail. Within 20 days after receiving such certificate,
the holders of a majority of the Registrable Securities held by the Demand
Holders and for which registration was previously requested may withdraw such
request by giving notice to the Company; if withdrawn, the Demand Request shall
be deemed not to have been made for all purposes of this Agreement. The Company
may defer the filing of a particular registration statement pursuant to this
Section 8.8 only once in any 12-month period.
VIII.9 Registration Procedures. Whenever any Registrable Securities
are to be registered pursuant to Article VIII hereof, the Company will, at its
expense, use its best efforts to effect the registration and the sale of such
Registrable Securities under the Securities Act in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request, the Company will as expeditiously as practicable:
(a) prepare and file with the SEC a registration statement on
any form for which the Company then qualifies or which counsel for the Company
shall deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts and proceed
diligently and in good faith to cause such filed registration statement to
become effective under the Securities Act; provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to all Selling Holders and to one counsel reasonably
acceptable to the Company selected by the Selling Holders, copies of all such
documents proposed to be filed, which documents will be subject to the review
of such counsel, and the Company will pay the reasonable fees of such counsel;
provided, that in connection with a Demand Registration, the Company shall not
file any registration statement or prospectus, or any amendments or supplements
thereto, if the Demand Holders who hold a majority of the Registrable
Securities covered by such registration statement, their counsel, or the
managing Underwriters shall reasonably object, in writing, on a timely basis;
(b) prepare and file with the SEC 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 (except as provided in the last paragraph of this
Article VIII) of not less than 270 consecutive days or, if shorter, the period
terminating when all Registrable Securities covered by such registration
statement have been sold (but not before the expiration of the applicable
period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Selling Holders thereof set forth in such registration
statement;
<PAGE>
(c) furnish to each such Selling Holder such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if requested by
any such Person) confirm such notice in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective under the Securities Act and each applicable state
law, (ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to a registration statement or related
prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event which makes any statement made in
such registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such registration
statement, prospectus or documents so that, in the case of the registration
statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the prospectus,
it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (vi) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate;
(e) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment;
(f) cooperate with the Selling Holders and the managing
Underwriter or Underwriters to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depositary Trust Company; and enable such
Registrable Securities to be registered in such names as the managing
Underwriter or Underwriters may request at least 2 business days prior to any
sale of Registrable Securities;
<PAGE>
(g) use its best efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities
or blue sky laws of such jurisdictions as any Selling Holder or managing
Underwriter reasonably (in light of the intended plan of distribution) requests
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such Selling Holder or managing Underwriter to consummate
the disposition in such jurisdictions of the Registrable Securities owned by
such Selling Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (g), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction;
(h) use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the Selling Holder or Selling Holders thereof to consummate
the disposition of such Registrable Securities;
(i) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities;
(j) make available for inspection by any Selling Holder of
such Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained, and paid, by any such Selling Holder or Underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (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 Inspectors 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 misstatement or omission in such registration statement or (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction. Each Selling Holder of such Registrable
Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
as soon as practicable upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Company and allow the
Company at its expense to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
<PAGE>
(k) use its best efforts to obtain a comfort letter or
comfort letters from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by comfort
letters as the Selling Holders of a majority of the shares of Registrable
Securities being sold or the managing Underwriter or Underwriters reasonably
requests;
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within 3 months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(m) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or quoted on any inter-dealer quotation
system on which similar securities issued by the Company are then quoted;
(n) if any event contemplated by paragraph (d)(v) above shall
occur, as promptly as practicable prepare a supplement or amendment or
post-effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(o) cooperate and assist in any filing required to be made
with the National Association of Securities Dealers, Inc. and in the
performance of any due diligence investigation by any underwriter, including
any "qualified independent underwriter," or any Selling Holder; and
(p) cooperate fully with the marketing and sale of securities
in accordance with this Agreement including, without limitation, providing
marketing support and causing the appropriate member(s) of management to
participate in "road show" presentations and attend meetings with Underwriters
as requested by the Parties or the Underwriters.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution
of the Registrable Securities as it may from time to time reasonably request
and such other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company
shall have the right to exclude from any offering the Registrable Securities of
any Selling Holder who does not comply with the provisions of the immediately
preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice
from the
<PAGE>
Company of the happening of any event of the kind described in paragraph (d)(v)
above, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by paragraph (d)(v) above, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective by the number of days during the period
from and including the date of the giving of notice pursuant to paragraph
(d)(v) above to the date when the Company shall make available to the Selling
Holders of Registrable Securities covered by such registration statement a
prospectus supplemented or amended to conform with the requirements of
paragraph (d)(v) above.
VIII.10 Registration Expenses. Subject to the provisions in Section
8.2 above with respect to a Demand Registration, in connection with any
registration statement required to be filed hereunder, the Company shall pay
the following registration expenses (the "Registration Expenses"): (a) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(b) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) printing expenses, (d)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (e) the fees and expenses incurred in connection with the listing on
an exchange of the Registrable Securities, (f) fees and disbursements of
counsel for the Company and customary fees and expenses for independent
certified public accountants retained by the Company (including the expenses of
any comfort letters), (g) the fees and expenses of any special experts retained
by the Company in connection with such registration, (h) the reasonable fees
and expenses of one counsel reasonably acceptable to the Company selected by
the Selling Holders incurred in connection with the registration of such
Registrable Securities hereunder and (i) fees and expenses of any "qualified
independent underwriter" or other independent appraiser participating in an
offering pursuant to Rule 2720(c) of the National Association of Securities
Dealers, Inc. The Company shall not have any obligation to pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities or to pay any out-of-pocket expenses of any Party or their agents
except as expressly set forth above.
VIII.11 Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the officers, directors, agents, general and limited
partners, and employees of each Selling
<PAGE>
Holder and each such controlling person from and against any and all losses,
claims, damages, liabilities, and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, 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, except insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, any such untrue statement or omission
or allegation thereof based upon information furnished in writing to the
Company by such Selling Holder or on such Selling Holder's behalf expressly for
use therein; provided, however, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this Section 8.11 shall not
apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the Persons asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that (a) it was the
responsibility of such Selling Holder or any Underwriter or dealer for Selling
Holder to provide such person with a current copy of the prospectus, (b) such
Selling Holder was provided with a sufficient number of copies of the
prospectus prior to the written confirmation of sale and (c) such current copy
of the prospectus would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Company also agrees to indemnify any
Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section
8.11.
VIII.12 Indemnification by Holder of Registrable Securities. Each
Selling Holder agrees to indemnify and hold harmless the Company, and each
Person, if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of the Company and each such controlling Person
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities.
The liability of any Selling Holder under this Section 8.12 shall be limited to
the aggregate cash and property received by such Selling Holder pursuant to the
sale of Registrable Securities covered by such registration statement or
prospectus.
VIII.13 Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 8.11 or
8.12 above (an "Indemnified Party") in respect of which indemnity may be sought
from any party who has agreed to provide such indemnification under Section
8.11 or 8.12 above (an
<PAGE>
"Indemnifying Party"), the Indemnified Party shall give prompt notice to the
Indemnifying Party and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such defense.
Such Indemnified Party shall have the right to employ separate counsel in any
such action or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless (a) the Indemnifying Party has agreed to pay such fees and
expenses or (b) the Indemnifying Party fails promptly to assume the defense of
such action or proceeding or fails to employ counsel reasonably satisfactory to
such Indemnified Party or (c) the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified
Party and Indemnifying Party (or an Affiliate of the Indemnifying Party), and
such Indemnified Party shall have been advised by counsel that there is a
conflict of interest on the part of counsel employed by the Indemnifying Party
to represent such Indemnified Party and such counsel reasonably determines that
it is inappropriate for such counsel to represent both the Indemnifying Party
(or such Affiliate of the Indemnifying Party) and the Indemnified Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in connection
with any one such action or proceeding or separate but substantially similar
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable at any time for the fees and
expenses of more than one separate firm of attorneys (together in each case
with appropriate local counsel). The Indemnifying Party shall not be liable for
any settlement of any such action or proceeding effected without its written
consent (which consent will not be unreasonably withheld), but if settled with
its written consent, or if there be a final judgment for the plaintiff in any
such action of proceeding, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Party from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release, in form and
substance satisfactory to the Indemnified Party, from all liability in respect
of such action or proceeding for which such Indemnified Party would be entitled
to indemnification hereunder.
VIII.14 Contribution. If the indemnification provided for in this
Article VIII is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities 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 and judgments as between the
Company on the one hand and each Selling Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company
<PAGE>
and of each Selling Holder in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of each Selling Holder on the other 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 parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8.14 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8.14, no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
VIII.15 Participation In Underwritten Registrations. No Party may
participate in any underwritten registration hereunder unless such Party (a)
agrees to sell such Party's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
and customarily required under the terms of such underwriting arrangements and
this Agreement, and (c) if requested by another Person participating in such
underwritten registration, provides that all securities convertible or
exchangeable into Registrable Securities that are included in such underwritten
registration shall be so converted or exchanged on or prior to the consummation
thereof.
ARTICLE IX
TERMINATION
This Agreement shall terminate upon the earlier of (i) the
dissolution,
<PAGE>
liquidation, or winding-up of the Company or (ii) the date on which DLJMB is no
longer the beneficial owner of at least five percent of the Fully-Diluted
Common Shares; provided, that the provisions of Article VIII shall survive
until the earlier of (i) the date that neither DLJMB nor the Existing Arcade
Investors beneficially own at least one percent of the Fully-Diluted Common
Shares or (ii) 10 years from the date hereof. A Person who ceases to hold any
Shares or Common Share Equivalents and who ceases to beneficially own any
Shares or Common Share Equivalents shall cease to be a Party and shall have no
further rights or obligations under this Agreement.
ARTICLE X
MISCELLANEOUS
X.1 Amendment. Any provision of this Agreement may be altered,
supplemented, amended, or waived only by the written consent of a majority of
the Fully-Diluted Common Shares held by DLJMB; provided, however, that no
supplement, amendment or waiver shall adversely affect the rights of the
Minority Investors hereunder without the written consent of a majority of the
holders of the Fully-Diluted Common Shares held by the Minority Investors; and
provided further that no supplement, amendment or waiver shall adversely affect
the rights of any Bridge Party hereunder without the written consent of a
majority of the holders of the Fully-Diluted Common Shares held by the Bridge
Parties.
X.2 Specific Performance. The Parties and the Company recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Parties and
the Company may have specific performance and injunctive relief (in addition to
damages) as a remedy for the enforcement hereof, without proving damages.
X.3 Assignment. Except as otherwise expressly provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the Parties and
the Company. No such assignment shall relieve the assignor from any liability
hereunder. Any purported assignment made in violation of this Section 10.3
shall be void and of no force and effect.
X.4 Shares Subject to this Agreement. All Shares now owned or
hereafter acquired by any of the Parties shall be subject to, and entitled to
the benefits of, the terms of this Agreement.
X.5 Legends and Restrictions.
(a) Each certificate for Shares and Common Share Equivalents held
by
<PAGE>
any Party shall include each of the legends in substantially the following
form, until such time as such legend(s) is no longer required by applicable
securities laws or by this Agreement, at which time the holder thereof shall be
entitled to receive from the Company, without expense to such holder, new
certificate(s) not bearing such restrictive legends.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE
SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT
TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, OR (ii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER
SUCH ACT.
THIS SECURITY IS SUBJECT TO CERTAIN VOTING AGREEMENTS,
RESTRICTIONS ON TRANSFER, AND OTHER TERMS AND CONDITIONS SET FORTH IN THE
STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 15, 1997, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICES.
(b) Any purported sale or transfer of the Shares or Common
Share Equivalents in violation of applicable securities laws or the provisions
of this Agreement shall be void ab initio and of no force or effect. Other than
sales to the public pursuant to an effective registration statement or sales to
the public pursuant to Rule 144 under the Securities Act otherwise permitted
hereunder, each Party will cause any proposed transferee of any Shares or
Common Share Equivalents held by it to execute and deliver to the Company an
Instrument of Accession signed by such transferee in the form attached hereto
as Exhibit B.
X.6 Notices. Any and all notices, designations, consents, offers,
acceptances, or other communications provided for herein (each a "Notice")
shall be given in writing by overnight courier, telegram, or telecopy which
shall be addressed, or sent, to the respective addresses as follows (or such
other address as the Company or any Party may specify to the Company and all
other Parties by Notice):
The Company:
AHC I Acquisition Corp.
c/o DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Attention: David Wittels
Telecopy No.: 212/892-7272
<PAGE>
DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Attention: David Wittels
Telecopy No.: 212/892-7272
with a copy to:
R. Scott Cohen
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopy No.: (214) 746-7700
Each Other Party:
To such address or telecopy number of such
Party as is set forth on the share transfer records of the Company at such
time.
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the
business day immediately following the day on which such Notice is delivered to
a reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above.
X.7 Confidentiality. The Parties shall, and shall cause their
respective officers, directors, employees, and agents and the subsidiaries of
the Parties and their respective officers, directors, employees, and agents to,
hold confidential and not use in any manner detrimental to the Company or any
of its Subsidiaries all confidential information they may have or obtain
concerning the Company or any of its Subsidiaries and their respective assets,
business, operations, or prospects ("Confidential Information"); provided,
however, that the foregoing shall not apply to (a) information that is or
becomes generally available to the public other than as a result of a
disclosure by a Party or any of its employees, agents, accountants, legal
counsel, or other representatives, (b) information that is or becomes available
to a Party or any of its employees, agents, accountants, legal counsel, or
other representatives on a nonconfidential basis prior to its disclosure by the
Company or its employees, agents, accountants, legal counsel, or other
representatives, and (c) information that is required to be disclosed by a
Party or any of its employees, agents, accountants, legal counsel, or other
representatives as a result of any applicable law, rule, or regulation of any
governmental authority or stock exchange. If any Party desires to sell Shares
and in connection with such potential sale desires to disclose information
regarding the
<PAGE>
Company to the potential purchaser in such sale which it is not permitted to
disclose pursuant to the preceding sentence, such Party shall notify the
Company of such Party's desire to disclose such information and shall identify
the potential purchaser in such notification. The Company may require any such
potential purchaser of Shares to enter into a confidentiality agreement with
respect to Confidential Information on customary terms used in confidentiality
agreements in connection with corporate acquisitions.
X.8 Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the
parties hereto.
X.9 Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, or extend
the scope or intent of this Agreement or any provisions hereof.
X.10 Choice of Law. This Agreement shall be governed by the internal
laws of the State of New York without regard to the principles of conflict of
laws thereof.
X.11 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior agreements, discussions and understandings with respect
thereto.
X.12 Cumulative Rights. The rights of the Parties and the Company
under this Agreement are cumulative and in addition to all similar and other
rights of the parties under other agreements.
X.13 Severability. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
X.14 Financial Information. The Company shall provide to the Parties
(i) unaudited quarterly consolidated financial statements within 45 days after
the end of each fiscal quarter (except for the last quarter of the Company's
fiscal year) and (ii) audited annual consolidated financial statements within
90 days after the end of each fiscal year. Such financial statements shall
present fairly, in all material respects, the financial position, cash flows
and results of operations of the Company and its subsidiaries at the dates and
for the periods indicated therein. In addition, the Company shall provide to
DLJMB unaudited monthly consolidated financial statements within 20 days after
the end of each calendar month. The recipients shall hold such information in
confidence pursuant to Section 10.7. The Company's obligation to provide such
financial information to the Minority Investors shall terminate at such time as
the Company is subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act.
<PAGE>
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
AHC I ACQUISITION CORP.
By:
----------------------------------------
David Wittels,
Vice President
DLJMB FUNDING II, INC.
By:
----------------------------------------
David Wittels,
Attorney-in-Fact
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Its Managing General Partner
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ MERCHANT BANKING PARTNERS II-A, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Its Managing General Partner
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
<PAGE>
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ MERCHANT BANKING II, INC.
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ MERCHANT BANKING II, INC.
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ FIRST ESC L.P.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
Its General Partner
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ OFFSHORE PARTNERS II, C.V.
<PAGE>
By: DLJ MERCHANT BANKING II, INC.
Its Managing General Partner
By:
-----------------------------
David Wittels,
Attorney-in-Fact
DLJ EAB PARTNERS, L.P.
By: DLJ LBO PLANS MANAGEMENT CORPORATION
By:
-----------------------------
David Wittels,
Attorney-in-Fact
UK INVESTMENT PLAN 1997 PARTNERS
By: DONALDSON LUFKIN & JENRETTE, INC.
By:
-----------------------------
David Wittels,
Attorney-in-Fact
LIBERTY PARTNERS HOLDINGS 4, L.L.C.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
----------------------------------------
Roger L. Barnett
----------------------------------------
Craig Barnett
<PAGE>
----------------------------------------
Hubert Brown
----------------------------------------
Gordon W. Jones
<PAGE>
SCRATCH & SNIFF FUNDING, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
<PAGE>
SCHEDULE I
INITIAL HOLDINGS
Number of
Fully-Diluted
Common Shares
Party Initially Held
- ----- --------------
DLJ Merchant Banking Partners II, L.P
DLJ Merchant Banking Partners II-A, L.P.
DLJMB Funding II, Inc. DLJ Diversified Partners, L.P.
DLJ Diversified Partners-A, L.P.
DLJ Millennium Partners, L.P.
DLJ Millennium Partners-A, L.P.
DLJ First ESC L.P.
DLJ Offshore Partners II, C.V.
DLJ EAB Partners, L.P.
UK Investment Plan 1997 Partners
Liberty Partners Holdings 4, L.L.C.
Roger L. Barnett
Craig Barnett
Gordon W. Jones
Hubert Brown
Scratch & Sniff Funding, Inc.
<PAGE>
EXHIBIT A
to Stockholders Agreement
FORM OF EXCLUSIVE FINANCIAL ADVISOR AND
INVESTMENT BANKING ADVISOR
<PAGE>
EXHIBIT B
to Stockholders Agreement
INSTRUMENT OF ACCESSION
Reference is made to that certain Stockholders Agreement dated as of
_____________, 1997, a copy of which is attached hereto (as amended and in
effect from time to time, the "Stockholders Agreement"), among AHC I
Acquisition Corp., a Delaware corporation (the "Company"), and the persons set
forth therein.
The undersigned, ________________________, in order to become the
owner or holder of ______________________________, hereby agrees that by the
undersigned's execution hereof the undersigned is a party to the Stockholders
Agreement subject to all of the applicable restrictions, conditions and
obligations set forth in the Stockholders Agreement. This Instrument of
Accession shall take effect and shall become a part of said Stockholders
Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the State of
New York.
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Date:
----------------------------------------
ACCEPTED:
AHC I Acquisition Corp.
By:
- ----------------------------------
Name:
- ----------------------------------
Title:
- ----------------------------------
Date:
- ----------------------------------
<PAGE>
===============================================================================
CREDIT AGREEMENT
DATED AS OF APRIL 30, 1996
Between
ARCADE, INC.
as Borrower
and
HELLER FINANCIAL, INC.
as Lender
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
SECTION 1
AMOUNTS AND TERMS OF LOANS............................................1
1.1 Loans...........................................................................................1
1.2 Interest and Related Fees ......................................................................3
1.3 Other Fees and Expenses ........................................................................6
1.4 Payments........................................................................................7
1.5 Prepayments.....................................................................................7
1.6 Term of the Agreement...........................................................................8
SECTION 2
AFFIRMATIVE COVENANTS..............................................8
2.1 Compliance With Laws ...........................................................................8
2.2 Maintenance of Properties; Insurance ...........................................................9
2.3 Inspection; Lender Meeting ....................................................................10
2.4 Corporate Existence, Etc. .....................................................................10
2.5 Further Assurances ............................................................................10
SECTION 3
NEGATIVE COVENANTS...............................................11
3.1 Indebtedness ..................................................................................11
3.2 Liens and Related Matters......................................................................12
3.3 Investments; Joint Ventures ...................................................................14
3.4 Contingent Obligations ........................................................................15
3.5 Restricted Junior Payments ....................................................................17
3.6 Restriction on Fundamental Changes ............................................................18
3.7 Disposal of Assets or Subsidiary Stock ........................................................19
3.8 Transactions with Affiliates ..................................................................19
3.9 Management Fees and Compensation ..............................................................20
3.10 Conduct of Business ...........................................................................20
3.11 Changes Relating to Subordinated Indebtedness .................................................20
3.12 Press Release; Public Offering Materials ......................................................20
3.13 Subsidiaries ..................................................................................21
SECTION 4
FINANCIAL COVENANTS/REPORTING.........................................21
4.1 Intentionally Omitted .........................................................................21
4.2 Intentionally Omitted .........................................................................21
4.3 EBIDAT ........................................................................................21
4.4 Fixed Charge Coverage .........................................................................21
4.5 Total Indebtedness to Operating Cash Flow Ratio................................................21
4.6 Financial Statements and Other Reports ........................................................21
4.7 Accounting Terms; Utilization of GAAP for Purposes
of Calculations Under Agreement ...............................................................25
SECTION 5
REPRESENTATIONS AND WARRANTIES ........................................25
5.1 Disclosure ....................................................................................25
5.2 No Material Adverse Effect ....................................................................25
5.3 No Default ....................................................................................26
5.4 Organization,Powers,Capitalization and Good Standing...........................................26
5.5 Financial Statements ..........................................................................27
5.6 Intellectual Property .........................................................................27
5.7 Investigations, Audits, Etc. ..................................................................27
5.8 Employee Matters ..............................................................................27
5.9 Solvency ......................................................................................28
<PAGE>
SECTION 6
DEFAULT, RIGHTS AND REMEDIES..........................................28
6.1 Event of Default ..............................................................................28
6.2 Suspension of Commitments .....................................................................32
6.3 Acceleration ..................................................................................33
6.4 Performance by Agent ..........................................................................33
SECTION 7
CONDITIONS TO LOANS ..............................................33
7.1 Conditions to Initial Loans ...................................................................33
7.2 Conditions to All Loans .......................................................................34
SECTION 8
ASSIGNMENT AND PARTICIPATION .........................................34
8.1 Assignment and Participation ..................................................................34
SECTION 9
MISCELLANEOUS .................................................35
9.1 Indemnities ...................................................................................35
9.2 Amendments and Waivers ........................................................................35
9.3 Notices .......................................................................................35
9.4 Failure of Indulgence Not Waiver; Remedies
Cumulative ....................................................................................36
9.5 Marshalling, Payments Set Aside ...............................................................36
9.6 Severability ..................................................................................37
9.7 Headings ......................................................................................37
9.8 Applicable Law ................................................................................37
9.9 Successors and Assigns ........................................................................37
9.10 No Fiduciary Relationship .....................................................................37
9.11 Construction ..................................................................................37
9.12 Confidentiality ...............................................................................37
9.13 Waiver of Jury Trial ..........................................................................38
9.14 Survival of Warranties and Certain Agreements .................................................38
9.15 Entire Agreement ..............................................................................39
SECTION 10
DEFINITIONS ..................................................39
10.1 Certain Defined Terms .........................................................................39
10.2 Other Definitional Provisions .................................................................44
</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Defined in Section
------------ ------------------
Additional Seller Notes [section]10.1
Additional Senior Term Loan [section]3.1
Affiliate [section]10.1
Agreement [section]10.1
Asset Disposition [section]10.1
Bankruptcy Code [section]10.1
Base Rate [section]1.2(A)(1)
Base Rate Loans [section]1.2(A)(1)
Borrower Preamble
Borrowing Base [section]1.1(B)
Borrowing Base Certificate [section]1.1(B)
Business Day [section]10.1
Closing Date [section]10.1
Collateral [section]10.1
Contingent Obligation [section]3.4
Default [section]10.1
Event of Default [section]6.1
Expiry Date [section]10.1
Funding Date [section]7.2
GAAP [section]10.1
Heller Preamble
Holdings [section]10.1
Indebtedness [section]10.1
Interest Period [section]1.2(A)(2)
Lender Guarantee [section]1.1(C)
Liberty [section]10.1
LIBOR Rate [section]1.2(A)(2)
LIBOR Rate Breakage Fee [section]1.3(C)
LIBOR Rate Loans [section]1.2(A)(2)
Lien [section]10.1
Loan(s) [section]1.1(A)
Loan Documents [section]10.1
Loan Party [section]10.1
Material Adverse Effect [section]10.1
Maximum Revolving Loan Balance [section]1.1(B)
Note(s) [section]10.1
Obligations [section]10.1
Permitted Encumbrances [section]3.2(A)
Person [section]10.1
Refinanced Subordinated Indebtedness [section]3.1(G)
Related Transactions [section]10.1
Related Transactions Documents [section]10.1
Responsible Officer [section]10.1
Restricted Junior Payments [section]3.5
Revolving Loan Commitment [section]1.1(A)
Revolving Loans [section]1.1(A)
SBA [section]10.1
Security Documents [section]10.1
Seller Notes [section]10.1
Senior Term Loan [section]10.1
Senior Term Loan Agreement [section]10.1
Senior Term Loan Documents [section]10.1
Senior Term Loan Notes [section]10.1
Subordinated Indebtedness [section]10.1
Subordinated Loan Documents [section]10.1
Subsidiary [section]10.1
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is dated as of April 30, 1996 and entered into
by and between ARCADE, INC., a Tennessee corporation ("BORROWER"), with its
principal place of business at 1815 E. Main Street, Chattanooga, Tennessee
37404 and HELLER FINANCIAL, INC., a Delaware corporation ("HELLER"), with
offices at 500 West Monroe Street, Chicago, Illinois 60661.
R E C I T A L S:
WHEREAS, Borrower and its Subsidiaries (as hereinafter defined in
Section 10) desire that Heller extend a certain revolving credit facility to
Borrower to fund the repayment of certain indebtedness of Borrower, to provide
working capital financing for Borrower and to provide funds for other general
corporate purposes of Borrower including the making of Investments (as
hereinafter defined in subsection 3.3) permitted hereunder; and
WHEREAS, Borrower desires to secure all of its Obligations (as
hereinafter defined in Section 10) under the Loan Documents (as hereinafter
defined in Section 10) by granting to Heller a security interest in and lien
upon certain of its personal and real property.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Heller agree as
follows:
SECTION 1
AMOUNTS AND TERMS OF LOANS
1.1 Loans. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower contained
herein:
(A) Revolving Loan. Heller agrees to lend from the Closing Date to the
Expiry Date amounts up to a maximum of $15,000,000 (the "REVOLVING LOAN
COMMITMENT" or "COMMITMENT"). Advances or amounts outstanding under the
Revolving Loan Commitment will be called "REVOLVING LOANS" or "LOANS".
Revolving Loans may be repaid and reborrowed. The "MAXIMUM REVOLVING LOAN
BALANCE" will be the lowest of:
(1) the "BORROWING BASE" (as calculated on Exhibit 4.6(F),
the "BORROWING BASE CERTIFICATE");
(2) the Revolving Loan Commitment less any outstanding Lender
Guarantees;
(3) the sum of the then outstanding principal balances of the
Senior Term Loan, Additional Senior Term Loan, Subordinated
Indebtedness held by SBA and, subject to the provisions of subsection
3.1(G), Refinanced Subordinated Indebtedness, less any outstanding
Lender Guarantees; and
(4) sixty-six and two thirds percent (66-2/3%) of the sum of
(i) the then outstanding principal balances of the Senior Term Loan,
Additional Senior Term Loan, Subordinated Indebtedness held by SBA
and, subject to the provisions of subsection 3.1(G), Refinanced
Subordinated Indebtedness, plus (ii) $12,890,000, representing an
amount equal to the original cash equity investment, directly or
indirectly, by VILARC Capital, SBA and Liberty in Borrower, plus (iii)
additional cash equity invested by Vilarc Capital, SBA, Liberty or any
other Person in Borrower, directly or indirectly, after the date
hereof, less (iv) any outstanding
<PAGE>
Lender Guarantees.
If at any time the Revolving Loans exceed the Maximum Revolving Loan
Balance, Revolving Loans must be repaid immediately in an amount sufficient to
eliminate any excess. Heller may make Revolving Loans bearing interest with
reference to the Base Rate in any amount with one (1) Business Day prior notice
required for amounts greater than $5,000,000. For amounts less than $5,000,000,
telephonic notice must be provided by noon CST on the date of the borrowing.
All LIBOR Rate Loans require two (2) Business Days' notice. All Loans requested
telephonically must be confirmed in writing within one Business Day.
(B) Lender Guarantees and Letters of Credit. At Borrower's
request, Heller will provide Lender Guarantees up to an aggregate amount of
$1,000,000 outstanding at any time. "LENDER GUARANTEE" means a letter of credit
issued by Heller or a guarantee by Heller to induce a bank, reasonably
acceptable to Heller, to issue a letter of credit, or any payment made by
Heller pursuant to any letter of credit subject to a Lender Guarantee which has
not been reimbursed by Borrower or charged as a Revolving Loan. In determining
the amount of outstanding Lender Guarantees, the maximum amount of any Heller
guarantee to a bank issuing letters of credit on behalf of Borrower will be
considered outstanding unless such bank reports daily activity to Heller
showing actual outstanding letters of credit subject to Heller's guarantee.
Lender Guarantees will only be provided for letters of credit which expire
within one (1) year after date of issuance and at least thirty (30) days prior
to the date set forth in clause (c) of the definition of the term "EXPIRY
DATE." Borrower shall give Heller five (5) Business Days prior written notice
for a letter of credit. Five (5) Business Days prior written notice is required
for the issuance of a letter of credit by a bank, provided that such five (5)
Business Day period may not commence until Heller and the bank that will be
issuing such letter of credit have entered into a Service and Letter of Credit
Guaranty Agreement or any similar agreement, in form and substance satisfactory
to Heller, which agreement will govern Heller's guaranty of all letters of
credit to be issued by such bank for the benefit of Borrower. Borrower is
irrevocably and immediately responsible to Heller for reimbursement of any
amount paid by Heller under any Lender Guarantee except to the extent such
payments were made as a result of Heller's gross negligence or willful
misconduct. Subject to the provisions of the last paragraph of subsection 1.4,
this reimbursement shall occur by the making of a Revolving Loan without prior
notice to Borrower. The Borrower shall (i) maintain an operating account at the
issuing bank or (ii) be directly charged by the issuing bank for settlement of
letters of credit and any related fees.
1.2 Interest and Related Fees.
(A) Interest. From the date the Loans are made and the other
Obligations become due and payable in accordance with the terms of this
Agreement and the other Loan Documents, the Obligations shall bear interest at
the sum of the Base Rate plus one percent (1.0%) per annum and/or, with respect
to any LIBOR Rate Loan, the sum of the LIBOR Rate plus two and three quarters
percent (2.75%) per annum. "BASE RATE" means a variable rate of interest per
annum equal to the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System in Federal Reserve statistical release
H.15 (519) entitled "SELECTED INTEREST RATES" as the Bank prime loan rate. Base
Rate also includes rates published in any successor publications of the Federal
Reserve System reporting the Bank prime loan rate or its equivalent. The
statistical release generally sets forth a Bank prime loan rate for each
business day. The applicable Bank prime loan rate for any date not set forth
shall be the rate set forth for the last preceding date. In the event the Board
of Governors of the Federal Reserve System ceases to
<PAGE>
publish a Bank Prime loan rate or equivalent, the term "BASE RATE" shall mean a
variable rate of interest per annum equal to the highest of the "PRIME RATE,"
"REFERENCE RATE," "BASE RATE" or other similar rate as determined by Heller
announced from time to time by any of Bankers Trust Company, The Chase
Manhattan Bank, National Association and Chemical Bank (with the understanding
that any such rate may merely be a reference rate and may not necessarily
represent the lowest or best rate actually charged to any customer by such
bank). "BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate.
"LIBOR RATE" means, for each Interest Period, a rate equal to: (a) the rate of
interest reasonably determined by Heller at which deposits in U.S. dollars for
the relevant Interest Period are offered based on information presented on the
Reuters Screen LIBO Page as of 11:00 a.m. (London time) on the day which is two
(2) Business Days prior to the first day of such Interest Period, provided that
if at least two such offered rates appear on the Reuters Screen LIBO Page in
respect of such Interest Period, the arithmetic mean of all such rates will be
the rate used, provided, further, that if fewer than two offered rates appear
or if Reuters ceases to provide LIBOR quotations, such rate shall be the rate
of interest at which deposits in U.S. dollars are offered for the relevant
Interest Period by any of Bankers Trust Company, The Chase Manhattan Bank,
National Association or Chemical Bank to prime banks in the London interbank
market, divided by (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior to the
beginning of such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto, as now and from time to
time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) which are required to
be maintained by a member bank of the Federal Reserve System; such rate to be
rounded upward to the next whole multiple of one-sixteenth of one percent
(.0625%). "LIBOR RATE LOANS" means Loans bearing interest at rates determined
by reference to the LIBOR Rate.
LIBOR Rate Loans may be obtained for a one, two, three, or six month
period (each being an "Interest Period") provided that: (a) the interest is
calculated from the date the Loan is made, (b) if the Interest Period expires
on a day that is not a Business Day, then it will expire on the next Business
Day, (c) no Interest Period shall extend beyond the date set forth in clause
(c) of the definition of the term "EXPIRY DATE."
If the introduction of or the interpretation of any law, rule, or
regulation would increase the reserve requirement and as a result there would
be an increase in the cost of making or maintaining a LIBOR Rate Loan, then
Heller shall submit a certificate demonstrating the impact of the increased
cost and require payment thereof within ten (10) days from the Borrower. There
are no limitations on the number of times such certificate may be submitted.
(B) Commitment Fee. From the Closing Date, Borrower shall pay
a fee in an amount equal to
(1) the Revolving Loan Commitment less the average daily
balance of the Revolving Loan less the average daily amount of
outstanding Lender Guarantees during the preceding month, multiplied
by
(2) one half of one percent (0.5%) per annum.
Such fee is payable monthly in arrears on the first day of the
subsequent
<PAGE>
month.
(C) Lender Guarantee Fee. From the Closing Date, Borrower
shall pay a fee for each Lender Guarantee from the date of issuance of
the Lender Guarantee to the date of termination thereof. The fee is
equal to the average daily outstanding amount of the Lender Guarantee
multiplied by two and three quarters percent (2.75%) per annum, such
fees payable monthly in arrears on the first day of each subsequent
month. Borrower shall also reimburse Heller for any and all fees and
expenses paid to the issuer of any letter of credit that are in any
way related to a Lender Guarantee.
(D) Computation of Interest and Related Fees. Interest on all
Loans and any other Obligations and the related fees set forth in this
subsection 1.2 shall be calculated daily on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed in
the period during which it accrues. The date of funding a Base Rate
Loan, the first day of an Interest Period with respect to a LIBOR Rate
Loan and the date of conversion of a LIBOR Rate Loan to a Base Rate
Loan shall be included in the calculation. The date of payment of a
Base Rate Loan, the last day of an Interest Period with respect to a
LIBOR Rate Loan and the date of conversion of a Base Rate Loan to a
LIBOR Rate Loan shall be excluded in the calculation. Interest on all
Base Rate Loans is payable in arrears on the first day of each month
and on the Expiry Date, whether by acceleration or otherwise. Interest
on LIBOR Rate Loans shall be payable on the last day of the applicable
Interest Period, unless the period is greater than ninety (90) days,
in which case interest will be payable on the ninetieth (90th) day of
the Interest Period and the last day of the Interest Period. In
addition, interest on LIBOR Rate Loans is due on the Expiry Date,
whether by acceleration or otherwise.
(E) Default Rate of Interest. At the election of Heller,
after the occurrence of an Event of Default and for so long as it
continues, the Loans and other Obligations which are then due and
payable shall bear interest at a rate that is one percent (1%) in
excess of the rates otherwise payable under this Agreement.
Furthermore, during any period in which any Event of Default exists,
and is continuing, as the then current Interest Periods for LIBOR Rate
Loans expire such Loans shall be converted into Base Rate Loans and
the LIBOR Rate election will not be available to the Borrower until
all Events of Default are cured or waived.
(F) Excess Interest. Under no circumstances will the rate of
interest chargeable be in excess of the maximum amount permitted by
law. If excess interest is charged and paid in error, then the excess
amount will be promptly refunded.
(G) LIBOR Rate Election. All Loans made on the Closing Date
shall be Base Rate Loans and remain so for ten (10) Business Days.
Thereafter, Borrower may request that Revolving Loans to be made be
LIBOR Rate Loans and that portions of outstanding Loans be converted
to LIBOR Rate Loans. Any such request, which will be made by
submitting a LIBOR Rate Loan request, in the form of Exhibit 1.2(G),
to Heller, shall pertain to Loans in an aggregate minimum amount of
$500,000 and integral multiples of $10,000 in excess thereof. Once
given, a LIBOR Rate Loan request shall be irrevocable and Borrower
shall be bound thereby. Upon the expiration of an Interest Period, in
the absence of a new LIBOR Rate Loan request submitted to Heller not
less than two (2) Business Days prior to the end of such Interest
Period, the LIBOR Rate Loan then maturing shall be automatically
converted to a Base Rate Loan. There may be no more than eight (8)
LIBOR Rate Loans outstanding at any one time.
1.3 Other Fees and Expenses.
<PAGE>
(A) LIBOR Breakage Fee. Upon any payment or prepayment of a
LIBOR Rate Loan on any day that is not the last day of the Interest Period
applicable to that Loan (regardless of the source of such prepayment and
whether voluntary or otherwise), or, if for any reason (other than a default by
Heller) a borrowing of a LIBOR Rate Loan does not occur on a date specified in
a request for an advance of a LIBOR Rate Loan or in a LIBOR Rate Loan Request,
Borrower shall pay Heller, upon Heller's written request therefor (which
request shall set forth in reasonable detail the computation of the amount
requested) an amount equal to the reasonable losses (including, without
limitation, any such loss sustained by Heller in connection with the
reemployment of funds) that Heller sustains as a result of such payment,
prepayment or failure to borrow ("LIBOR RATE BREAKAGE FEE").
(B) Expenses and Attorneys Fees. Borrower agrees to promptly
pay all reasonable fees, costs and expenses (including those of attorneys)
incurred by Heller in connection with the examination, review, due diligence
investigation, documentation, negotiation and closing of the transactions
contemplated herein and in connection with any amendments, modifications, and
waivers with respect to the Loan Documents. Borrower agrees to pay all
reasonable fees, costs and expenses incurred by Heller in connection with any
action to enforce any Loan Document or to collect any payments due from
Borrower. The reasonable fees, costs and expenses of attorneys may include
allocated costs of internal counsel unless objected to by Borrower, in which
event any such work proposed to be performed by internal counsel may be
performed by external counsel at Borrower's expense. All fees, costs and
expenses for which Borrower is responsible under this subsection 1.3(B) shall
be deemed part of the Obligations when incurred, payable within thirty (30)
days after demand therefor if no Event of Default exists or, if an Event of
Default exists, immediately upon demand, and shall be secured by the
Collateral.
(C) Facility Fee. Borrower shall pay to Heller a
nonrefundable facilities fee of $37,500 per annum, in advance, with the first
payment due on the Closing Date.
1.4 Payments. All payments by Borrower of the Obligations shall be
made in same day funds and delivered to Heller by wire transfer to the
following account or such other place as Heller may from time to time
designate.
ABA No. 0710-0001-3
Account Number 55-00540
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Reference: Heller Corporate Finance Group
for the benefit of ARCADE
Borrower shall receive credit for such funds if received by 1:00 p.m. CST on
such day. In the absence of timely notice and receipt, such funds shall be
deemed to have been paid on the next Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day,
the payment may be made on the next succeeding Business Day and such extension
of time shall be included in the computation of the amount of interest and fees
due hereunder.
Borrower hereby authorizes Heller to make a Revolving Loan for the
payment of interest, facility fees pursuant to subsection 1.3(C), commitment
fees and Lender Guarantee fees payable pursuant to subsections 1.2(B) and
<PAGE>
1.2(C), LIBOR Rate Breakage Fees and Lender Guarantee payments. Heller agrees
to use its best efforts to provide to Borrower notice prior to so making a
Revolving Loan; provided, however, the failure to provide such notice shall not
affect or impair the authorization granted pursuant to the preceding sentence.
Prior to an Event of Default, other fees, costs and expenses (including those
of attorneys) reimbursable to Heller pursuant to subsection 1.3(B) or elsewhere
in any Loan Document may be debited to the Revolving Loan account after thirty
(30) days notice to Borrower. During the continuance of an Event of Default, no
notice is required.
1.5 Term of the Agreement. The Agreement shall be effective until the
earlier of (a) the date on which the Loans are paid in full and all other
Obligations (other than contingent Obligations not then due and payable) have
been satisfied and Heller has no further obligation to lend hereunder and (b)
the Expiry Date. Upon the termination of the effectiveness of this Agreement,
any unpaid Obligations shall be immediately due and payable without notice or
demand by Heller. Notwithstanding any type of termination, until all
Obligations (other than contingent Obligations not then due and payable) have
been fully paid and satisfied, Heller shall be entitled to retain the security
interests in all Collateral granted under the Security Documents.
1.6 Borrower's Loan Account. Heller will maintain loan account records
for (a) all Loans, interest charges and payments thereof, (b) all Lender
Guarantees, (c) the charging and payment of all fees, costs and expenses and
(d) all other debits and credits pursuant to this Agreement. The balance in the
loan accounts shall be presumptive evidence of the amounts due and owing to
Heller absent manifest error, provided that any failure to so record shall not
limit or affect the Borrower's obligation to pay. Within five (5) days of the
first of each month, Heller shall provide a statement for each loan account
setting forth the principal of each account and interest due thereon. Borrower
must deliver a written objection within thirty (30) days after the end of each
of its fiscal years or the statements delivered with respect to each month
during each such fiscal year will be presumed as binding evidence of the
obligation absent manifest error. After the occurrence and during the
continuance of an Event of Default, Borrower irrevocably waives the right to
direct the application of any and all payments and Borrower hereby irrevocably
agrees that Heller shall have the continuing exclusive right to apply and
reapply payments in any manner it deems appropriate.
SECTION 2
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment is in effect and until payment in full of all Obligations (excluding
contingent Obligations not then due and payable) and termination of all Lender
Guarantees, unless Heller shall otherwise give its prior written consent,
Borrower shall perform and comply with, shall cause each of its Subsidiaries to
perform and comply with, and shall use its best efforts to cause Holdings to
perform and comply with, all covenants in this Section 2 applicable to such
Person.
2.1 Compliance With Laws.
(A) Borrower will comply with and will cause each of its
Subsidiaries to comply with (i) the requirements of all applicable laws, rules,
regulations and orders of any governmental authority (including , without
limitation, laws, rules regulations and orders relating to taxes, employer and
employee contributions, securities, employee retirement and welfare benefits,
environmental protection matters and employee health and safety) as now in
<PAGE>
effect and which may be imposed in the future in all jurisdictions in which
Borrower or its Subsidiaries are now doing business or may hereafter be doing
business, and (ii) the obligations, covenants and conditions contained in any
Contractual Obligations of Borrower and the Loan Parties, other than (1) those
laws, rules, regulations, orders and Contractual Obligations the noncompliance
with which would not have, either individually or in the aggregate, a Material
Adverse Effect; or (2) those laws, rules, regulations, orders and Contractual
obligations being contested in good faith by appropriate proceedings diligently
prosecuted provided such contest would not have, either individually or in the
aggregate, a Material Adverse Effect;
"CONTRACTUAL OBLIGATIONS" as applied to any Person, means any
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
including, without limitation, the Related Transaction Documents.
(B) Borrower will maintain or obtain and will cause each of
its Subsidiaries to maintain or obtain, all licenses and permits now held or
hereafter required by Borrower and its Subsidiaries, if the loss, suspension,
revocation or failure to obtain or renew, would have a Material Adverse Effect
or unless being contested in good faith by appropriate proceedings diligently
prosecuted, provided such contest would not have, either individually or in the
aggregate, a Material Adverse Effect. This subsection 2.1 shall not preclude
the Borrower or any Subsidiary from contesting any taxes or other payments, if
they are being diligently contested in good faith and if appropriate expense
provisions have been recorded in conformity with GAAP.
(C) Borrower represents and warrants that as of the date
hereof, it (i) is in compliance and each of its Subsidiaries is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
any governmental authority as now in effect, and Contractual Obligations, the
non-compliance with which would have, either individually or in the aggregate,
a Material Adverse Effect, and (ii) maintains and each of its Subsidiaries
maintains, all licenses and permits required to be maintained by Borrower and
its Subsidiaries except (x) where the failure to maintain would not have a
Material Adverse Effect or (y) where being contested in good faith by
appropriate proceeding diligently prosecuted, provided such contest does not
have, either individually or in the aggregate, a Material Adverse Effect.
2.2 Maintenance of Properties; Insurance.
(A) Borrower will maintain or cause to be maintained in good
repair, working order and condition (ordinary wear and tear excepted) all
material properties used in the business of Borrower and its Subsidiaries and
will make or cause to be made all appropriate repairs, renewals and
replacements thereof.
(B) Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, public liability, property damage
and, to the extent available on commercially reasonable terms, business
interruption insurance with respect to its business and properties and the
business and properties of its Subsidiaries against loss or damage of the kinds
customarily carried or maintained by corporations of established reputation
engaged in similar businesses and located in similar locations, and taking into
account the outstanding Indebtedness of Borrower and its Subsidiaries, and will
deliver evidence thereof to Heller.
(C) Borrower represents and warrants that it and each of its
Subsidiaries currently maintains all material properties as set forth above and,
<PAGE>
maintains all insurance described above.
2.3 Inspection; Lender Meeting. Upon reasonable notice to the Chairman
of Borrower and at Heller's expense (unless an Event of Default exists, in
which event the same shall be at Borrower's expense), Borrower shall with
reasonable frequency (and in any event on no less than one occasion per
calendar year) permit a reasonable number of authorized representatives of
Heller to examine and make copies of and abstracts from the records and books
of account of, and to visit and inspect the properties of, Borrower and its
Subsidiaries, and to discuss the affairs, finances and accounts of Borrower and
its Subsidiaries with a Responsible Officer and independent accountants of
Borrower and its Subsidiaries; provided that if an Event of Default exists,
Borrower shall permit Heller and its authorized representatives to examine and
make copies of and abstracts from the records and books of account of, to visit
and inspect the properties of, and to discuss the affairs, finances and
accounts of Borrower and its Subsidiaries with a Responsible Officer and
independent accountants of Borrower or its Subsidiaries without observing the
procedures set forth above. Heller's delivery of an executed copy of this
Agreement to Borrower's independent public accounts (to which Borrower hereby
consents) shall constitute Borrower's consent to its independent public
accountants to engage in such discussions.
2.4 Corporate Existence, Etc. Except as otherwise permitted by
subsection 3.6, Borrower will, and will cause each of its Subsidiaries to, at
all times preserve and keep in full force and effect its corporate existence
and all rights and franchises material to its business.
2.5 Further Assurances.
(A) Borrower shall and shall cause each of its Subsidiaries
other than Scent Seal, Inc. to, from time to time, execute such guaranties,
financing statements, documents, security agreements and pledge agreements as
Heller at any time may reasonably request to evidence, perfect or otherwise
implement the security for repayment of the Obligations provided for in the
Loan Documents.
(B) At Heller's request, Borrower shall cause any
Subsidiaries (other than Scent Seal, Inc.) of Borrower promptly to guaranty the
Obligations and to grant to Heller, a security interest in the real, personal
and mixed property of such Subsidiary to secure the Obligations. The
documentation for such guaranty or security shall be substantially similar to
the Loan Documents executed concurrently herewith with such modifications as
are reasonably requested by Heller.
SECTION 3
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment is in effect and until payment in full of all Obligations (excluding
contingent Obligations not then due and payable) and termination of all Lender
Guarantees, unless Heller shall otherwise give its prior written consent,
Borrower shall comply with, shall cause each of its Subsidiaries to comply with
and shall use its best efforts to cause Holdings to comply with, all covenants
in this Section 3 applicable to such Person.
3.1 Indebtedness. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume, guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness except:
<PAGE>
(A) the Obligations;
(B) intercompany Indebtedness among Borrower and its Subsidiaries;
provided that if Borrower is the obligor, the obligations of Borrower shall be
subordinated in right of payment to the Obligations from and after such time as
any portion of the Obligations shall become due and payable (whether at stated
maturity, by acceleration or otherwise);
(C) Subordinated Indebtedness evidenced by the Subordinated Loan
Documents;
(D) Indebtedness secured by purchase money Liens, Indebtedness
incurred with respect to capital leases and Indebtedness evidenced by the
Additional Seller Notes, not to exceed $7,500,000 in the aggregate;
(E) Indebtedness evidenced by the Seller Notes;
(F) Term Indebtedness evidenced by the Senior Term Note plus
additional term Indebtedness (the "Additional Senior Term Loan") not to exceed
$5,000,000 provided (1) at the time of incurrence thereof, no Default or Event
of Default shall exist and be continuing or shall arise from the incurrence
thereof; and (2) the Additional Senior Term Loan is (a) provided by SBA; (b) on
substantially the same terms and conditions as the "Conditional Senior Term
Loan" (as defined in the Senior Term Loan Agreement); and (c) is subject to the
terms and conditions of the Intercreditor Agreement. Borrower shall not be
permitted to incur any revolving loan Indebtedness pursuant to the Senior Term
Loan Documents; and
(G) Subordinated Indebtedness incurred to refinance Subordinated
Indebtedness held by SBA provided all of the following conditions are satisfied
("Refinanced Subordinated Indebtedness"):
(i) The Subordinated Indebtedness is on terms and conditions
reasonably acceptable to Heller;
(ii) the Person providing such Subordinated Indebtedness is
reasonably acceptable to Heller;
(iii) the Subordinated Indebtedness is subordinated to the
Obligations, the Senior Term Loan and Additional Senior Term Loan on terms and
conditions acceptable to Heller;
(iv) Heller and SBA shall have entered into amendments to the
Intercreditor Agreement on terms and conditions acceptable to Heller including,
without limitation, amendments to or elimination of Heller standstill
provisions and amendments to payment blockage provisions; and
(v) at the time of such refinancing, no Default or Event of
Default shall exist and be continuing or arise as a result thereof.
3.2 Liens and Related Matters.
(A) No Liens. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument with respect to goods or accounts receivable) of Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, or any income or
profits therefrom, except Permitted Encumbrances. "PERMITTED ENCUMBRANCES"
means the following:
<PAGE>
(1) Liens for taxes, assessments or other governmental
charges not yet due and payable or which are being contested in good
faith by appropriate proceedings diligently prosecuted and if
appropriate expense provisions have been recorded in conformity with
GAAP;
(2) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which
are incurred in the ordinary course of business for sums not more than
thirty (30) days delinquent or which are being contested in good
faith; provided that a reserve or other appropriate provision shall
have been made therefor and the aggregate amount of such Liens is less
than $1,000,000;
(3) Liens (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974 or any rule or regulation
promulgated thereunder) 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,
stay, customs 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);
(4) deposits, in an aggregate amount not to exceed $500,000,
made in the ordinary course of business to secure liability to
insurance carriers;
(5) Liens for purchase money obligations; provided that: (a)
the Indebtedness secured by any such Lien is permitted under
subsection 3.1; and (b) any such Lien encumbers only the asset so
purchased;
(6) any attachment or judgment Lien not constituting an Event
of Default under subsection 6.1(I);
(7) leases or subleases granted to others not interfering in
any material respect with the business of Borrower or any of its
Subsidiaries;
(8) easements, rights of way, restrictions, and other similar
charges or encumbrances not interfering in any material respect with
the ordinary conduct of the business of Borrower or any of its
Subsidiaries;
(9) any interest or title of a lessor or sublessor under any
lease;
(10) Liens arising from filing financing statements regarding
leases not prohibited by this Agreement;
(11) Liens in favor of Heller;
(12) subject to the terms and provisions of the Intercreditor
Agreement, Liens securing the Senior Term Loan, Additional Senior Term
Loan and Subordinated Notes, which Liens are set forth on Schedule
3.2(A)(12) hereto;
(13) Liens securing the Seller Notes and solely encumbering
<PAGE>
the trademark "Scent Seal", all right, title and interest of Borrower
in the License Agreement dated June 9, 1995 between Borrower and
Thermedics, Inc., all other license or use agreements of Borrower in
connection with the trademark "Scent Seal" and all proceeds of the
foregoing;
(14) Liens granted to the issuer/seller of reverse repurchase
agreements provided such Liens encumber only the securities subject to
such reverse repurchase agreement; and
(15) Liens in favor of NationsBanc Leasing Corporation
created pursuant to that certain Security Agreement dated September
21, 1995 encumbering the equipment described therein.
(B) No Negative Pledges. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to enter into or assume
any agreement (other than the Loan Documents, Senior Term Loan Documents and
Subordinated Loan Documents) prohibiting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired.
(C) No Restrictions on Subsidiary Distributions to Borrower.
Except as provided herein, in the Senior Term Loan Documents and in the
Subordinated Loan Documents, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly 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: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; (2) pay any Indebtedness owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary.
3.3 Investments; Joint Ventures. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to make or own any Investment in
any Person except:
(A) Borrower and its Subsidiaries may make and own Investments in Cash
Equivalents;
(B) Borrower and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 3.1;
(C) Borrower and its Subsidiaries may make loans and advances to
employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $500,000 in the aggregate at any time
outstanding; and
(D) Borrower and its Subsidiaries may make acquisitions (including
acquisitions of other businesses or business units or product lines and
patents, licenses or other individual assets of another Person) and may make
Investments in joint ventures; provided (1) that at the time of such
Investment, no Default or Event of Default shall exist and be continuing or
arise as a result thereof (including, without limitation, subsection 3.10) and
(2) after giving effect to such Investment, outstanding Revolving Loans do not
exceed Maximum Revolving Loan Balance.
"INVESTMENT" means amounts paid or agreed to be paid by
Borrower or any of its Subsidiaries for stock, securities, liabilities or
assets of, or loaned, advanced or contributed to, other Persons. The term
Investment shall not include any increase or decrease in the assets of any
Person derived from the earnings or losses thereof or any assets purchased or
licensed in the
<PAGE>
ordinary course of business, but shall include the acquisition of a company,
business or product line by Borrower or any of its Subsidiaries. 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.
"CASH EQUIVALENTS" means: (i) direct obligations of the
United States of America or any state thereof ; (ii) prime commercial paper;
(iii) certificates of deposit issued by any commercial bank having capital and
surplus in excess of $100,000,000; (iv) money market funds of nationally
recognized institutions investing solely in obligations described in clauses
(i), (ii) and (iii) above; and (v) overnight reverse repurchase agreements from
any commercial bank having capital and surplus in excess of $100,000,000.
3.4 Contingent Obligations. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to create or become or be liable
with respect to any Contingent Obligation except those:
(A) resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
(B) arising under the Security Documents;
(C) existing on the Closing Date and described in Schedule 3.4 annexed
hereto;
(D) arising under indemnity agreements to title insurers to cause such
title insurers to issue to Heller mortgagee title insurance policies;
(E) arising with respect to customary indemnification and purchase
price adjustment obligations incurred in connection with Asset Dispositions;
(F) incurred in the ordinary course of business with respect to surety
and appeal bonds, return-of-money bonds and other similar obligations not
exceeding at any time outstanding $100,000 in aggregate liability;
(G) incurred in the ordinary course of business with respect to
performance bonds not exceeding at any time outstanding $3,000,000 in aggregate
liability;
(H) incurred with respect to Indebtedness permitted by subsection 3.1;
(I) foreign exchange contracts and currency swap agreements, the
notional amount of which does not exceed $10,000,000 (U.S. Dollars) in the
aggregate at any time; and
(J) not permitted by clauses (A) through (I) above, so long as any
such Contingent Obligations, in the aggregate at any time outstanding, do not
exceed $750,000.
"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
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; (ii) with respect to any letter of credit issued for the account of
that Person (other than any letter of credit with respect to which a Lender
<PAGE>
Guarantee has been issued by Heller) or as to which that Person is otherwise
liable for reimbursement of drawings; or (iii) under any foreign exchange
contract, currency swap agreement, interest rate swap agreement or other
similar agreement or arrangement designed to alter the risks of that Person
arising from fluctuations in currency values or interest rates. Contingent
Obligations shall include (a) the direct or indirect guaranty, endorsement
(other 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 nonperformance by any other party or parties
to an agreement, and (c) any liability of such Person for the obligations of
another through any agreement to purchase, repurchase or otherwise acquire such
obligation or any property constituting security therefor, to provide funds for
the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.
3.5 Restricted Junior Payments. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to declare, order, pay, make or
set apart any sum for any Restricted Junior Payment except:
(A) Borrower may make payments and distributions to Holdings
to permit Holdings to pay federal and state income taxes then due and owing,
franchise taxes and other similar licensing expenses incurred in the ordinary
course of business; provided, however, Borrower's contribution to taxes as a
result of the filing of a consolidated return by Holdings shall not be greater,
nor the receipt of tax benefits less, then they would have been had Borrower
not filed a consolidated return with Holdings;
(B) Subsidiaries of Borrower may make Restricted Junior
Payments to Borrower;
(C) Borrower may make required payments of principal and
interest with respect to the Senior Term Loan, Additional Senior Term Loan and
Subordinated Indebtedness held by SBA, as required in accordance with the terms
thereof but only to the extent permitted in the Intercreditor Agreement;
provided, however, Borrower may make optional prepayments with respect to the
Senior Term Loan, Additional Senior Term Loan and Subordinated Indebtedness
held by SBA if (1) at the time of such prepayment, required payments of
principal and interest are permitted to be paid pursuant to the Intercreditor
Agreement and (2) after giving effect to such prepayment, the Maximum Revolving
Loan Balance exceeds the sum of outstanding principal balance of the Revolving
Loans plus outstanding Lender Guarantees, by not less than $5,000,000;
provided, further, however, Borrower may refinance the Subordinated
Indebtedness held by SBA with Refinanced Subordinated Indebtedness in
accordance with subsection 3.1(G);
(D) Borrower may make required payments of principal and
interest with respect to the Indebtedness evidenced by the Seller Notes
provided at the time of such payment and after giving effect thereto, no Event
of Default under subsection 6.1(A) or 6.1(C) (as it relates to a failure to
perform or comply with subsections 4.3, 4.4 or 4.5 hereof) exists or would
arise as a result thereof;
(E) Borrower may make dividend payments to Holdings solely to
permit Holdings to make dividend payments on account of preferred stock of
Holdings held by SBA provided at the time of such payment and after giving
effect thereto, no Default or Event of Default under subsection 6.1(A) or
6.1(C) (as it relates to a failure to perform or comply with subsections 4.3,
<PAGE>
4.4 or 4.5 hereof) exists or would arise as a result thereof;
(F) Borrower may make payments and distributions to Holdings,
not to exceed $100,000 in the aggregate in any fiscal year, to permit Holdings
to pay board of director fees and expenses and other out-of-pocket expenses;
(G) Borrower and its Subsidiaries may make required payments
with respect to the Additional Seller Notes provided at the time of such
payment and after giving effect thereto, no Default or Event of Default exists
or would arise as a result thereof; and
(H) Borrower may make required payments of interest with
respect to the Refinanced Subordinated Indebtedness as required in accordance
with the terms thereof but only to the extent permitted in the subordination
agreement entered into with respect thereto.
"RESTRICTED JUNIOR PAYMENT" means: (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Borrower or any of its Subsidiaries now or hereafter outstanding,
except a dividend payable solely in shares of that class of stock to the
holders of that class; (ii) any redemption, conversion, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock of Borrower or any of
its Subsidiaries now or hereafter outstanding; (iii) any payment or prepayment
of principal of, premium, if any, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, any
Subordinated Indebtedness, the Additional Senior Term Loan, the Senior Term
Loan, Seller Notes or Additional Seller Notes; and (iv) 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 Borrower or any of its
Subsidiaries now or hereafter outstanding.
3.6 Restriction on Fundamental Changes. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to: (a) amend, modify or
waive any term or provision of its articles of incorporation or by-laws unless
required by law other than such immaterial amendments or modifications which do
not and will not adversely affect Heller, the ability of Heller to enforce its
rights and remedies under the Loan Documents or to realize upon the Collateral
or which otherwise would have a Material Adverse Effect; (b) enter into any
transaction of merger or consolidation except any Subsidiary of Borrower may be
merged with or into Borrower (provided that Borrower is the surviving entity)
or any other Subsidiary of Borrower; or (c) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution).
3.7 Disposal of Assets or Subsidiary Stock. Borrower will not and will
not permit any of its Subsidiaries directly or indirectly to: convey, sell,
lease, sublease, transfer or otherwise dispose of, or grant any Person an
option to acquire, in one transaction or a series of transactions any of its
property, business or assets, or the capital stock of or other equity interests
in any of its Subsidiaries, whether now owned or hereafter acquired except for
(a) bona fide sales of Inventory to customers for fair value in the ordinary
course of business and dispositions of obsolete equipment not used or useful in
the business and (b) Asset Dispositions if all of the following conditions are
met: (i) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $5,000,000 and
the aggregate market value of assets sold or otherwise disposed of in any
fiscal year of Borrower does not exceed $5,000,000; (ii) the consideration
received is at least equal to the fair market value of such assets; (iii) after
giving effect to the sale or other disposition of the assets included within
the Asset Disposition and the repayment of Indebtedness with the proceeds
<PAGE>
thereof, Borrower is in compliance on a pro forma basis with the covenants set
forth in Section 4 recomputed for the most recently ended month for which
information is available and is in compliance with all other terms and
conditions contained in this Agreement; and (iv) no Default or Event of Default
shall result from such sale or other disposition.
3.8 Transactions with Affiliates. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to 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 or with any
director, officer or employee of any Loan Party (excluding the payment of
compensation, bonuses and other incentive compensation in the ordinary course
of business to officers and other employees in the ordinary course of business
for actual services rendered), except (a) payment for services rendered by
VILARC, Inc. in the ordinary course of business provided such payment is
approved by Liberty, (b) as set forth on Schedule 3.8 or (c) transactions in
the ordinary course of and pursuant to the reasonable requirements of the
business of Borrower or any of its Subsidiaries and upon fair and reasonable
terms which are fully disclosed to Heller and are no less favorable to Borrower
or such Subsidiary than would be obtained in a comparable arm's length
transaction with a Person that is not an Affiliate. Notwithstanding the
foregoing, no payments may be made with respect to item 2 set forth on Schedule
3.8 in excess of the amount set forth on Schedule 3.8 or upon the occurrence
and during the continuation of a Default or Event of Default under subsection
6.1(A) or 6.1(C) (as it relates to a failure to perform or comply with
subsection 4.3, 4.4 or 4.5).
3.9 Management Fees and Compensation. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to pay any management,
consulting or similar fees to any Affiliate or to any director, officer or
employee of any Loan Party (excluding the payment of compensation, bonuses and
other incentive compensation in the ordinary course of business to officers and
other employees in the ordinary course of business for actual services
rendered) except (a) payment for services rendered by VILARC, Inc. in the
ordinary course of business provided such payment is approved by Liberty or (b)
as set forth on Schedule 3.9. Notwithstanding the foregoing, no payments may be
made with respect to item 1 set forth on Schedule 3.9 in excess of the amount
set forth on Schedule 3.9 or upon the occurrence and during the continuation of
a Default or Event of Default under subsection 6.1(A) or 6.1(C) (as it relates
to a failure to perform or comply with subsection 4.3, 4.4 or 4.5).
3.10 Conduct of Business. Borrower will not and will not permit any of
its Subsidiaries directly or indirectly to engage in any business other than
businesses of the type described on Schedule 3.10, unless otherwise agreed to
by Heller, which consent shall not be unreasonably withheld.
3.11 Changes Relating to Indebtedness. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to change or amend the
terms of any Subordinated Indebtedness, the Additional Senior Term Loan, the
Senior Term Loan, Seller Notes or Additional Seller Notes if the effect of such
amendment is to: (a) increase the principal amount of the Indebtedness (other
than the incurrence of the Additional Senior Term Loan under the conditions
specified in subsection 3.1) or the interest rate on such Indebtedness; (b)
shorten the dates upon which payments of principal or interest are due on such
Indebtedness; (c) change in any manner adverse to the Borrower, or add, any
event of default or any covenant with respect to such Indebtedness; (d) change
the redemption or prepayment provisions of such Indebtedness; (e) change the
subordination provisions thereof (or the subordination terms of any guaranty
thereof), including, without limitation, subordinating such Indebtedness to
<PAGE>
other Indebtedness; (f) shorten the maturity date or otherwise to alter the
repayment terms in a manner adverse to Borrower; or (g) change or amend any
other term if such change or amendment would materially increase the
obligations of the obligor or confer additional material rights on the holder
of such Indebtedness in a manner adverse to Borrower, any of its Subsidiaries
or Heller.
3.12 Press Release; Public Offering Materials. Neither Borrower nor
Heller will, or will permit any of its Subsidiaries to, disclose the name of
the other party in any press release, any marketing or promotional material or
in any prospectus, proxy statement or other materials filed with any
governmental entity relating to a public offering of the capital stock of any
Loan Party without the other party's prior written consent which shall not be
unreasonably withheld but in no event shall the name Victor Barnett be used by
Heller in such material.
3.13 Subsidiaries. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to establish, create or acquire any new
Subsidiary without at least five (5) days' prior written notice to Heller.
SECTION 4
FINANCIAL COVENANTS/REPORTING
Borrower covenants and agrees that so long as the Revolving Loan
Commitment remains in effect and until payment in full of all Obligations
(excluding contingent Obligations not then due and payable) and termination of
all Lender Guarantees, unless Heller shall otherwise give its prior written
consent, Borrower shall comply with, shall cause each of its Subsidiaries to
comply with and shall use its best efforts to cause Holdings to comply with,
all covenants in this Section 4 applicable to such Person.
4.1 Intentionally Omitted.
4.2 Intentionally Omitted.
4.3 EBIDAT. Borrower shall not permit EBIDAT for the twelve (12) month
period ending on the last day of each month to be less than $8,000,000.
"EBIDAT" will be calculated as illustrated on Exhibit 4.6(C).
4.4 Fixed Charge Coverage. Borrower shall not permit Fixed Charge
Coverage for the twelve (12) month period ending on the last day of each month
to be less than 1.0. "FIXED CHARGE COVERAGE" will be calculated as illustrated
on Exhibit 4.6(C).
4.5 Total Indebtedness to Operating Cash Flow Ratio. Borrower shall
not permit the ratio of Total Indebtedness calculated as of the last day of
each month to Operating Cash Flow for the twelve (12) month period ending on
such day to be greater than 6.0. "TOTAL INDEBTEDNESS" and "OPERATING CASH FLOW"
will be calculated as illustrated as Exhibit 4.6(C).
4.6 Financial Statements and Other Reports. Borrower 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 (it being
understood that monthly financial statements (a) are not required to have
footnote disclosures, (b) are subject to normal year-end adjustments for
recurring accruals and (c) show depreciation, amortization and management fees
as deductions from operating income rather than deductions in computing
operating income). Borrower will deliver to Heller each of the financial
<PAGE>
statements and other reports described below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Borrower will deliver (1)
the consolidated balance sheet of Borrower, as at the end of such month and the
related consolidated statements of income and cash flow for such month and for
the period from the beginning of the then current fiscal year of Borrower to
the end of such month and (2) a schedule of the outstanding Indebtedness for
borrowed money of Borrower and its Subsidiaries describing in reasonable detail
each such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan.
(B) Year-End Financials. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of Borrower,
Borrower will deliver (1) the consolidated balance sheet of Borrower as at the
end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such fiscal year, (2) a schedule of the
outstanding Indebtedness for borrowed money of Borrower and its Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and
the principal amount and amount of accrued and unpaid interest with respect to
each such debt issue or loan and (3) a report with respect to the financial
statements from a "big six" independent certified public accounting firm
selected by Borrower, which report shall be prepared in accordance with
Statement of Auditing Standards No. 58 (the "STATEMENT") entitled "REPORTS ON
AUDITED FINANCIAL STATEMENTS" and such report shall be "UNQUALIFIED" (as such
term is defined in such Statement).
(C) Borrower Compliance Certificate. Together with each
delivery of financial statements of Borrower and its Subsidiaries pursuant to
subsections 4.6(A) and 4.6(B) above, Borrower will deliver a fully and properly
completed Compliance Certificate (in substantially the same form as Exhibit
4.6(C)) signed by a Responsible Officer of Borrower.
(D) Indebtedness Notices. Borrower shall promptly deliver
copies of all notices given or received by Borrower with respect to any
non-compliance with any term or condition related to any Indebtedness, and
shall notify Heller promptly after a responsible officer of Borrower obtains
knowledge thereof of any potential or actual event of default with respect to
any Indebtedness.
(E) Accountants' Reports. Promptly upon receipt thereof,
Borrower will deliver copies of all significant reports submitted by Borrower's
firm of certified public accountants in connection with each annual audit or
review and, if an Event of Default exists at the time of submission, each
interim or special audit or review, of any type of the financial statements or
related internal control systems of Borrower made by such accountants,
including any comment letter submitted by such accountants to management in
connection with their services.
(F) Borrowing Base Certificate. As soon as available and in
any event within thirty (30) days after the end of each month, and from time to
time upon the request of Heller, Borrower will deliver to Heller a Borrowing
Base Certificate (in substantially the same form as Exhibit 4.6(F)) as at the
last day of such period.
(G) Intentionally Omitted.
(H) Appraisals. From time to time, if obtaining appraisals is
necessary in order to comply with applicable laws or regulations, Heller will
obtain appraisal reports in form and substance and from appraisers satisfactory
to Heller stating the then current fair market values of all or any portion of
<PAGE>
the real estate owned by Borrower or any of its Subsidiaries. Such appraisals
will be obtained at Heller's expense unless an Event of Default exists, in
which event such appraisals will be at Borrower's expense.
(I) Annual Budget. As soon as available and in any event no
later than the last day of Borrower's fiscal year, Borrower will deliver an
annual operating budget prepared on a monthly basis and an annual capital
budget, for Borrower and its Subsidiaries for the succeeding fiscal year and,
within 30 days after any monthly period in which there is a material adverse
deviation from the annual budgets, a certificate from Borrower's chief
financial officer or chief operating officer explaining the deviation and what
action Borrower has taken, is taking and proposes to take with respect thereto.
(J) SEC Filings and Press Releases. Promptly upon their
becoming available, Borrower will deliver copies of (1) all financial
statements, reports, notices and proxy statements sent or made available by
Holdings, Borrower or any of their respective Subsidiaries to their security
holders, (2) all regular and periodic reports and all registration statements
and prospectuses, if any, filed by Holdings, Borrower or any of their
respective Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority, and
(3) all press releases and other statements made available by Holdings,
Borrower or any of their respective Subsidiaries to the public concerning
developments in the business of any such Person.
(K) Events of Default, Etc. Promptly upon a Responsible
Officer obtaining knowledge of any of the following events or conditions,
Borrower shall deliver copies of all notices given or received by Borrower with
respect to any such event or condition and a certificate of Borrower's chief
operating officer specifying the nature and period of existence of such event
or condition and what action Borrower has taken, is taking and proposes to take
with respect thereto: (1) any condition or event that constitutes an Event of
Default or Default; (2) any notice that any Person has given to Borrower or any
of its Subsidiaries or any other action taken with respect to a material
claimed default or event or condition of the type referred to in subsection
6.1(B); or (3) any event or condition that would result in any Material Adverse
Effect.
(L) Litigation. Promptly upon a Responsible Officer of
Borrower obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Heller or (2) any material adverse development in any action, suit,
proceeding, governmental investigation or arbitration at any time pending
against or affecting any Loan Party or any property of any Loan Party which, in
each case, would have a Material Adverse Effect, Borrower will promptly give
notice thereof to Heller and provide such other information as may be
reasonably available to them to enable Heller and its counsel to evaluate such
matter.
(M) Notice of Corporate Changes. Borrower shall provide
written notice to Heller of (1) all jurisdictions in which a Loan Party becomes
qualified after the Closing Date to transact business, (2) any material change
after the Closing Date in the authorized and issued capital stock or other
equity interests of any Loan Party or any of their respective Subsidiaries or
any other material amendment to their charter, by-laws or other organization
documents and (3) any Subsidiary created or acquired by any Loan Party after
the Closing Date, such notice, in each case, to identify the applicable
jurisdictions, capital structures or Subsidiaries, as applicable.
<PAGE>
(N) Other Information. With reasonable promptness, Borrower
will deliver such other information and data with respect to any Loan Party or
any Subsidiary of any Loan Party as from time to time may be reasonably
requested by Heller.
4.7 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements furnished to Heller
pursuant to subsection 4.6 shall be prepared in accordance with GAAP as in
effect at the time of such preparation except monthly financial statements (a)
lack footnote disclosures, (b) are subject to normal year-end adjustments for
recurring accruals and (c) show depreciation, amortization and management fees
as deductions from operating income rather than deductions in computing
operating income. No "ACCOUNTING CHANGES" (as defined below) shall affect
financial covenants, standards or terms in this Agreement; provided, that
Borrower shall prepare footnotes to each Compliance Certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "ACCOUNTING CHANGES" means: (i)
changes in accounting principles required by GAAP and implemented by Borrower;
and (ii) changes in accounting principles recommended by Borrower's certified
public accountants and implemented by Borrower.
SECTION 5
REPRESENTATIONS AND WARRANTIES
In order to induce Heller to enter into this Agreement, to make Loans
and to issue Lender Guarantees, Borrower represents and warrants to Heller that
the following statements are and, after giving effect to the funding of Loans
on the Closing Date, will be true, correct and complete:
5.1 Disclosure. No representation or warranty of Borrower, any of its
Subsidiaries or any other Loan Party contained in this Agreement, the financial
statements referred to in subsection 5.5, the other Loan Documents or any other
document, certificate or written statement furnished to Heller by or on behalf
of any such Person for use in connection with the Loan Documents contains, as
of the date made, any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made.
5.2 No Material Adverse Effect. As of the Closing Date, there have
been no events or changes in facts or circumstances affecting any Loan Party
since February 29, 1996, which individually or in the aggregate have had or
would have a Material Adverse Effect and that have not been disclosed herein or
in the attached Schedules.
5.3 No Default. The execution, delivery and performance of the Loan
Documents do not and will not violate, conflict with, result in a breach of, or
constitute a default (with due notice or lapse of time or both) under any
contract of any Loan Party except if such violations, conflicts, breaches or
defaults have either been waived on or before the Closing Date and are
disclosed on Schedule 5.3 or would not have, either individually or in the
aggregate, a Material Adverse Effect.
5.4 Organization, Powers, Capitalization and Good Standing.
<PAGE>
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation (which jurisdiction is set forth on
Schedule 5.4(A)). Each of the Loan Parties has all requisite corporate power
and authority to own and operate its properties, to carry on its business as
now conducted and proposed to be conducted, to enter into each Loan Document to
which it is a party and to carry out the transactions contemplated hereby.
(B) Capitalization. The authorized capital stock of each of
the Loan Parties is as set forth on Schedule 5.4(B). All issued and outstanding
shares of capital stock of each of the Loan Parties, are duly authorized and
validly issued, fully paid, nonassessable, free and clear of all Liens other
than those in favor of SBA, and such shares were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. The
capital stock of each of the Loan Parties, is owned by the stockholders and in
the amounts set forth on Schedule 5.4(B). No shares of the capital stock of any
Loan Party, other than those described above, are issued and outstanding.
Except as set forth on Schedule 5.4(B), there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Loan Party, of any
shares of capital stock or other securities of any such entity.
(C) Binding Obligation. This Agreement and the other Related
Transactions Documents are the legally valid and binding obligations of the
applicable Loan Parties, each enforceable against the Loan Parties in
accordance with their respective terms.
(D) Qualification. Each of the Loan Parties is duly qualified
and in good standing wherever necessary to carry on its business and
operations, except in jurisdictions in which the failure to be qualified and in
good standing would not have a Material Adverse Effect. All jurisdictions in
which each Loan Party is qualified to do business are set forth on Schedule
5.4(D).
5.5 Financial Statements. All financial statements concerning Borrower
and its Subsidiaries furnished by Borrower and its Subsidiaries to Heller
pursuant to this Agreement, including those listed below, have been prepared in
accordance with GAAP consistently applied (except as noted herein or disclosed
therein), and all financial statements delivered by Borrower to Heller present
fairly in all material respects the financial condition of the corporations
covered thereby as at the dates thereof and the results of their operations for
the periods then ended:
(A) The consolidated balance sheets at June 30, 1995 and the related
statement of income of Holdings and its Subsidiaries, for the fiscal year then
ended, certified by Coopers & Lybrand.
(B) The consolidated balance sheet at February 29, 1996 and the
related statement of income of Borrower and its Subsidiaries for the eight (8)
months then ended .
5.6 Intellectual Property. Borrower and each of its Subsidiaries owns,
is licensed to use or otherwise has the right to use, all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or
necessary for the conduct of its business as currently conducted that are
material to the condition (financial or other), business or operations of
Borrower or its Subsidiaries (collectively called "INTELLECTUAL PROPERTY") and
all such Intellectual Property is identified on Schedule 5.6 and fully
protected and/or duly and properly registered, filed or issued in the
appropriate office and jurisdictions for such registrations, filing or
<PAGE>
issuances. Except as disclosed in Schedule 5.6, the use of such Intellectual
Property by Borrower and its Subsidiaries does not and has not been alleged by
any Person to infringe on the rights of any Person.
5.7 Investigations, Audits, Etc. Except as set forth on Schedule 5.7,
to Borrower's knowledge, neither Borrower nor any of its subsidiaries is the
subject of any review or audit by the Internal Revenue Service or any
governmental investigation concerning the violation or possible violation of
any law.
5.8 Employee Matters. Except as set forth on Schedule 5.8, (a) no Loan
Party nor any of their respective employees is subject to any collective
bargaining agreement, (b) the majority of all hourly employees of Borrower (but
not its Subsidiaries) are unionized and (c) as of the Closing Date, there are
no strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of Borrower after due inquiry, threatened between any Loan Party and
its respective employees, other than employee grievances and contract
negotiations regarding a new collective bargaining agreement at or prior to the
end of any existing collective bargaining agreement, all of which are arising
in the ordinary course of business which would not have, either individually or
in the aggregate, a Material Adverse Effect.
5.9 Solvency. As of and from and after the date of this Agreement and
after giving effect to the consummation of the transactions contemplated by
this Agreement and the funding of the initial advance of the Loan, Borrower:
(a) owns and will own, in the reasonable opinion of Borrower, assets the fair
saleable value on a going concern basis of which are (i) greater than the total
amount of liabilities (including contingent liabilities) of Borrower and (ii)
greater than the amount that will be required to pay the probable liabilities
of Borrower's then existing debts as they become absolute and matured
considering all financing alternatives and potential asset sales reasonably
available to Borrower; (b) has capital that is not unreasonably small in
relation to its business as presently conducted or any contemplated or
undertaken transaction; and (c) does not intend to incur and does not believe
that it will incur debts beyond its ability to pay such debts as they become
due.
SECTION 6
DEFAULT, RIGHTS AND REMEDIES
6.1 Event of Default. "EVENT OF DEFAULT" shall mean the
occurrence of any one or more of the following:
(A) Payment. Failure to pay the Revolving Loan when due, or to repay
Revolving Loans to reduce their balance to the Maximum Revolving Loan Balance
or to reimburse Heller for any payment made by Heller under or in respect of
any Lender Guarantee when due or failure to pay, within five (5) days after the
due date, any interest on any Loan or any other amount due under this Agreement
or any of the other Loan Documents; or
(B) Default in Other Agreements. (1) Failure of Holdings, Borrower or
any of its Subsidiaries to pay when due or within any applicable grace period
any principal or interest on Indebtedness (other than the Loans, Subordinated
Indebtedness held by SBA, Senior Term Loan or Additional Senior Term Loan,) or
any
<PAGE>
Contingent Obligations, or breach or default of Holdings, Borrower or any of
its Subsidiaries, or the occurrence of a default, with respect to any
Indebtedness (other than the Loans, Subordinated Indebtedness held by SBA,
Senior Term Loan or Additional Senior Term Loan,) or any Contingent
Obligations, if the effect of such failure to pay, default or breach is to
cause or to permit the holder or holders then to cause, Indebtedness and/or
Contingent Obligations having an aggregate principal amount in excess of
$1,000,000 to become or be declared due prior to their stated maturity, unless
such failure to pay, default or breach is cured or irrevocably waived in
writing by the holder of holders thereof; or
(2) Failure of Holdings, Borrower or any of its Subsidiaries to pay
when due or within any applicable grace period any principal or interest with
respect to Subordinated Indebtedness held by SBA, Senior Term Loan or
Additional Senior Term Loan, or breach or default of Holdings, Borrower or any
of its Subsidiaries, or the occurrence of a default, with respect to
Subordinated Indebtedness held by SBA, Senior Term Loan or Additional Senior
Term Loan, if the effect of such failure to pay, default or breach is to cause
SBA to declare such Indebtedness due prior to its stated maturity; or
(C) Breach of Certain Provisions. (1) Failure of Borrower to perform
or comply with any term or condition contained in that portion of subsection
2.2 relating to Borrower's obligation to maintain insurance, Section 3 or
Section 4 (other than subsection 4.5); or (2) failure of Borrower to perform or
comply with any term or condition contained in subsection 4.5 which continues
for sixty (60) days after the last day of the twelve (12) month period referred
to therein; or
(D) Breach of Warranty. Any written representation, warranty or
certification made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) Other Defaults Under Loan Documents. Borrower or any other Loan
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within thirty (30) days after receipt by Borrower of notice from Heller
of such default (other than occurrences described in other provisions of this
subsection 6.1 for which a different grace or cure period is specified or which
constitute immediate Events of Default); provided, however, if such default is
susceptible of cure but not within thirty (30) days after notice, no Event of
Default shall be deemed to have occurred under this clause (E) if Borrower
shall have commenced and is diligently prosecuting such cure and such cure is
effected within one hundred eighty (180) days after receipt by Borrower of such
notice from Heller; or
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc. (1) A court
enters a decree or order for relief with respect to Holdings, Borrower or any
of its Subsidiaries in an involuntary case under the Bankruptcy Code, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for sixty (60) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against Holdings, Borrower or any of its
Subsidiaries, under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; or (b) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Holdings, Borrower or any of its
Subsidiaries, or over all or a substantial part of its property, is entered; or
(c) an interim receiver, trustee or other custodian is appointed without the
consent of Holdings, Borrower or any of its Subsidiaries, for all or a
substantial part of the property of Holdings, Borrower or any such Subsidiary;
or
<PAGE>
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) An order
for relief is entered with respect to Holdings, Borrower or any of its
Subsidiaries or Holdings, Borrower or any of its Subsidiaries commences a
voluntary case under the Bankruptcy Code, or consents 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 consents to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or (2) Holdings, Borrower or any of its
Subsidiaries makes any assignment for the benefit of creditors; or (3) the
Board of Directors of Holdings, Borrower or any of its Subsidiaries adopts any
resolution or otherwise authorizes action to approve any of the actions
referred to in this subsection 6.1(G); or
(H) Intentionally Omitted.
(I) Judgment and Attachments. Any money judgment, writ or warrant of
attachment, or similar process involving an amount in the aggregate at any time
in excess of $2,500,000 (not adequately covered by insurance as to which the
insurance company has acknowledged coverage) is entered or filed against
Holdings, Borrower or any of its Subsidiaries or any of their respective assets
and remains undischarged, unvacated, unbonded or unstayed for a period of
thirty (30) days or in any event later than five (5) Business Days prior to the
date of any proposed sale thereunder; or
(J) Dissolution. Any order, judgment or decree is entered against
Holdings, Borrower or any of its Subsidiaries decreeing the dissolution or
split up of Holdings, Borrower or that Subsidiary and such order remains
undischarged or unstayed for a period in excess of fifteen (15) days; or
(K) Intentionally Omitted.
(L) Injunction. Holdings, Borrower or any of its Subsidiaries is
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than forty-five (45) days if the
same would have a Material Adverse Effect; or
(M) ERISA; Pension Plans. (1) Any Loan Party fails to make full
payment when due of all amounts which, under the provisions of any employee
benefit plans or any applicable provisions of the Internal Revenue Code as
amended from time to time ("IRC"), any Loan Party is required to pay as
contributions thereto and such failure results in a Material Adverse Effect; or
(2) an accumulated funding deficiency in excess of $500,000 occurs or exists,
whether or not waived, with respect to any employee benefit plans, for which
Borrower is liable; or (3) any employee benefit plans lose their status as a
qualified plan under the IRC which results in a Material Adverse Effect; or
(N) EPA. Failure to: obtain or maintain any operating licenses or
permits required by environmental authorities; begin, continue or complete any
remediation activities as required by any environmental authorities; store or
dispose of any hazardous materials in accordance with applicable environmental
laws and regulations; or comply with any other environmental laws, if any such
failure would have a Material Adverse Effect; or
(O) Invalidity of Loan Documents. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
<PAGE>
(P) Damage, Casualty. Any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any embargo,
condemnation, act of God or public enemy, or other casualty which causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of Borrower or any
of its Subsidiaries if any such event or circumstance would have a Material
Adverse Effect; or
(Q) Strike. Any strike, lockout or labor dispute which causes, for
more than sixty (60) consecutive days, the cessation or substantial curtailment
of revenue producing activities at any facility of Borrower or any of its
Subsidiaries if any such event or circumstance would have a Material Adverse
Effect; or
(R) Failure of Security. (1) SBA does not have or ceases to have a
valid and perfected first priority security interest (or, in the event Heller
has a first priority security interest, a second priority security interest) in
the Collateral (subject to Permitted Encumbrances) pursuant to the Senior Term
Loan Documents; or (2) Heller does not have or ceases to have a valid and
perfected first or second priority security interest in the Collateral (subject
to Permitted Encumbrances), in each case in clause (2), for any reason other
than the failure of Heller to take any action within its control; or
(S) Business Activities. Holdings engages in any type of business
activity other than the ownership of stock of Borrower and performance of its
obligations under the Loan Documents to which it is a party; or
(T) Change in Control. (1) SBA, Liberty and VILARC Capital,
collectively, cease to beneficially own and control, directly or indirectly, at
least fifty-one percent (51%) of the issued and outstanding shares of each
class of capital stock of Holdings entitled (without regard to the occurrence
of any contingency) to vote for the election of a majority of the members of
the boards of directors of Holdings; or (2) any of SBA, Liberty and VILARC
Capital ceases to beneficially own and control at least sixty-six and
two-thirds percent (66-2/3%) of the aggregate number of shares of Holdings
capital stock owned by it on the Closing Date; or (3) Holdings ceases to
directly own and control one hundred percent (100%) of the issued and
outstanding capital stock of Borrower; or
(U) Ownership of Indebtedness. SBA ceases to hold one hundred percent
(100%) of the outstanding Senior Term Loan, Subordinated Indebtedness evidenced
by the Subordinated Notes (unless the same is refinanced as permitted pursuant
to subsection 3.1(G)) and, if applicable, the Additional Senior Term Loan; or
(V) Liberty as Agent. Liberty Partners, L.P. ceases to act as agent
and attorney-in-fact for SBA in connection with the Subordinated Indebtedness
held by SBA, Additional Senior Term Loan or Senior Term Loan.
6.2 Suspension of Commitments. Upon the occurrence and during the
continuance of any Default or Event of Default, Heller, without notice or
demand, may immediately cease making additional Loans and issuing Lender
Guarantees and the Revolving Loan Commitment shall be suspended; provided that,
in the case of a Default, if the subject condition or event is waived or
removed by Heller or cured by Borrower within any applicable grace or cure
period, the Revolving Loan Commitment shall be reinstated, effective upon such
waiver, cure or removal. Heller, in its sole discretion, may alternatively
suspend only a portion of the Revolving Loan Commitment.
Notwithstanding the foregoing, in the event all conditions to the
<PAGE>
obligation of Heller to make Loans set forth in Section 7 hereof have been
satisfied but Heller does not make the Loan, Heller shall not be entitled to
declare a Default or an Event of Default as a result of Borrower being unable
to perform any of its covenants, liabilities or obligations hereunder or under
the other Loan Documents as a direct result of Heller's failure to make a Loan.
6.3 Acceleration. Upon the occurrence of any Event of Default
described in the foregoing subsections 6.1(F) or 6.1(G), the unpaid principal
amount of and accrued interest and fees on the Revolving Loan, payments under
the Lender Guarantees and all other Obligations shall automatically become
immediately due and payable, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other requirements of any kind,
all of which are hereby expressly waived by Borrower, and the Revolving Loan
Commitment shall thereupon terminate. Upon the occurrence and during the
continuance of any other Event of Default, Heller may by written notice to
Borrower (a) declare all or any portion of the Loans and all or some of the
other Obligations to be, and the same shall forthwith become, immediately due
and payable together with accrued interest thereon, and the Revolving Loan
Commitment shall thereupon terminate and (b) demand that Borrower immediately
deposit with Heller an amount equal to the Lender Guarantees to enable Heller
to make payments under the Lender Guarantees when required and such amount
shall become immediately due and payable.
6.4 Performance by Heller. If Borrower shall fail to perform any
covenant, duty or agreement contained in any of the Loan Documents, Heller may
perform or attempt to perform such covenant, duty or agreement on behalf of
Borrower after the expiration of any cure or grace periods set forth herein. In
such event, Heller shall give to Borrower written notice of the action promptly
thereafter and Borrower shall, at the request of Heller, promptly pay any
amount reasonably expended by Heller in such performance or attempted
performance to Heller, together with interest thereon at the rate of interest
in effect upon the occurrence of an Event of Default as specified in subsection
1.2(D) from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly agreed that Heller shall not have any liability or
responsibility for the performance of any obligation of Borrower under this
Agreement or any other Loan Document.
SECTION 7
CONDITIONS TO LOANS
The obligations of Heller to make Loans and to issue Lender Guarantees
are subject to satisfaction of all of the applicable conditions set forth
below.
7.1 Conditions to Initial Loans. The obligations of Heller to make the
initial Loans and to issue any Lender Guarantees on the Closing Date are, in
addition to the conditions precedent specified in subsection 7.2, subject to
the delivery of all documents listed on Schedule 7.1, all in form and substance
satisfactory to Heller.
7.2 Conditions to All Loans. The obligations of Heller to make Loans
or the obligation of Heller to issue Lender Guarantees on any date ("FUNDING
DATE") are subject to the further conditions precedent set forth below.
(A) Heller shall have received, in accordance with the
provisions of subsection 1.1, a notice requesting an advance of a Revolving
Loan or issuance of a Lender Guarantee.
<PAGE>
(B) The representations and warranties contained in Section 5
of this Agreement and elsewhere herein and in the other Loan Documents shall be
(and each request by Borrower for a Loan [a request for continuation of a LIBOR
Rate Loan as a LIBOR Rate Loan, conversion of a Base Rate Loan to a LIBOR Rate
Loan and conversion of a LIBOR Rate Loan to a Base Rate Loan shall not
constitute a request by Borrower for a Loan] or a Lender Guarantee shall
constitute a representation and warranty by Borrower that such representations
and warranties are) 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 for any representation or warranty limited by its terms to a
specific date and taking into account any amendments to the Schedules as a
result of any disclosures made in writing by Borrower to Heller after the
Closing Date.
(C) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated (or notice
requesting issuance of a Lender Guarantee) that would constitute an Event of
Default or a Default.
(D) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Heller from making
any Loans or issuing any Lender Guarantees.
SECTION 8
ASSIGNMENT AND PARTICIPATION
8.1 Assignment and Participation. Heller has no present intention of
assigning or selling participations in all or any part of the Loans or the
Revolving Loan Commitment; provided, upon not less than seventy-five (75) days
prior notice to Borrower, Heller may assign its rights and delegate its
obligations under this Agreement and further may assign, or sell participations
in, all or any part of its Loans or its Revolving Loan Commitment with the
prior written consent of Borrower, which consent shall not be unreasonably
withheld or delayed; provided, however, Borrower's consent shall not be
required for any assignment or participation required by any governmental or
regulatory agency or authority. Notwithstanding the provisions of subsection
1.3(B), if Heller chooses to assign or sell participations in a portion of the
Loans or the Revolving Loan Commitment, absent a request by Borrower to
increase the aggregate Revolving Loan Commitment beyond $20,000,000, then
Heller and the Borrower are responsible for their respective costs.
SECTION 9
MISCELLANEOUS
9.1 Indemnities. Borrower agrees to indemnify, pay, and hold Heller,
its officers, directors, employees, agents, and attorneys (the "INDEMNITEES")
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits and claims (collectively,
"LOSSES") of any kind or nature whatsoever that may be imposed on, incurred by,
or asserted against the Indemnitee as a result of Heller being a party to this
Agreement; provided that Borrower shall have no obligation to an Indemnitee
hereunder with respect to liabilities arising from the gross negligence or
willful misconduct of that Indemnitee as determined by a court of competent
jurisdiction or for Losses to the extent imposed, incurred by or asserted
against Heller as a result of a breach or default by SBA or Heller under the
Intercreditor Agreement. This Section and Agreement shall survive the
termination of this Agreement.
<PAGE>
9.2 Amendments and Waivers. No amendment, modification, or
termination, or waiver of any provision of this Agreement or any Loan
Documents, shall be effective unless the same shall be in writing and signed by
Heller.
9.3 Notices. Any notice or other communication required shall be in
writing, shall be executed by an authorized signatory of a party addressed to
the respective party as set forth below and may be personally served,
telecopied (except that only notices relating to requests to borrow may be
given by telecopy unless otherwise agreed by a Responsible Officer), sent by
overnight courier service or U.S. certified or registered mail, return receipt
requested and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. CST, or, if not, on the next
succeeding Business Day; (c) if delivered by overnight courier, two (2) days
after delivery to courier properly addressed, or (d) if delivered by U.S. mail,
four (4) Business Days after deposit with postage prepaid and properly
addressed.
Notices shall be addressed as follows:
If to Borrower: c/o Victor Barnett
895 Park Avenue
New York, New York 10021
Telecopy: (212) 288-0230
with a copy to: Arcade, Inc.
P. O. Box 3196
1815 E. Main Street
Chattanooga, Tennessee 37404
ATTN: Chief Operating Officer
Telecopy: (423) 697-7126
with a copy to: Liberty Partners
1177 Avenue of the Americas
New York, New York 10036
ATTN: Michael J. Kluger
Telecopy: (212) 354-0336
with a copy to: Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
ATTN: Susan K. Reiter, Esq.
Telecopy: (312) 876-7934
If to Heller: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Marcia Perkins
Portfolio Manager
Portfolio Organization
Corporate Finance Group
Telecopy: (312) 441-7367
<PAGE>
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Legal Department
Portfolio Organization
Corporate Finance Group
Telecopy: (312) 441-7367
9.4 Failure of Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of Heller to exercise, or any partial exercise of, any
power, right, or privilege hereunder or under any other Loan Documents shall
impair such power, right, or privilege or be construed to be a waiver of any
Default or Event of Default. All rights and remedies existing hereunder or
under any other Loan Document are cumulative to and not exclusive of any rights
or remedies otherwise available.
9.5 Marshalling, Payments Set Aside. Heller shall not be under any
obligation to marshall any assets in payment of any or all of the Obligations.
To the extent that the Borrower makes a payment(s) or Heller enforces its Liens
or exercises its right of set-off, and such payment(s) or the proceeds of such
enforcement or set off is subsequently invalidated, declared to be fraudulent
or preferential, set aside, or required to be repaid by anyone, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or set off had not occurred.
9.6 Severability. The invalidity, illegality, or unenforceability in
any jurisdiction of any provision under the Loan Documents shall not affect or
impair the remaining provisions in the Loan Documents.
9.7 Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect.
9.8 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
9.9 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns except that Borrower may not assign its rights or obligations
hereunder.
9.10 No Fiduciary Relationship. No provision in the Loan Documents and
no course of dealing between the parties shall be deemed to create any
fiduciary duty by Heller to Borrower.
9.11 Construction. Heller and Borrower acknowledge that each of them
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review the Loan Documents with its legal counsel and that the
Loan Documents shall be constructed as if jointly drafted by Heller and
Borrower.
9.12 Confidentiality. Heller agrees to take and to cause its
Affiliates, employees and agents to take, normal and reasonable precautions and
exercise due care to maintain the confidentiality of all information provided
to it by the Borrower, and neither Heller nor any of its Affiliates, employees
or agents shall use any such information other than in connection with or in
<PAGE>
enforcement of this Agreement and the other Loan Documents; except to the
extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by Heller, or (ii) was or becomes
available on a non-confidential basis from a source other than the Borrower,
Liberty or Persons known to Heller to be the Borrower's agents, lawyers or
independent auditors, provided that such source is not bound by a
confidentiality agreement with the Borrower known to Heller; provided, however,
that Heller may disclose such information (A) at the request or pursuant to any
requirement of any governmental authority to which Heller is subject or in
connection with an examination of Heller by any such authority; (B) pursuant to
subpoena or other court process; (C) when required to do so in accordance with
the provisions of any applicable requirement of law; (D) to the extent
reasonably required in connection with any litigation or proceeding to which
Heller or its Affiliates may be party; (E) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document; (F) to Heller's independent auditors and other professional advisors;
and (G) to any financial institution or institutional investor purchasing a
participation or to which any Loans and Commitments are assigned, actual or
potential, provided that such participant or assignee, actual or potential,
agrees in writing to keep such information confidential to the same extent
required of Heller hereunder.
9.13 Waiver of Jury Trial. BORROWER AND HELLER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER AND HELLER
ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR
THIS WAIVER, BE REQUIRED OF LENDERS. 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. BORROWER AND HELLER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER AND HELLER 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 THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS, OR THE LENDER GUARANTEES. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9.14 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans, issuances of Lender
Guarantees and the execution and delivery of the Notes. Notwithstanding
anything in this Agreement or implied by law to the contrary, the agreements of
Borrower set forth in subsections 1.3(B) and 9.1 shall survive the payment of
the Loans and the termination of this Agreement.
9.15 Entire Agreement. This Agreement, the Notes and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, understandings, whether oral or written, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous or subsequent oral agreements or discussions of the
<PAGE>
parties hereto.
SECTION 10
DEFINITIONS
10.1 Certain Defined Terms. The terms defined below are used in this
Agreement as so defined. Terms defined in the preamble and recitals to this
Agreement are used in this Agreement as so defined.
"ADDITIONAL SELLER NOTES" means one or more promissory notes
of Borrower or any of its Subsidiaries representing all or a part of
the deferred purchase price of a business, business unit or product
line acquired by Borrower or any of its Subsidiaries from the obligee
of such note.
"AFFILIATE" means any Person (other than Heller): (a)
directly or indirectly controlling, controlled by, or under common
control with, Borrower; (b) directly or indirectly owning or holding
five percent (5%) or more of any equity interest in Borrower; or (c)
five percent (5%) or more of whose voting stock or other equity
interest is directly or indirectly owned or held by Borrower. For
purposes of this definition, "CONTROL" (including with correlative
meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession directly or indirectly of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities or by
contract or otherwise.
"AGREEMENT" means this Credit Agreement (including all
schedules, exhibits, annexes and appendices hereto).
"ASSET DISPOSITION" means the disposition whether by sale,
lease, transfer, loss, damage, destruction, condemnation or otherwise
of any of the following: (a) any of the stock of any of Borrower's
Subsidiaries or (b) any or all of the assets of Borrower or any of its
Subsidiaries other than sales of inventory in the ordinary course of
business.
"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "BANKRUPTCY", as amended from time to time or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
and all rules and regulations promulgated thereunder.
"BUSINESS DAY" means (a) for all purposes other than as
covered by clause (b) below, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the Commonwealth of
Pennsylvania or the State of Illinois, or is a day on which banking
institutions located in any such states are closed, and (b) with
respect to all notices, determinations, fundings and payments in
connection with Loans bearing interest at the LIBOR Rate, any day that
is a Business Day described in clause (a) above and that is also a day
for trading by and between banks in Dollar deposits in the applicable
interbank LIBOR market.
"CLOSING DATE" means _______ __, 1996.
"COLLATERAL" means, collectively: (a) all capital stock and
<PAGE>
other property, if any, pledged pursuant to the Security Documents;
(b) all "COLLATERAL" as defined in the Security Documents; (c) all
real property mortgaged pursuant to the Security Documents; and (d)
any property or interest provided in addition to or in substitution
for any of the foregoing.
"DEFAULT" means a condition or event that, after notice or
lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable
grace or cure period.
"EXPIRY DATE" means the earlier of (a) the suspension
(subject to reinstatement) of the Revolving Loan Commitment pursuant
to subsection 6.2, (b) the acceleration of the Obligations pursuant to
subsection 6.3 or (c) November 30, 1998, as such date may be extended
by mutual agreement of Heller and Borrower.
"GAAP" means generally accepted accounting principles as set
forth in statements from Auditing Standards No. 69 entitled "THE
MEANING OF 'PRESENT FAIRLY IN CONFORMANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE INDEPENDENT AUDITORS REPORTS'" issued by
the Auditing Standards Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as
of the date of determination.
"HOLDINGS" means Arcade Holding Corporation, a Delaware
corporation.
"INDEBTEDNESS", as applied to any Person, means: (a) all
indebtedness for borrowed money; (b) that portion of obligations with
respect to capital leases that is properly classified as a liability
on a balance sheet in conformity with GAAP; (c) notes payable and
drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money; (d) any obligation owed
for all or any part of the deferred purchase price of property or
services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or
similar written instrument; and (e) 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.
"INTERCREDITOR AGREEMENT" means that certain Intercreditor
Agreement of even date herewith among Heller, SBA, Borrower and
Holdings.
"LIBERTY" means Liberty Partners Holdings 4, LLC.
"LIEN" means any lien, levy, assessment, mortgage, pledge,
security interest, charge or encumbrance of any kind, whether
voluntary or involuntary, (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"LOAN DOCUMENTS" means this Agreement, the Notes, the
Security Documents and all other instruments, documents and agreements
executed by or on behalf of any Loan Party and delivered concurrently
herewith or at any time hereafter to or for the
<PAGE>
benefit of Heller in connection with the Loans and other transactions
contemplated by this Agreement, all as amended, supplemented or
modified from time to time, but excluding all Senior Term Loan
Documents and Subordinated Loan Documents but including that certain
side letter of even date herewith by Heller to Borrower with respect
to eligible accounts, which side letter will be delivered by Heller
to Borrower on the Closing Date.
"LOAN PARTY" means, collectively, Holdings, Borrower,
Borrower's Subsidiaries and any other Person (other than Heller or
SBA) which is or becomes a party to any Loan Document.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
upon the business, operations, properties, assets or financial
condition of the Loan Parties taken as a whole or (b) the material
impairment of the ability of any Loan Party to perform its obligations
under any Loan Document to which it is a party or of Heller to enforce
any Loan Document or collect any of the Obligations. In determining
whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such
effect, a Material Adverse Effect shall be deemed to have occurred if
the cumulative effect of such event and all other then existing events
would result in a Material Adverse Effect.
"NOTE" or "NOTES" means one or more of the notes of Borrower
substantially in the form of Exhibit 10.1(A), or any combination
thereof.
"OBLIGATIONS" means all obligations, liabilities and
indebtedness of every nature of each Loan Party from time to time owed
to Heller under the Loan Documents including the principal amount of
all debts, claims and indebtedness, accrued and unpaid interest and
all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to
time hereafter owing, due or payable whether before or after the
filing of a proceeding under the Bankruptcy Code by or against
Borrower or its Subsidiaries.
"PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof and their
respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such
Person).
"RELATED TRANSACTIONS" means the execution and delivery of
the Related Transactions Documents, the funding of all Loans on the
Closing Date, the repayment of the any Indebtedness identified on
Schedule 10.1(A) which is to be paid in full on the Closing Date, and
the payment of all fees, costs and expenses associated with all of the
foregoing.
"RELATED TRANSACTIONS DOCUMENTS" means the Loan Documents,
the Senior Term Loan Documents, the Subordinated Loan Documents, and
all other agreements, instruments and documents executed or delivered
in connection with the Related Transactions.
<PAGE>
"RESPONSIBLE OFFICER" means the Chairman, President or Chief
Operating Officer of Borrower.
"SBA" means State Board of Administration of Florida.
"SECURITY DOCUMENTS" means all instruments, documents and
agreements executed by or on behalf of any Loan Party to guaranty or
provide collateral security with respect to the Obligations including,
without limitation, any security agreement or pledge agreement, any
guaranty of the Obligations, any mortgage, and all instruments,
documents and agreements executed pursuant to the terms of the
foregoing.
"SELLER NOTES" means that certain Promissory Note dated as of
June 9, 1995 in the original principal amount of $1,877,000 and that
certain Conditional Promissory Note dated as of June 9, 1995 in the
original principal amount of $1,750,000, each made by Borrower to
Elaine Trebek-Kares.
"SENIOR TERM LOAN" means that certain term loan in the
original principal amount of $21,400,000 evidenced by the Senior Term
Note.
"SENIOR TERM LOAN AGREEMENT" means that certain Senior Loan
Agreement dated as of November 4, 1993 between Borrower and SBA, as
amended by Amendment No. 1 to Senior Loan Agreement of even date
herewith and as subsequently amended as permitted herein.
"SENIOR TERM LOAN DOCUMENTS" means the Senior Term Loan
Agreement, Senior Term Note, and all other documents, instruments and
agreements executed in connection therewith, as any of the same may be
subsequently amended as permitted herein.
"SENIOR TERM NOTE" means that certain Senior Term Note dated
as of April 30, 1996 in the original principal amount of $16,411,000,
made by Borrower to SBA, which Senior Term Note consolidates and
restates that certain Senior Term Note dated November 5, 1993 in the
original principal amount of $21,400,000, and those certain
Conditional Senior Term Notes dated August 2, 1994 and June 30, 1995
in the original aggregate principal amounts of $4,000,000, each made
by Borrower to SBA, as it may subsequently be amended as permitted
herein.
"SUBORDINATED INDEBTEDNESS" means the Indebtedness evidenced
by the Subordinated Notes, the Refinanced Subordinated Indebtedness
and all other Indebtedness of Borrower or any of its Subsidiaries
which is subordinated in right of payment to the Obligations.
"SUBORDINATED LOAN DOCUMENTS" means that certain Subordinated
Loan Agreement dated November 4, 1993, as amended by Amendment No. 1
to Subordinated Loan Agreement of even date herewith, each between
Borrower and SBA, Subordinated Notes and all documents, instruments
and agreements executed in connection therewith, as any of the same
may be subsequently amended as permitted herein.
"SUBORDINATED NOTES" means, jointly and severally, that
certain Subordinated Promissory Note I dated November 5, 1993 in the
original principal amount of $23,000,000, that certain Subordinated
Promissory Note II dated November 5, 1993 in the
<PAGE>
original principal amount of $7,000,000, and those certain notes
executed and delivered by Borrower to SBA pursuant to Section 2.03(a)
of the Subordinated Loan Agreement dated November 4, 1993, as
amended, each made by Borrower to SBA. as hereafter amended as
permitted herein.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, association or other business entity of
which more than fifty percent (50%) of the total voting power of
shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidi aries of that Person or a combination
thereof.
10.2 Other Definitional Provisions. References to "SECTIONS",
"SUBSECTIONS", "EXHIBITS" and "SCHEDULES" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 10.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, "HEREOF," "HEREIN," "HERETO," "HEREUNDER"
and the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "WRITING"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "INCLUDING," "INCLUDES" and "INCLUDE" shall be
deemed to be followed by the words "WITHOUT LIMITATION"; references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only
to the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document;
references to Persons include their respective permitted successors and assigns
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.
<PAGE>
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
HELLER FINANCIAL, INC.
By:_____________________________
Title: ______ Vice President
ARCADE, INC.
By_____________________________
Title__________________________
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit 1.2(G) - LIBOR Rate Loan Request
Exhibit 4.6(C) - Compliance Certificate
Exhibit 4.6(F) - Borrowing Base Certificate
Exhibit 10.1(A) - Notes
Schedules
- ---------
Schedule 3.2(A)(12)- Liens
Schedule 3.4 - Contingent Obligations
Schedule 3.8 - Affiliate Transactions
Schedule 3.9 - Management Fees and Compensation
Schedule 3.10 - Business Description
Schedule 5.3 - Violations, Conflicts, Breaches
and Defaults
Schedule 5.4(A) - Jurisdictions of Organization
Schedule 5.4(B) - Capitalization
Schedule 5.4(D) - Foreign Qualifications
Schedule 5.6 - Intellectual Property
Schedule 5.7 - Investigations and Audits
Schedule 5.8 - Employee Matters
Schedule 7.1 - List of Closing Documents
Subschedule A-12 - Litigation
Subschedule A-13 - Employee Benefit Plans
Subschedule A-14 - Closing Fees
Subschedule A-15 - Investments
Subschedule A-16 - Derivatives
Schedule 10.1(A) - Indebtedness to be Repaid
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT,
ASSUMPTION AND MASTER REAFFIRMATION
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, ASSUMPTION AND MASTER
REAFFIRMATION (this Amendment ) is entered into as of December 12, 1997, by and
among ARCADE HOLDING CORPORATION, a Delaware corporation ( Holdings ), ARCADE,
INC., a Tennessee corporation (the Borrower ), and HELLER FINANCIAL, INC., a
Delaware corporation ( Heller ).
W I T N E S S E T H:
WHEREAS, Borrower and Heller have entered into that certain Credit
Agreement dated as of April 30, 1996 (as the same may be amended, modified,
restated or otherwise supplemented from time to time, the Credit Agreement );
and
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
November 14, 1997 (the Stock Purchase Agreement ) by and among AHC I
Acquisition Corp., a Delaware corporation ( Acquisition Corp. ), Holdings and
the parties identified therein as Sellers , as amended by that certain First
Amendment to Stock Purchase Agreement dated as of December 2, 1997, Acquisition
Corp. has agreed to purchase, or cause a wholly-owned subsidiary to purchase,
from Sellers, and Sellers have agreed to sell to Acquisition Corp. or such
wholly-owned subsidiary, all of the outstanding equity securities of Holdings
(the Acquisition ); and
WHEREAS, Acquisition Corp. has designated and expects to cause AHC I
Merger Corp., a Delaware corporation ( Merger Co.), a wholly owned subsidiary
of Acquisition Corp., to purchase such outstanding equity securities; and
WHEREAS, simultaneously with the Acquisition, it is contemplated that
(a) Merger Co. shall merge with and into Holdings and (b) Borrower shall merge
with and into Holdings, in each instance, with Holdings as the surviving
corporation and to be renamed Arcade Marketing, Inc., which surviving
corporation shall be a Delaware corporation (together, the Mergers ); and
<PAGE>
WHEREAS, the parties to the Credit Agreement desire to amend the
Credit Agreement to, among other things, increase the Revolving Loan
Commitment, all on the terms and subject to the conditions set forth herein;
and
WHEREAS, the Loan Parties have previously executed and delivered to
Heller various Loan Documents; and
WHEREAS, each of the Loan Parties will derive both direct and indirect
benefits from the Loans and other financial accommodations made pursuant to the
Credit Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
R E C I T A L S:
1. Definitions; Recitals. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Credit Agreement. The
foregoing recitals are hereby incorporated herein by this reference thereto.
2. Amendments. The Credit Agreement is amended as set forth below:
(a) SUBSECTION 1.1(A). The first paragraph of subsection
1.1(A) of the Credit Agreement is deleted in its entirety and the
following substituted therefor:
(A) Revolving Loan. Heller agrees to lend from the
Closing Date to the
<PAGE>
Expiry Date amounts up to a maximum of $20,000,000 (the
Revolving LOAN COMMITMENT or Commitment ). Advances or
amounts outstanding under the Revolving Loan Commitment will
be called REVOLVING LOANS or LOANS . Revolving Loans may be
repaid and reborrowed. The MAXIMUM REVOLVING LOAN BALANCE
will be the lower of:
(1) the BORROWING BASE (as calculated on Exhibit
4.6(F), the BORROWING BASE CERTIFICATE ); and
(2) the Revolving Loan Commitment less any
outstanding Lender Guarantees.
(b) SUBSECTION 1.2(A). Subsection 1.2(A) is amended as
follows:
(i) the first sentence of that subsection is hereby
deleted and the following substituted therefor:
(A) Interest. From the date the Loans are made and the other
Obligations become due and payable in accordance with the terms of
this Agreement and the other Loan Documents, the Obligations shall
bear interest at the sum of the Base Rate plus three quarters of one
percent (0.75%) per annum and/or, with respect to any LIBOR Rate Loan,
the sum of the LIBOR Rate plus two and one-half percent (2.50%) per
annum.
(ii) the phrase Ache Chase Manhattan Bank, National
Association and Chemical Bank in each of the first and second
paragraphs are deleted and the phrase The Chase Manhattan
Bank and Citibank, N.A. is substituted therefor.
(c) SUBSECTION 1.2(C). Subsection 1.2(C) is hereby amended by deleting
the phrase Two and three quarters percent (2.75%) and substituting the phrase
Two and one-half percent (2.50%) therefor.
<PAGE>
(d) SUBSECTION 1.3(C). Subsection 1.3(C) is deleted in its
entirety.
(e) INTENTIONALLY OMITTED.
(f) SUBSECTION 3.1. Subsection 3.1 is deleted in its entirety
and the following substituted therefor:
3.1 Indebtedness. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to create, incur, assume, guaranty,
or otherwise become or remain directly or indirectly liable with respect to any
Indebtedness except:
(A) the Obligations;
(B) intercompany Indebtedness among Borrower and its
Subsidiaries; provided that if Borrower is the obligor, the
obligations of Borrower shall be subordinated in right of
payment to the Obligations from and after such time as any
portion of the Obligations shall become due and payable
(whether at stated maturity, by acceleration or otherwise);
(C) to the extent permitted under the Bridge Notes
documentation or Refinanced Bridge Indebtedness
documentation, as applicable, Indebtedness secured by
purchase money Liens, Indebtedness incurred with respect to
capital leases and Indebtedness evidenced by the Additional
Seller Notes, not to exceed $7,500,000 in the aggregate;
(D) Indebtedness evidenced by the Bridge Notes;
<PAGE>
(E) Indebtedness of Borrower incurred to refinance
the Bridge Notes and the PIK Note ( Refinanced BRIDGE
INDEBTEDNESS ) provided all of the following conditions are
satisfied:
(i) the maximum Refinanced Bridge
Indebtedness shall not exceed, in the aggregate at
any time outstanding, the lesser of (i) the sum of
(A) the outstanding principal amount of and accrued
interest and accreted discount on the Bridge Notes
and PIK Note being refinanced and (B) reasonable and
customary fees, expenses and underwriting discounts
incurred in connection with such refinancing and
(ii) $165,000,000, and shall be unsecured;
(ii) the Person providing such Indebtedness
(or, in the case of Indebtedness to be provided by
means of a public offering or an offering made
pursuant to Rule 144A under the Securities Act of
1933, as amended, the lead manager in respect of
such offering) is Donaldson Lufkin & Jeanrette
Securities Corporation or another Person reasonably
acceptable to Heller and such Refinanced Bridge
Indebtedness is on market terms and conditions; and
(iii) after giving effect to such
incurrence, Borrower is in compliance on a proforma
basis with the covenants set forth in subsections
4.3, 4.4 and 4.5, recomputed for the most recent
month for which financial statements have been
delivered;
(F) Indebtedness evidenced by the Seller Notes; and
(G) to the extent permitted under the Bridge Notes
documentation or Refinanced Bridge Indebtedness
documentation, as applicable, unsecured Indebtedness not
permitted under clauses (A) through (F) above in an aggregate
principal amount not to exceed $3,000,000 in the aggregate at
any time outstanding.
<PAGE>
(g) SUBSECTION 3.2(A). Subsection 3.2(A) is amended by deleting clause
(A)(12) of that subsection.
(h) SUBSECTION 3.2(B). Subsection 3.2(B) is amended by deleting the
phrase Senior Term Loan Documents and Subordinated Loan Documents and
substituting therefor the phrase Ache Securities Purchase Agreement in respect
of the Bridge Notes, any indenture, instrument or other document entered into
in connection with the Indebtedness permitted under subsections 3.1(E) and (F)
and, solely with respect to the assets financed with Indebtedness permitted
under subsection 3.1(C), agreements, instruments and other documents entered
into in respect of such Indebtedness
(i) SUBSECTION 3.4. Subsection 3.4 is amended by adding the phrase ;
provided, however, in no event may Subsidiaries of Borrower guaranty the
obligations of Borrower with respect to Indebtedness permitted pursuant to
subsection 3.1(D) or 3.1(E) unless Heller shall have received a first priority
pledge of one hundred percent (100%) of the issued and outstanding capital
stock of such Subsidiaries and such Subsidiaries shall have guaranteed the
Obligations and granted security interests in their real, personal and mixed
property in accordance with subsection 2.5 (including Scent Seal, Inc., if
Scent Seal, Inc. guarantees the obligations of Borrower with respect to
Indebtedness permitted pursuant to subsection 3.1(D) or 3.1(E)) at the end of
clause (H) thereof.
(j) SUBSECTION 3.5. Subsection 3.5 is amended by (i) deleting clauses
(C), (D) and (E) thereof;
(ii) deleting Clause (H) and substituting the following
therefor:
(H) Borrower may make distributions to Holdings
solely to permit Holdings to redeem from officers, directors
and employees of Holdings, the Borrower or Subsidiaries of
the Borrower (or their heirs or estates) shares of Holdings
capital stock provided all of the following conditions are
satisfied:
<PAGE>
(i) no Default or Event of Default has occurred and
is continuing or would arise as a result of such distribution
or redemption;
(ii) after giving effect to such distribution and
redemption, Borrower is in compliance on a pro forma basis
with the covenants set forth in subsections 4.3, 4.4 and 4.5,
recomputed for the most recent month for which financial
statements have been delivered;
(iii) the aggregate distributions permitted (x) in
any fiscal year of Borrower shall not exceed $500,000 and (y)
during the term of this Agreement shall not exceed
$1,500,000; and
(iv) after giving effect to such redemption, the
Maximum Revolving Loan Balance exceeds the aggregate
outstanding principal balance of Revolving Loans by not less
than $3,000,000; and
(I) Provided no Default or Event of Default has occurred and
is continuing, Borrower may make distributions to Holdings solely to
permit Holdings to pay, without duplication of any amounts paid by
Borrower, the management or advisory fee described in subsection
3.8(a) and
(iii) deleting the phrase , Seller Notes on the thirteenth line of the
definition of Restricted Junior Payment contained therein.
(k) SUBSECTION 3.8. Subsection 3.8 is amended by (i) deleting clauses
(a) and (b) of such subsection and substituting the following therefor:
(a) without duplication of amounts which may be paid by
Holdings, payment of a management or advisory fee to DLJ not to
exceed, in the aggregate, $250,000 per year, payable quarterly in
arrears on the first day of each quarter,
<PAGE>
commencing April 1, 1998, (b) to make any Restricted Junior Payments
permitted under subsection 3.5, (c) to enter into and perform their
respective obligations under arrangements with DLJ and its affiliates
for underwriting, investment banking and advisory services on standard
and customary terms and conditions which are disclosed in writing to
Heller, or (d) as set forth in Schedule 3.8. ; and
(ii) deleting the last sentence thereof and substituting the
following:
Notwithstanding the foregoing, no payments may be made with
respect to the management or advisory fee described in clause (a)
above upon the occurrence and during the continuation of a Default or
an Event of Default.
(l) SUBSECTION 3.9. Subsection 3.9 is amended by deleting clause (a)
thereof and the last sentence thereof.
(m) SUBSECTION 3.11 Subsection 3.11 is amended by adding the phrase,
Indebtedness evidenced by the Bridge Notes, the Refinanced Bridge Indebtedness
immediately after the phrase Subordinated Indebtedness on the third line
thereof.
(n) SUBSECTION 4.3. Subsection 4.3 is deleted in its entirety and the
following substituted therefor:
4.3 EBIDAT.
(a) Borrower shall not permit EBIDAT for any period
set forth below to be less than the amount set forth below
for such period:
<PAGE>
Period Amount
January 1, 1998 through March 31, 1998 $ 5,600,000
January 1, 1998 through June 30, 1998 $11,200,000
January 1, 1998 through September 30, 1998 $16,800,000
January 1, 1998 through December 31, 1998 $22,400,000
(b) Borrower shall not permit EBIDAT for the twelve
(12) month period ending on the last day of any month,
commencing January 31, 1999, during the periods set forth
below to be less than the amount set forth below for such
period:
Period Amount
January 1, 1999 through June 30, 1999 $23,200,000
July 1, 1999 through December 31, 1999 $25,500,000
January 1, 2000 through June 30, 2000 $27,800,000
July 1, 2000 through December 31, 2000 $28,800,000
January 1, 2001 through June 30, 2001 $29,800,000
July 1, 2001 through June 30, 2002 $32,000,000
July 1, 2002 and thereafter $34,300,000
EBIDAT will be calculated as illustrated on Exhibit 4.6(C).
(o) SUBSECTION 4.4. Subsection 4.4 is deleted in its entirety
and the following substituted therefor:
4.4 Fixed Charge Coverage.
(a) Borrower shall not permit Fixed Charge Coverage for
any period set forth below to be less than the amount set forth below
for such period:
Period Coverage
<PAGE>
January 1, 1998 through March 31, 1998 1.0
January 1, 1998 through June 30, 1998 1.0
January 1, 1998 through September 30, 1998 1.0
January 1, 1998 through December 31, 1998 1.0
(b) Borrower shall not permit Fixed Charge Coverage for the
twelve (12) month period ending on the last day of each month,
commencing January 31, 1999, to be less than (i) for periods ending on
or prior to June 30, 1999, 1.05, (ii) for periods ending from July 1,
1999 through June 30, 2002, 1.10 and (iii) thereafter, 1.15. FIXED
CHARGE COVERAGE will be calculated as illustrated on Exhibit 4.6(C).
(p) SUBSECTION 4.5. Subsection 4.5 is deleted in its entirety and the
following substituted therefor:
4.5 Total Indebtedness to Operating Cash Flow Ratio.
(a) Borrower shall not permit the ratio of Total
Indebtedness calculated as of the last day of any period set
forth below to an amount equal to (x) (i) in the case of the
period January 1, 1998 through March 31,1998, EBIDAT for such
period multiplied by four, (ii) in the case of the period
January 1, 1998 through June 30, 1998, EBIDAT for such period
multiplied by two and (iii) in the case of the period January
1, 1998 through September 30, 1998, EBIDAT for such period
multiplied by 4/3 less (y) in each case, Unfinanced Capital
Expenditures and Other Capitalized Costs (other than Capital
Expenditures and fees and expenses capitalized with respect
to the Related Transactions) for the period of four fiscal
quarters ended on the last day of such period, to be greater
than the amount set forth below for such period:
Period Ratio
January 1, 1998 through March 31, 1998 9.0
January 1, 1998 through June 30, 1998 9.0
January 1, 1998 through September 30, 1998 9.0
<PAGE>
January 1, 1998 through December 31, 1998 9.0
(b) Borrower shall not permit the ratio of Total Indebtedness
calculated as of the last day of any month during the periods set forth below
to Operating Cash Flow for the twelve (12) month period ending on such day to
be greater than the amount set forth below for such period:
Period Ratio
January 1, 1999 through June 30, 1999 8.75
July 1, 1999 through December 31, 1999 7.9
January 1, 2000 through June 30, 2000 7.2
July 1, 2000 through December 31, 2000 6.9
January 1, 2001 through June 30, 2001 6.7
July 1, 2001 through June 30, 2002 6.20
July 1, 2002 and thereafter 5.75
TOTAL INDEBTEDNESS, OPERATING CASH FLOW, UNFINANCED CAPITAL
EXPENDITURES AND OTHER CAPITALIZED COSTS will be calculated as illustrated as
Exhibit 4.6(C).
(q) SUBSECTION 5.4. Subsection 5.4(B) is amended by adding
the following sentence at the end thereof, to the extent this
representation applies to Holdings, such representation shall only
apply to Holdings as of the date of the consummation of the Mergers,
provided, however, Borrower agrees to provide to Heller from time to
time, upon written request therefor, an updated capitalization
schedule.
(r) SUBSECTION 6.1. Subsection 6.1 is amended as follows:
(i) subclause (2) of clause (B) of Subsection 6.1 is
deleted in its entirety;
(ii) Clause (C) of Subsection 6.1 is deleted in its
entirety and the following substituted therefor:
(C) Breach of Certain Provisions. Failure of
Borrower to perform or comply with any term or
condition contained in that portion of subsection
2.2 relating to Borrower = s obligation to maintain
insurance, Section 3 or Section 4; or
(iii) Clause (R) of Subsection 6.1 is deleted in its
entirety and the following substituted therefor:
(R) Failure of Security. Heller does not
have or ceases to have a
<PAGE>
valid and perfected first priority security
interest in the Collateral (subject to Permitted
Encumbrances) or any substantial portion thereof,
in each case, for any reason other than the failure
of Heller to take any action within its control; or
(iv) Clause (S) of Subsection 6.1 is amended by (i)
replacing the word Loan with the phrase Related Transactions
on the third line thereof and (ii) adding the following at
the end of such clause:
unless Heller shall have received a first priority
pledge of one hundred percent (100%) of the issued
and outstanding capital stock of Borrower
(v) Clause (T) of Subsection 6.1 is deleted in its
entirety and the following substituted therefor:
(T) Change in Control. (1) (i) prior to the
acquisition, if any, by Hoak Communications Partners, L. P. (
Hoak ) (or any Person controlled by Hoak) of capital stock of
Holdings, DLJ ceases to beneficially own and control,
directly and indirectly, at least fifty-one percent (51%) of
the issued and outstanding shares of each class of capital
stock of Holdings entitled (without regard to the occurrence
of any contingency) to vote for the election of a majority of
the members of the board of directors of Holdings determined
on a fully diluted basis (assuming the full exercise of all
securities exercisable convertible or exchangeable for or
into capital stock of Holdings) or (ii) subsequent to the
acquisition, if any, by Hoak (or any Person controlled by
Hoak) of capital stock of Holdings, DLJ and Hoak (or any
Person controlled by Hoak), together, cease to beneficially
own and control, directly and indirectly, at least fifty-one
percent (51%) of the issued and outstanding shares of each
class of capital stock of Holdings entitled (without regard
to the occurrence of any contingency) to vote for the
election of a majority of the members of the board of
directors of Holdings determined on a fully diluted basis
(assuming the full exercise of all securities exercisable
convertible or exchangeable for or into capital stock of
Holdings); or (2) Holdings ceases to directly own and
control, free and clear of all Liens other than Liens in
favor of Heller, one hundred percent (100%) of the issued and
outstanding capital stock of Borrower; or
(vi) Clause (U) of Subsection 6.1 is deleted in its
entirety.
(vii) Clause (V) of Subsection 6.1 is deleted in its
entirety.
(s) SUBSECTION 9.1. Subsection 9.1 is hereby amended by
deleting the phrase or for Losses to the extent imposed, incurred by
or asserted against Heller as a result of a breach or default by SBA
or Heller under the Intercreditor Agreement .
<PAGE>
(t) SUBSECTION 9.2. Subsection 9.3 is amended by (i) deleting
the parenthetical clause in the fourth, fifth and sixth lines of the
first paragraph and (ii) deleting the second paragraph and
substituting the following therefor:
Notices shall be addressed as follows:
If to Borrower: Arcade Marketing, Inc.
P. O. Box 3156
1815 E. Main Street
Chattanooga, Tennessee 37404
ATTN: Chief Operating Officer
Telecopy: (423) 697-7126
With a copy to: DLJ Merchant Banking II, Inc.
277 Park Avenue, 19th Floor
New York, New York 10172
ATTN: David Wittels
Telecopy: (212) 892-7272
With a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
ATTN: Lawrence E. Wieman
Telecopy: (212) 450-4800
If to Heller: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN:Account Manager
Corporate Finance Group
Telecopy: (312) 441-7367
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Legal Department
Corporate Finance Group
Telecopy: (312) 441-7367
(u) SUBSECTION 9.12. Subsection 9.12 is amended by
substituting the phrase DLJ for the word Liberty on the eleventh line
thereof.
<PAGE>
(v) SUBSECTION 10.1. (i) Subsection 10.1 is amended by
substituting the following definitions in lieu of the current version
of such definitions:
EXPIRY DATE means the earlier of (a) the suspension
(subject to reinstatement) of the Revolving Loan Commitment
pursuant to subsection 6.2, (b) the acceleration of the
Obligations pursuant to subsection 6.3 or (c) December 31,
2002, as such date may be extended by mutual agreement of
Heller and Borrower.
HOLDINGS means AHC I Acquisition Corp., a Delaware
corporation.
RELATED TRANSACTIONS means the execution and delivery of
the Related Transactions Documents, the funding of all Loans
on the Closing Date, the Acquisition, the Mergers, the
repayment of any Indebtedness identified on Schedule 10.1(A)
which is to be paid in full on the Closing Date, and the
payment of all fees, costs and expenses associated with all
of the foregoing.
RELATED TRANSACTION DOCUMENTS means (i) the Loan
Documents and the Stock Purchase Agreement; (ii) until such
time as the Bridge Notes shall have been refinanced in full,
the Bridge Notes and the Securities Purchase Agreement; (iii)
until such time as the PIK Notes shall have been refinanced
in full, the PIK Notes and (iv) until such time as such
agreements, instruments or documents shall have expired or
been terminated by their express terms or by mutual agreement
of the parties thereto, all other agreements, instruments and
documents executed or delivered in connection with the
Related Transactions.
SUBORDINATED INDEBTEDNESS means all Indebtedness of
Borrower or any of its Subsidiaries which is subordinated in
right of payment to the Obligations.
(ii) Subsection 10.1 and the relevant provisions of
the Credit
<PAGE>
Agreement and other Loan Documents are further amended by
deleting the following definitions and all references to such
terms throughout the Credit Agreement and other Loan
Documents, including, without limitation, subsections 3.2,
3.11, 6.1 and 10.1 of the Credit Agreement:
ADDITIONAL SENIOR TERM LOAN
INTERCREDITOR AGREEMENT
LIBERTY
REFINANCED SUBORDINATED INDEBTEDNESS
SBA
SENIOR TERM LOAN
SENIOR TERM LOAN AGREEMENT
SENIOR TERM LOAN DOCUMENTS
SENIOR TERM NOTE
SUBORDINATED LOAN DOCUMENTS
SUBORDINATED NOTES
<PAGE>
(iii) Subsection 10.1 is further amended by adding the
following definitions:
BRIDGE NOTES means those certain Senior Increasing Rate Notes
dated December 15, 1997 in the original aggregate principal amount not
to exceed $125,000,000, issued by AHC I Merger Corp., a Delaware
corporation, to Scratch & Sniff Funding, Inc., which notes were, or
will be, issued pursuant to the Securities Purchase Agreement, a true,
correct and complete copy of which has been delivered to Heller.
DLJ means DLJ Merchant Banking II, Inc. and its affiliates.
PIK NOTE means that certain Floating Rate Exchangeable PIK
Note Due 2009 dated December 15, 1997 in the original principal amount
of $30,000,000, issued by Holdings to DLJ, a true, correct and
complete copy of which has been delivered to Heller.
REFINANCED BRIDGE INDEBTEDNESS has the meaning set forth in
clause (E) of Subsection 3.1.
SECURITIES PURCHASE AGREEMENT means that certain Securities
Purchase Agreement dated as of December 15, 1997 by and among
Holdings, AHC I Merger Corp. and Scratch & Sniff Funding, Inc.
(aa) Schedule 3.2(A)(12) is deleted.
(bb) Schedule 3.8 attached to the Credit Agreement is amended
by deleting item 2 therein and adding the items set forth on Schedule
3.8 hereto.
<PAGE>
(cc) Schedule 3.9 attached to Credit Agreement is deleted in
its entirety and Schedule 3.9 attached hereto is substituted therefor.
(dd) Schedule 4.6(C) attached to the Credit Agreement is
deleted in its entirety and Exhibit 4.6(C) attached hereto is
substituted therefor.
(ee) Exhibit 4.6(F) attached to the Credit Agreement is
deleted in its entirety and Exhibit 4.6(F) attached hereto is
substituted therefor.
3. Assumption. Arcade Holding Corporation, a Delaware
corporation, (which corporation shall be renamed Arcade Marketing,
Inc., simultaneously with the effectiveness of the Merger) hereby
assumes and agrees to keep, pay and perform all of the Obligations of
Arcade, Inc., a Tennessee corporation, under the Credit Agreement and
other Loan Documents. All references in the Credit Agreement and other
Loan Documents to Arcade, Inc., a Tennessee corporation, shall be
deemed to be references to Arcade Marketing, Inc., a Delaware
corporation (the successor by merger of Arcade, Inc., a Tennessee
corporation with and into Arcade Holding Corporation, a Delaware
corporation), and Arcade Marketing Inc., a Delaware corporation, shall
be deemed to be the Borrower, Pledgor or Debtor , as applicable, under
the Loan Documents. Without limiting the generality of the foregoing,
Arcade Holding Corporation, a Delaware corporation, hereby grants to
Heller, a continuing security interest in and to all of its right,
title and interest in the Collateral (as defined in the Security
Agreement dated as of April 30, 1996) as security for the Obligations,
as amended hereby.
4. Reaffirmation. Each of the Loan Parties as debtors,
grantors, pledgors, guarantors, assignors, or in other similar
capacities in which such Loan Parties grant liens or security
interests in their properties or otherwise act as accommodation
parties or guarantors, as the case may be, hereby ratifies and
reaffirms all of its payment and performance obligations, contingent
or otherwise, under each of the Loan Documents to which it is a party
and, to the extent such Loan Party granted liens on or security
interests in any of its properties pursuant to any such Loan Document
as security for or otherwise guaranteed Obligations under or with
respect to the Loan Documents, each hereby ratifies and reaffirms such
guarantee and grant of security interests and liens and confirms and
agrees that such security interests and liens hereafter secure all of
the Obligations as amended hereby. Each of the Loan Parties hereby
consents to this Amendment and acknowledges that each of the Loan
Documents remains in full force and effect and is
<PAGE>
hereby ratified and reaffirmed. The execution of this Amendment shall
not operate as a waiver of any right, power or remedy of Heller,
constitute a waiver of any provision of any of the Loan Documents or
serve to effect a novation of the Obligations.
5. Representations and Warranties. Arcade, Inc., a Tennessee
corporation and Arcade Holding Corporation, a Delaware corporation, hereby
represent and warrant to Heller as follows:
(a) After giving effect to the Acquisition and
Merger, the authorized capital stock of each of the Loan
Parties is as set forth on Schedule 5.4(B) attached hereto
(which schedule is hereby substituted for Schedule 5.4(B)
attached to the Credit Agreement). All issued and outstanding
shares of capital stock of each of the Loan Parties are duly
authorized and validly issued, fully paid, non-assessable,
free and clear of all Liens (other than, with respect to
capital stock of Holdings, transfer restrictions contained in
the Stockholders Agreement dated December 12, 1997 among
Holdings and the stockholders of Holdings party thereto and
Liens granted by management stockholders to Holdings to
secure loans made by Holdings to such stockholders to enable
them to purchase Holdings capital stock), and such shares
were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. The
issued and outstanding capital stock of each of the Loan
Parties is owned by the stockholders and in the amounts set
forth in Schedule 5.4(B) attached hereto. No shares of the
capital stock of any Loan Party, other than those described
above, are issued and outstanding. Except as set forth in
Schedule 5.4(B), there are no pre-emptive or other
outstanding rights, options, warrants, conversion rights or
similar agreements or understandings for the purchase or
acquisition from any Loan Party, of any shares of capital
stock or other securities of any such entity.
(b) Each of the Loan Parties has all requisite power
and authority to enter into each Loan Document and Related
Transaction Document to which it is a party and to carry out
the transactions contemplated thereby. The execution,
delivery and performance by each Loan Party of each Loan
Document and Related Transaction Documents to which it is a
party has been duly authorized by all necessary action. Each
Related Transaction Document has been duly executed and
delivered by the applicable Loan Parties and constitutes the
legally valid and binding obligations of the applicable Loan
Parties, each enforceable against the Loan Parties in
accordance with their respective terms. The execution,
delivery and performance of the Related Transaction Documents
and the consummation of the
<PAGE>
related transactions does not violate any law, ordinance,
rule, regulation, order or other legal requirement of any
governmental authority.
(c) The representations and warranties of Arcade
Holding Corporation set forth in the Stock Purchase Agreement
are true and correct in all material respects as of the date
hereof and such representations and warranties are hereby
incorporated herein by this reference with the same affect as
those set forth in their entirety herein.
6. Conditions. This Amendment shall not become effective
unless and until all of the following conditions have been satisfied:
(a) Borrower shall have delivered to Heller an
amended and substituted revolving note in the amount of
$20,000,000 duly executed by Borrower (whereupon Heller shall
return to Borrower the revolving note previously executed and
delivered to Heller) and the other documents identified in
the Closing Agenda, a copy of which is attached, all of which
shall be in form and substance satisfactory to Heller;
(b) Borrower shall have paid to Heller,
individually, a non-refundable closing fee of $300,000; and
(c) the Acquisition shall have closed in accordance
with the terms of the Stock Purchase Agreement and the
Mergers shall have been consummated in accordance with
applicable law.
7. Consent. Provided the conditions set forth in Section 6 hereof have
been satisfied, Heller hereby consents to the Acquisition and the Mergers and
agrees that the consummation thereof shall not constitute a breach or default
under subsections 3.6, 3.7 and 3.8.
1
<PAGE>
8. No Amendment. Except as amended hereby, the Credit Agreement and
other Loan Documents remain unmodified and in full force and effect. All
references in the Loan Documents to the Credit Agreement shall be deemed to be
references to the Credit Agreement as amended hereby. All references to the
Revolving Note shall refer to the amended and substituted revolving note to be
delivered to Heller pursuant to Section 6 above. All references to the
Obligations shall refer to the Obligations as amended hereby.
9. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment in any number of separate counterparts, each of which
when so executed, shall be deemed an original and all said counterparts when
taken together shall be deemed to constitute but one and the same instrument.
[Remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date set forth above.
HELLER FINANCIAL, INC., a Delaware corporation
By: _____________________________
Title: Vice President
ARCADE, INC., a Tennessee corporation
By: _____________________________
Title:
ARCADE HOLDING CORPORATION, a Delaware corporation
By: _____________________________
Title:
<PAGE>
EXHIBIT 10.9
------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and between
ARCADE MARKETING, INC.
AND
MINNESOTA MINING AND MANUFACTURING COMPANY
-------------------------------------
Dated as of May 28, 1998
-------------------------------------
------------------------------------------------------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I............................................................................................... 1
SECTION 1.1. Sale and Purchase of Assets............................................................. 2
SECTION 1.2. Excluded Assets......................................................................... 2
SECTION 1.3. Assignment of Contracts and Rights...................................................... 3
ARTICLE II.............................................................................................. 4
SECTION 2.1. Assumed Liabilities..................................................................... 4
SECTION 2.2. Excluded Liabilities.................................................................... 4
ARTICLE III............................................................................................. 4
SECTION 3.1. Purchase Price.......................................................................... 4
SECTION 3.2. Allocation of Purchase Price............................................................ 5
ARTICLE IV.............................................................................................. 5
SECTION 4.1. Closing................................................................................. 5
SECTION 4.2. Closing Deliveries of Seller............................................................ 5
SECTION 4.3. Closing Deliveries of Buyer............................................................. 6
SECTION 4.4. Transfer Taxes.......................................................................... 7
ARTICLE V............................................................................................... 7
SECTION 5.1. Organization and Good Standing......................................................... 7
SECTION 5.2. Authority.............................................................................. 7
SECTION 5.3. No Breach.............................................................................. 8
SECTION 5.4. Taxes.................................................................................. 8
SECTION 5.5. Assets................................................................................. 8
SECTION 5.6. Assigned Contracts..................................................................... 9
SECTION 5.7. Governmental Approvals................................................................. 9
SECTION 5.8. Compliance With Applicable Law......................................................... 9
SECTION 5.9. Employees; Employee Plans.............................................................. 9
SECTION 5.10. Approvals..............................................................................10
SECTION 5.11. Financial Information..................................................................10
SECTION 5.12. Changes in Circumstances...............................................................10
SECTION 5.13. Licenses; the Marks....................................................................11
SECTION 5.14. Legal Proceedings......................................................................11
SECTION 5.15. Brokers, Finders and Agents............................................................11
SECTION 5.16. Books and Records......................................................................12
SECTION 5.17. Disclosure.............................................................................12
SECTION 5.18. Legal Representation...................................................................12
SECTION 5.19. Insurance..............................................................................12
SECTION 5.20. Third Parties..........................................................................12
<PAGE>
ARTICLE VI...............................................................................................12
SECTION 6.1. Organization and Good Standing..........................................................12
SECTION 6.2. Authority...............................................................................12
SECTION 6.3. No Breach...............................................................................13
SECTION 6.4. Governmental Approvals..................................................................13
SECTION 6.5. Knowledge and Experience................................................................13
SECTION 6.6. Legal Representation....................................................................13
SECTION 6.7. Insurance...............................................................................13
SECTION 6.8. Brokers, Finders and Agents.............................................................14
ARTICLE VII..............................................................................................14
SECTION 7.1. Conduct of Business Prior to Closing....................................................14
SECTION 7.2. Mutual Cooperation; Further Assurances..................................................14
SECTION 7.3. Access to Information...................................................................14
SECTION 7.4. Exclusivity.............................................................................15
SECTION 7.5. Non-Competition.........................................................................15
SECTION 7.6. Offer of Employment.....................................................................17
SECTION 7.7. Claims..................................................................................17
ARTICLE VIII.............................................................................................18
SECTION 8.1. Conditions to Each Party's Obligations..................................................18
SECTION 8.2. Conditions to Obligations of Buyer......................................................18
SECTION 8.3. Conditions to Obligation of Seller......................................................19
ARTICLE IX...............................................................................................20
SECTION 9.1. Termination.............................................................................20
SECTION 9.2. Procedures and Effect of Termination....................................................20
ARTICLE X................................................................................................20
SECTION 10.1. Survival................................................................................20
ARTICLE XI...............................................................................................21
SECTION 11.1. Indemnification by Seller...............................................................21
SECTION 11.2. Indemnification by Buyer................................................................22
SECTION 11.3. Notice of Circumstances.................................................................22
ARTICLE XII..............................................................................................23
SECTION 12.1. Good Faith Settlement...................................................................23
SECTION 12.2. Arbitration.............................................................................23
ARTICLE XIII.............................................................................................24
SECTION 13.1. Confidentiality.........................................................................24
SECTION 13.2. Use of Confidential Information.........................................................25
SECTION 13.3. Protection of Confidential Information..................................................25
ARTICLE XIV..............................................................................................26
SECTION 14.1. Assignment..............................................................................26
SECTION 14.2. Parties in Interest.....................................................................26
<PAGE>
SECTION 14.3. Amendment.............................................................................26
SECTION 14.4. Waiver................................................................................26
SECTION 14.5. Fees and Expenses.....................................................................26
SECTION 14.6. Notices...............................................................................27
SECTION 14.7. Brokers...............................................................................28
SECTION 14.8. Certain Definitions...................................................................28
SECTION 14.9. Captions..............................................................................30
SECTION 14.10. Entire Agreement......................................................................30
SECTION 14.11. Specific Performance..................................................................30
SECTION 14.12. Severability..........................................................................31
SECTION 14.13. Waiver of Jury Trial..................................................................31
SECTION 14.14. Representatives.......................................................................31
SECTION 14.15. Public Announcement...................................................................31
SECTION 14.16. Exhibits and Schedules................................................................31
SECTION 14.17. Governing Law.........................................................................31
SECTION 14.18. Counterparts..........................................................................31
</TABLE>
<PAGE>
SCHEDULES
Schedule 1.1(a) - Fixed Assets
Schedule 1.1(c) - Assigned Contracts
Schedule 1.1(d) - Marks
Schedule 1.2(g) - Excluded Assets
Schedule 2.2 - Assumed Liabilities
Schedule 3.2 - Allocation of Purchase Price
Schedule 5.3 - Breaches of Contracts
Schedule 5.5 - Assets
Schedule 5.9(a) - Employees
Schedule 5.10 - Approvals
Schedule 5.11 - Financial Information
Schedule 5.1 2 - Changes in Circumstances
Schedule 5.1 4 - Legal Proceedings
Schedule 5.20 - Certain Third Party Agreements
EXHIBITS
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
Exhibit C - Marks Assignment Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of May 28, 1998 by and between
Arcade Marketing, Inc., a Delaware corporation ("Buyer"), and Minnesota Mining
and Manufacturing Company, a Delaware corporation ("Seller").
W I T N E S S E T H :
WHEREAS, Seller is in the business of promotional sampling products,
which is comprised of (i) the manufacture and sale of fragrance samplers and/or
slurry for advertising or promotion of any product or service without
restriction and (ii) the manufacture and sale of fragrance microcapsule slurry
or products incorporating fragrance microcapsule slurry (e.g. "scratch and
sniff" stickers) for delivery of fragrances other than for (a) agricultural
applications, (b) pharmaceutical applications, (c) mining applications (d)
where the fragrance is a marker to indicate the presence or absence of a
component in an industrial application, or (e) as a component in a
manufacturing process where the final consumer product does not contain
microcapsules (the "Business"); provided however, that the Business shall not
include (x) repositionable notes incorporating non-proprietary fragrance
microcapsule slurry and (y) the manufacture and sale of fragrance microcapsules
which are to be used as ingredients in products in a format other than coated
on the surface of a sheet material;
WHEREAS, Seller desires to sell, and Buyer desires to purchase the
Acquired Assets of the Business described above; and
WHEREAS, Seller additionally operates businesses utilizing technology
such as coating and encapsulation technologies, and wishes to continue to
operate these other non-competitive businesses.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereto do hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS; EXCLUDED ASSETS
SECTION 1.1. Sale and Purchase of Assets. Subject to the terms and
conditions set forth herein, and in reliance upon the representations and
warranties contained herein, Seller will sell, assign, convey, transfer and
deliver to Buyer, and Buyer will purchase and acquire from Seller free and
clear of all Liens, all of Seller's right, title and interest in and to the
assets, rights and interests of Seller relating primarily to the Business,
other than the Excluded Assets, as the same shall exist as of the Closing Date,
including, without limitation, the following:
<PAGE>
(a) Fixed Assets. All production and other machinery, equipment,
(including encapsulation equipment, computers, manuals, parts, fixtures, plant
and office equipment) and other fixed assets owned by Seller and relating
primarily to the Business, including without limitation those fixed assets set
forth on Schedule 1.1(a), together with any Claims of Seller arising out of the
maintenance or service contracts relating thereto or the breach of any express
or implied warranty by the manufacturers or sellers of any such assets or any
component part thereof (collectively, the "Fixed Assets");
(b) Business Records. Subject to Section 1.2(c), all books and records,
including without limitation all customer lists and files, material and services
vendor files, quotation files, invoices, forms, accounts, books of account,
correspondence, production records, technical, manufacturing and procedural
manuals, marketing materials, studies, reports or summaries relating to
compliance with any Laws or Assigned Contract, electronically stored or other
computerized information, and other books and records relating primarily to the
Business (collectively, the "Business Records");
(c) Contracts. Subject to Section 1.3 hereof, all rights, benefits,
claims and interests of Seller in, to or under all leases, contracts and
commitments to which Seller is a party relating primarily to the Business,
including without limitation all unfilled purchase and sales orders and all
maintenance and service contracts covering any of the Fixed Assets and all
non-compete and confidentiality agreements between Seller and any of its
suppliers and customers, in each case as set forth on Schedule 1.1(c)
(collectively, "Assigned Contracts");
(d) Marks. All of Seller's right, title and interest in and to the
trademarks, trade names and service marks listed on Schedule 1.1(d) (which shall
not include those items in Section 1.2(e)) and the related logos, symbols and
copyrights (the "Marks"); and
(e) Licenses. Licenses from the Seller in favor of the Buyer regarding
the Intellectual Property (the "Licenses").
The assets to be sold, assigned, conveyed, transferred and delivered to
Buyer by Seller pursuant to this Agreement are hereinafter collectively referred
to as the "Acquired Assets."
SECTION 1.2. Excluded Assets. Anything in Section 1.1 to the contrary
notwithstanding, the following assets relating primarily to the Business
(collectively, the "Excluded Assets") will be retained by Seller, and Buyer will
not purchase or acquire (and is not obligated to purchase or to acquire) any
interest therein:
(a) Accounts Receivable. All accounts receivable which relate to sales
invoiced prior to the Closing Date;
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(b) Inventory. All items held for sale or lease or to be furnished
under service contracts, work-in-process, finished items, supplies, packing and
shipping materials relating to the Business;
(c) Human Resources and Financial Records. All books and records
relating to human resources and finances of the Business (except as set forth in
Section 1.1(b));
(d) Cash and Cash Equivalents. All cash, cash equivalents and
marketable securities;
(e) Trade Name and Trade Name Restrictions. The right to use the trade
names and trademarks "3M" or any 3M corporate logo;
(f) Certain Contracts. Each and every lease, contract or commitment
listed on Schedule 1.1(c) hereof which Buyer has, prior to the Closing Date,
notified Seller that it does not wish to assume; or
(g) Other Assets. Those assets listed on Schedule 1.2(g).
SECTION 1.3. Assignment of Contracts and Rights.
(a) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign any Acquired Asset or any
claim or right or any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of a third party thereto,
would constitute a breach or other contravention thereof or in any way adversely
affect the rights of Buyer or Seller thereunder. Seller and Buyer will make a
good faith effort (but without any payment of money by Seller or Buyer) to
obtain the consent of the other parties to any such Acquired Asset or any claim
or right of any benefit arising thereunder for the assignment thereof to Buyer
as Buyer may request. If such consent is not obtained, or if an attempted
assignment thereof would be ineffective or would adversely affect the rights of
Seller thereunder so that Buyer would not in fact receive all such rights,
Seller and Buyer will cooperate in a mutually agreeable arrangement under which
Buyer would obtain the benefits and assume the obligations thereunder in
accordance with this Agreement, including sub-contracting, sub-licensing, or
sub-leasing to Buyer, or under which Seller would enforce for the benefit of
Buyer, with Buyer assuming Seller's obligations, any and all rights of Seller
against a third party thereto. Seller will promptly pay to Buyer when received
all monies received by Seller under any Acquired Asset or any claim or right or
any benefit arising thereunder, except to the extent the same represents an
Excluded Asset. In such event, Seller and Buyer shall, to the extent the
benefits therefrom and obligations thereunder have not been provided by
alternate arrangements satisfactory to Buyer and Seller, negotiate in good faith
an adjustment in the consideration paid by Buyer for the Acquired Assets.
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(b) Prior to the Closing Date, Buyer shall have the right, in its sole
discretion, to notify Seller of any of the leases, contracts or commitments
listed on Schedule 1.1(c) hereto which it does not wish to assume. Such notice
(the "Non-Assumption Notice") shall be in writing, and shall be delivered to
Seller prior to the Closing Date. The leases, contracts and commitments listed
in any Non-Assumption Notice shall be retained by Seller (and any and all
liabilities thereunder shall constitute "Retained Liabilities" for the purposes
of this Agreement) and Buyer shall have no liability to Seller arising out of
based upon or resulting from the non-assumption of such leases, contracts and
commitments.
ARTICLE II
ASSUMPTION OF LIABILITIES
SECTION 2.1. Assumed Liabilities. Subject to the terms and conditions
set forth herein, and in reliance upon the representations and warranties
contained herein, at the Closing, in consideration for the sale, assignment,
conveyance, transfer and delivery of the Acquired Assets to Buyer, Seller will
assign, convey and transfer to Buyer, and Buyer will unconditionally assume and
undertake to pay, perform and discharge, in a timely manner and in accordance
with the terms thereof, the liabilities identified on Schedule 2.1 to the extent
such liabilities relate to the Business and are incurred and become due at any
time following the Closing Date (the "Assumed Liabilities"), and no others.
Without limiting the generality of the foregoing, Buyer hereby agrees to assume,
undertake and perform all obligations of Seller under the Assigned Contracts to
the extent such obligations arise or are to be performed after the Closing Date.
SECTION 2.2. Excluded Liabilities. Anything contained herein to the
contrary notwithstanding, it is expressly understood and agreed that the Buyer
has not assumed, undertaken to pay, perform or discharge and shall not be liable
for any Claim against Seller arising on or before Closing, unless such Claim
against Seller is expressly assumed by Buyer under Section 2.1 (the "Excluded
Liabilities").
ARTICLE III
PURCHASE PRICE
SECTION 3.1. Purchase Price. Subject to the terms and conditions set
forth herein, in consideration for the sale, assignment, conveyance, transfer
and delivery of the Acquired Assets and the non compete agreement in Section 7.5
Buyer will at the Closing, (i) pay to Seller by wire transfer of immediately
available funds to Seller's bank account at ABA 091000019, 3M General Account
0030-103, Norwest Bank, Minneapolis, Minnesota, an amount equal to $7.25 million
(the "Purchase Price") and (ii) assume the Assumed Liabilities.
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SECTION 3.2. Allocation of Purchase Price. The parties agree to
allocate the Purchase Price (and all other capitalizable costs) among the
Acquired Assets and the non-compete agreement in Section 7.5 for all purposes
(including financial accounting and tax purposes) in accordance with the
allocation set forth in Schedule 3.2. Except to the extent otherwise required by
applicable law, Seller and Buyer shall make all tax returns, reports, forms,
declarations, claims and other statements in a manner consistent with Schedule
3.2 and shall not make any inconsistent statement or adjustment on any returns
or during the course of any Internal Revenue Service or other tax audit.
ARTICLE IV
CLOSING
SECTION 4.1. Closing. The Closing of the purchase and sale of the
Acquired Assets (the "Closing") will take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, 20th Floor, New York, New
York 10022 at 10:00 a.m., Eastern time, at such date and time as Seller and
Buyer may agree. The date of the Closing is referred to herein as the "Closing
Date".
SECTION 4.2. Closing Deliveries of Seller. At the Closing, Seller will
deliver or cause to be delivered to Buyer:
(a) A copy of the resolutions of the Operations Committee of the Board
of Directors of Seller authorizing and approving this Agreement and the
transactions and other agreements contemplated hereby, certified by a duly
authorized officer of Seller to be true, correct, complete and in full force and
effect and unmodified as of the Closing Date;
(b) The Licenses duly executed by Seller;
(c) A transition services agreement executed by Seller;
(d) A Bill of Sale duly executed by Seller transferring the Acquired
Assets to Buyer, substantially in the form of Exhibit A;
(e) An Assignment and Assumption Agreement duly executed by Seller,
substantially in the form of Exhibit B;
(f) An Assignment and Assumption Agreement relating to the Marks duly
executed by Seller substantially in the form of Exhibit C;
(g) An incumbency certificate of the appropriate officer of Seller;
(h) Releases, if any, including without limitation termination
statements under the Uniform Commercial Code of any financing statements filed
against
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any Acquired Assets, evidencing discharge, removal and termination of all Liens
to which any of the Acquired Assets are subject, which releases shall be
effective at or prior to the Closing;
(i) A certificate of a duly authorized officer of Seller confirming the
accuracy of the matters referred to in Sections 8.2(a), (b) and (c);
(j) True, correct and complete copies of each of the Assigned
Contracts; and
(k) Such other duly executed deeds, bills of sale, endorsements,
assignments, affidavits and other good and sufficient instruments of transfer,
in form and substance reasonably satisfactory to Buyer and its counsel, as are
necessary or reasonably requested by Buyer to effectuate the transactions
contemplated hereby.
SECTION 4.3. Closing Deliveries of Buyer. At the Closing, Buyer will
deliver or cause to be delivered to Seller:
(a) A copy of the resolutions of the Board of Directors of Buyer
authorizing and approving this Agreement and all other transactions and
agreements contemplated hereby certified by a duly authorized officer of Buyer
to be true, correct, complete and in full force and effect and unmodified as of
the Closing Date;
(b) The Licenses duly executed by Buyer;
(c) A transition services agreement executed by Buyer;
(d) An Assignment and Assumption Agreement duly executed by Buyer
substantially in the form of Exhibit B;
(e) An Assignment and Assumption Agreement relating to the Marks duly
executed by Buyer substantially in the form of Exhibit C.
(e) An incumbency certificate of the appropriate officer of Buyer;
(f) A certificate of a duly authorized officer of Buyer confirming the
accuracy of the matters referred to in Sections 8.3(a) and (b),
(g) The Non-Assumption Notice, if any, and;
(h) Such other duly executed endorsements, assignments, affidavits,
assumptions and other good and sufficient instruments of transfer, in form and
substance reasonably satisfactory to Seller and its counsel, as are necessary or
reasonably requested by Seller to effectuate the transactions contemplated
hereby.
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SECTION 4.4. Transfer Taxes. All applicable sales and transfer taxes
(including taxes, if any, imposed upon the transfer of personal property) and
filing, recording, registration, stamp, documentary and other taxes and fees
("Transfer Taxes") that are payable in connection with this Agreement, the
transactions contemplated by this Agreement or the documents giving effect to
such transactions, shall be paid by Seller, provided that said Transfer Taxes
shall not exceed Fifty Thousand Dollars ($50,000.00) and Buyer shall pay all
Transfer Taxes in excess of Fifty Thousand Dollars ($50,000.00), provided that
said Transfer Taxes shall not exceed, in the aggregate, One Hundred Thousand
Dollars ($100,000.00). If the Transfer Taxes exceed One Hundred Thousand Dollars
($100,000.00), the amount in excess of One Hundred Thousand Dollars ($100,000)
shall be shared and paid equally by Buyer and Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 5.1. Organization and Good Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with all requisite corporate power and authority to operate
the Business, to own or lease the Acquired Assets, to carry on the Business as
now being conducted and to enter into and to perform this Agreement and the
other agreements and instruments contemplated by this Agreement (the "Related
Agreements").
SECTION 5.2. Authority. Seller has all requisite corporate power and
authority to execute and deliver this Agreement and the Related Agreements. The
execution, delivery and performance of this Agreement and the Related Agreements
by Seller and the consummation by Seller of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of Seller. This Agreement and the Related Agreements have been duly
executed and delivered by Seller and constitute the valid and binding obligation
of Seller enforceable against Seller in accordance with their terms, except as
such enforceability may be limited at any time by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights in general and by general principles of equity.
SECTION 5.3. No Breach. The execution and delivery of this Agreement and
the Related Agreements by Seller and the performance thereof by Seller do not,
and the consummation of the transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof will not, with or without the
giving of notice or the lapse of time, or both, conflict with, or result in a
breach or violation of or a default under, or result in the imposition of any
Liens or give rise to a right of amendment, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under (i) the Articles
of Incorporation or By-laws of Seller, or (ii) except as set forth in
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Schedule 5.3, any contract, agreement, note, bond, mortgage, indenture, lease,
license, franchise, permit, concession, instrument, obligation, commitment,
covenant, understanding or arrangement which relates to the Business and to
which Seller is a party or by which any of the Acquired Assets may be affected,
or (iii) any order, ruling, decree, judgment, arbitration award, statute, law,
ordinance, rule, regulation or stipulation which relates to the Business and to
which Seller or the Acquired Assets are subject.
SECTION 5.4. Taxes. Seller has filed all Tax returns that it is
required to file with respect to the Business, and has paid all Taxes shown
thereon as owing, except where failure to file Tax returns or pay Taxes would
not result in a lien upon any of the assets or incurring any liability
therefore. No Liens for Taxes exist with respect to any of the Acquired Assets,
except for the statutory Liens for Taxes not yet due or payable.
SECTION 5.5. Assets. The assets listed on Schedule 5.5 are the only
assets, properties, rights and interests used by Seller in connection with the
Business. None of the Acquired Assets necessary to operate the Business as
presently conducted by Seller has any material defects or is in need of
maintenance or repair, except for ordinary, routine maintenance and repairs
which are not in excess of the ordinary costs therefor.
At Closing, Seller will deliver to Buyer, good and exclusive title to
the Acquired Assets, free and clear of all Liens of any kind or nature
whatsoever, except for (a) those Liens created by this Agreement, (b) those
Liens set forth on Schedule 5.5 and (c) current governmental charges or levies
which are a Lien but not yet due and payable.
SECTION 5.6. Assigned Contracts. Schedule 1.1(c) sets forth a true,
accurate and complete list of all contracts, agreements, understandings, leases
and commitments relating to the Business. None of the Assigned Contracts has
been modified, altered, terminated or revoked, and each is in full force and
effect. No breach or default on the part of Seller has occurred or, with notice
or lapse of time or both, will occur, under any of the Assigned Contracts. To
the best knowledge of Seller, each other party to each Assigned Contracts is in
compliance with the terms of any applicable Assigned Contracts, and no breach or
default on the part of any such other party has occurred or, with notice or
lapse of time or both, will occur thereunder. This Section 5.6 does not apply to
any agreement relating to non-competition or confidentiality between Seller and
any employee not listed in Schedule 5.9(a).
SECTION 5.7. Governmental Approvals. No approval, order or
authorization of, or filing or registration with, allowance by, or consent of or
notification to any Governmental Authority, is required to be obtained or made
by Seller in connection with the execution and delivery by Seller of this
Agreement, the performance of obligations of Seller hereunder or the
consummation by Seller of the transactions contemplated hereby or for preventing
the termination of any material right, privilege or contract of Seller included
among the Acquired Assets, except where the absence of which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
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SECTION 5.8. Compliance With Applicable Law. Seller is in compliance
with all applicable laws, ordinances and regulations of any Governmental
Authority relating to the Business, including those relating to occupational
health and safety and no Claims or complaints from any Governmental Authority or
other parties have been asserted or received by Seller during the past five
years relating to the Business, and, to the knowledge of Seller, no claims or
complaints are threatened, alleging that Seller is in violation of any such law,
ordinance or regulation and to the knowledge of Seller, no such proceedings are
threatened, except where such noncompliance could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
SECTION 5.9 . Employees; Employee Plans.
(a) Schedule 5.9(a) sets forth a true, accurate and complete list of
the employees of Seller who are currently employed primarily in relation to the
Business. Except as noted on Schedule 5.9(a) each such employee with access to
any commercial information of the Business or the Intellectual Property has
executed and delivered an enforceable agreement containing confidentiality and
non-competition provisions in the forms attached as part of Schedule 5.9(a).
(b) There are no controversies, including without limitation, strikes,
disputes, slowdowns or work stoppages, pending, or to the Seller's best
knowledge, threatened which involve any employees employed in connection with
the Business. Seller is in compliance with all Laws relating to the employment
of labor, including without limitation any provision thereof relating to wages,
hours, collective bargaining, employee health, safety and welfare, and the
payment of social security and similar taxes. Seller is not a party to any
collective bargaining or union contract in connection with the Business, and to
the Seller's best knowledge, there exists no current union organizational effort
or proceeding by or before any Governmental Authority with respect to any of
Seller's employees in connection with the Business.
SECTION 5.10. Approvals. Schedule 5.10 sets forth a list of all
consents which must be obtained or satisfied by Seller for the consummation of
the transaction contemplated by this Agreement. Except as described on Schedule
5.10, all such consents have been, or shall by the Closing have been, made,
obtained and satisfied.
SECTION 5.11. Financial Information. Seller has heretofore delivered to
Buyer the financial information attached hereto as Schedule 5.11 (collectively,
the "Financial Information"), including income statements for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995 and for the quarter
ended March 31, 1998 (the "Income Statements") and detailed direct factory
costs for each such period. All of the Financial Information was derived from
the books and records for the Business substantially in accordance with
generally accepted accounting principles consistently applied and fairly
presents the financial position of the Business as of dates of such Financial
Information, and the results of operations of the Business for such periods and
accurately reflects the items of revenue and expense purported to be reflected
thereon. In addition, Schedule 5.11 sets forth all sales orders of the Business
since January 1, 1998 to
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the date of this Agreement, including the current backlog of sales orders as of
the date of this Agreement.
SECTION 5.12. Changes in Circumstances. Except as set forth on
Schedule 5.12, from January 1, 1997 to date of this Agreement, the Business has
been conducted in the ordinary and normal course and there has been no event,
occurrence, development or state of circumstances or facts which has had or
could reasonably be expected to have a Material Adverse Effect. Without limiting
the generality of the foregoing, Seller has not with respect to the Business or
the Acquired Assets:
(i) transferred or otherwise disposed of any of the Acquired Assets;
(ii) mortgaged, pledged or subjected to any Lien any of the Acquired
Assets;
(iii) acquired any Acquired Assets outside the ordinary and normal
course of business;
(iv) sustained any damage, loss or destruction of or to the Acquired
Assets (whether or not covered by insurance);
(v) modified, amended, canceled or terminated any Assigned Contracts;
(vi) entered into any contract, lease or commitment on terms that are
less favorable than the terms of contracts, leases or commitments entered into
by Seller in the ordinary course of business and consistent with past practice.
(vii) other than pursuant to the terms hereof agreed to, or obligated
itself to, do anything identified in (i) through (v) above.
SECTION 5.13. Licenses; Marks.
(a) The Intellectual Property licensed pursuant to the Licenses
constitutes all Intellectual Property necessary and/or used in the conduct of
the Business as currently conducted by Seller. The representation and warranties
of Seller contained in the Licenses are true and correct in accordance with
their terms.
(b) The Marks listed on Schedule 1.1(d) (which shall not include the
items in Section 1.2(e)) constitute all of the trademarks, trade names, service
marks, logos, symbols, and copyrights that are used by the Seller in relation to
the Business. The Seller has good and marketable title to all the Marks, free
and clear of any Lien. The Marks have not been hypothecated, assigned or
licensed, in whole or in part, to any other person or entity. There is not any
pending, nor, to the best of Seller's knowledge, threatened claim or litigation
against Seller contesting the validity of or right to use any of the Marks.
Seller has not received any notice of infringement upon or conflict with any
asserted right of any third party, nor is there any basis for the foregoing. To
the best
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of Seller's knowledge, no person is, as of the date hereof, infringing in any
way Seller's rights to the Marks.
SECTION 5.14. Legal Proceedings. Except as set forth on Schedule 5.14,
there are no material actions, suits or proceedings pending or, to the Seller's
knowledge, threatened against Seller with respect to the Business, the Acquired
Assets or the transactions contemplated by this Agreement, before any court or
other Governmental Authority.
SECTION 5.15. Brokers, Finders and Agents. Seller is not directly or
indirectly obligated to anyone acting as a broker, finder, investment banker or
in any other similar capacity in connection with this Agreement or the
transactions contemplated hereby.
SECTION 5.16. Books and Records. The books and records of Seller
maintained in connection with the Business (including all computer software and
data used to maintain such books and records together with the media on which
such software and data are stored and all documentation relating thereto)
accurately record all material transactions relating to the Business, and have
been maintained consistent with good business practice.
SECTION 5.17. Disclosure. Seller has made full, complete and true
disclosure to Buyer and its counsel of all information responsive to Buyer's
requests for information and there is no information which has not been
disclosed to Buyer which could have a Material Adverse Effect on the Business or
adversely effect the Buyer's willingness to consummate the transactions
contemplated hereby the Buyer subsequent to the Closing.
SECTION 5.18. Legal Representation. Seller has been represented by
counsel (both with respect to general legal and Intellectual Property legal
matters) with respect to the preparation, negotiation and execution of this
Agreement.
SECTION 5.19 . Insurance. Seller has or will have on the Closing Date
sufficient insurance to meet all of its obligations set forth in this Agreement.
SECTION 5.20. Third Parties. Schedule 5.20 lists all third parties who
have supplied printing services for the Business or who have had access to the
Intellectual Property since February 28, 1993 and lists any and all
confidentiality or noncompetition agreements executed by such third parties and
whether such agreements may be assigned to Buyer subsequent to the Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 6.1. Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
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SECTION 6.2. Authority. Buyer has all requisite corporate power and
authority to execute and deliver this Agreement, the Related Agreements and to
consummate the transactions contemplated by hereby and thereby. The execution,
delivery and performance of this Agreement and the Related Agreements by Buyer
and the consummation by Buyer of the transactions contemplated by hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Buyer. This Agreement and the Related Agreements have been duly executed and
delivered by Buyer and constitute the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditors' rights in general and by general principles of equity.
SECTION 6.3. No Breach. The execution and delivery of this Agreement
and the Related Agreements by Buyer and the performance thereof by Buyer do not
and compliance with the provisions hereof and thereby will not, with or without
the giving of notice or the lapse of time, or both, conflict with or result in a
breach or violation of or a default under, or result in the imposition of any
Liens or give rise to a right of amendment, termination, cancellation or
acceleration of any obligation or to a loss of a material benefit under, (i) the
Certificate of Incorporation or By-laws of Buyer, or (ii) any material contract,
agreement, note, bond, mortgage, indenture, lease, license, franchise, permit,
concession, instrument, obligation, commitment, covenant, understanding or
arrangement to which it is a party or by which any of its assets may be
affected, or (iii) any order, ruling, decree, judgment, arbitration award,
statute, law ordinance, rule, regulation or stipulation to which Buyer or its
properties or assets is subject, or result in the creation of any Lien upon any
of its properties or assets.
SECTION 6.4. Governmental Approvals. No approval, order or
authorization of, or filing or registration with, allowance by, or consent of or
notification to any Governmental Entity is required to be obtained or made by
Buyer in connection with the execution and delivery by Buyer of this Agreement,
the performance of obligations of Buyer hereunder or the consummation by Buyer
of the transactions contemplated hereby, except where the absence of which could
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
SECTION 6.5. Knowledge and Experience. Buyer has such knowledge and
experience in the line of business of Seller so as to enable Buyer to evaluate
the merits and risks of acquiring and operating the Business and making an
informed decision with respect thereto.
SECTION 6.6. Legal Representation. Buyer has been represented by
counsel (both with respect to general legal and Intellectual Property legal
matters) with respect to the preparation, negotiation and execution of this
Agreement.
SECTION 6.7. Insurance. Buyer has or will have on the Closing Date
sufficient insurance to meet its obligations set forth in this Agreement.
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SECTION 6.8. Brokers, Finders and Agents. Buyer is not directly or
indirectly obligated to anyone acting as broker, finder or in any other similar
capacity in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE VII
COVENANTS
SECTION 7.1. Conduct of Business Prior to Closing. Between the date
hereof and the Closing Date, except as consented to by Buyer in writing, Seller
shall operate and carry on the Business in the ordinary course consistent with
past practice. Consistent with the foregoing, except as consented to by Buyer in
writing, Seller agrees that between the date hereof and the Closing Date it
shall not engage in any practice, take any action or enter into any transaction
of the nature that would require a disclosure as provided for or contemplated by
Section 5.1 2 hereof.
SECTION 7.2. Mutual Cooperation; Further Assurances. Upon the terms and
subject to the conditions of this Agreement, Seller and Buyer shall each use
their respective reasonable good faith efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable, consistent with applicable law, to satisfy the conditions set forth
in Article VIII and to consummate and make effective the transactions
contemplated hereby in the most expeditious manner (including, without
limitation, obtaining all consents of all Governmental Authorities and other
third parties as set forth on Schedule 5.10). Consistent with the foregoing,
Seller and Buyer each agree from time to time following the Closing, at the
reasonable request of the other and without further cost or expense to such
requested party, to execute and deliver such other instruments of conveyance and
transfer and take such other actions as the requesting party may reasonably
request in order to more effectively consummate and make effective the
transactions contemplated hereby.
SECTION 7.3. Access to Information. (a) Between the date hereof and the
Closing Date, Seller shall afford to Buyer and its counsel, accountants and
other authorized representatives, upon reasonable notice, reasonable access
during business hours to the plants and properties of the Business and to the
Business Records in order that the Buyer may have full opportunity to make such
inspections and investigations as it shall desire to make of the affairs of the
Business, and Seller shall cause its officers and employees to furnish such
additional financial and operating data and other information relating to the
Business as Buyer shall from time to time request.
(b) Buyer acknowledges that it has an affirmative obligation to seek
out information concerning the Business and the Acquired Assets. Accordingly, in
addition to the due diligence previously conducted, Buyer will evaluate and
conduct a thorough due diligence of the Business and the Acquired Assets
including but not limited to a review of the manufacturing documentation,
product files, Intellectual Property information and regulatory information.
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SECTION 7.4. Exclusivity. The Buyer hereby agrees that until June 30,
1998, none of the Seller or any of its affiliates, directors, officers,
employees, representatives or agents shall, directly or indirectly, solicit,
encourage or initiate inquiries or proposals from, or provide information to, or
participate in any discussions or negotiations or otherwise cooperate with, any
person or entity (other than Buyer and its affiliates, directors, officers,
employees, representatives and agents) with respect to the possible sale or
other transfer (regardless of form) of the Business, or any material portion
thereof, including the Intellectual Property used or useful thereto, or the
sale, merger, liquidation or any similar transaction with respect to Seller
itself.
SECTION 7.5. Non-Competition.
(a) Period and Conduct. Seller understands and acknowledges that the
Buyer would not have entered into this Agreement absent the provisions of this
Section 7.5 and in consideration for the payments set out in Section 3.1 hereof,
therefore, agrees that (i) for a period of ten (10) years commencing on the
Closing Date, it will not, and will cause its affiliates not to, directly or
indirectly, engage or participate in, whether for their own account or for that
or any other entity or be connected as a partner, investor, stockholder,
creditor, guarantor, advisor, consultant or any other capacity in any commercial
activity which competes with the Business or license, authorize or otherwise
grant a right to any third party to engage in any commercial activity which
competes with the Business; provided that both Buyer and Seller may produce and
sell products containing encapsulated fragrance coated on the surface of a sheet
material ("Coated Sheet Products") for delivery of fragrances for applications
other than those applications set forth in clauses (a)-(e) in the definition of
the Business, which Coated Sheet Products are (i) not for advertising or
promotion of a product or service or (ii) scratch and sniff stickers.
(b) Territory. Seller will refrain and Seller will cause its affiliates
to refrain from engaging in the activities described in this Section 7.5 during
the period specified in Section 7.5(a) hereof in North America (which shall
include Mexico), Europe, Asia, Australia, Colombia, Brazil, Peru and Argentina.
(c) Relief. Section 7.5 will cause serious and substantial damage to
Buyer, if Seller or any affiliates should in any way breach, or fail to comply
with, the terms of this Section 7.5, Buyer will be entitled to a temporary
restraining order, a temporary injunction and permanent injunction restraining
Seller and such affiliates from any such breach or failure. Resort to the remedy
specified herein will not preclude or bar the concurrent or subsequent seeking
of recovery pursuant to Article XI.
(d) Certain Waivers and Acknowledgments. Buyer and Seller hereby agree
that the restrictions set forth in Sections 7.5(a) and Section 7.5(b) are
reasonable in duration and scope, and Seller hereby waives any and all rights it
may have to claim that such restrictions are in any way unreasonable or
incompatible with its rights.
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(e) Exercise of Seller's Rights. If any employee or agent of Seller
listed in Schedule 5.9(a) or Schedule 5.6 violates the terms of any agreement
relating to non-competition or confidentiality that such employee or agent has
with Seller with respect to the Business, then Seller agrees that Buyer may file
suit in Seller's name and on Seller's behalf against such employee or agent to
enforce the applicable provisions of any such agreement subject to the following
provisions: (i) Seller shall have no obligation or responsibility to Buyer to
monitor any employee's or agent's compliance with such agreements, or to enforce
such agreements, (ii) Seller shall have the right to consent to the counsel
selected by Buyer, which consent shall not be unreasonably withheld, (and, at
its election, Seller may obtain separate counsel of its own choosing, at its own
cost), to approve all litigation before it is threatened or commenced, to
approve all pleadings associated therewith before such pleadings are served or
filed with the court and to approve the terms of any settlement (which approvals
shall not be unreasonably withheld), (iii) Buyer shall indemnify, defend and
hold Seller harmless from and against (1) any cost or expense (including
reasonably attorneys fees) incurred by Seller in connection with this subsection
(c), other than as otherwise provided, and (2) any cost, expense (including
reasonably attorneys fees), damage, or judgment awarded against Seller arising
from any claim, counterclaim or cross-claim of any nature whatsoever asserted by
any employee or agent against whom Buyer seeks to enforce such agreements. Buyer
shall give Seller advance written notice of all actions requiring Seller's
consent or approval, such notice to be delivered to Seller's Chief Intellectual
Property Counsel (3M Center, Building 220-12W-01, St. Paul, Minnesota
55144-1000), and such notice specifying with particularity the matter(s) for
which Seller's consent or approval is being sought. If Seller fails to respond
to such notice within three (3) business days after its receipt, Seller shall be
deemed to have consented or approved such action.
(f) Severability. Each subdivision of this Section 7.5 constitutes a
separate and distinct provision hereof. In the event that any provision of this
Section 7.5 shall be finally and judicially determined to be invalid,
ineffective or unenforceable, such determination will apply only in the
jurisdiction in which such adjudication is made and every other provision of
this Section 7.5 will remain in full force and effect. The invalid, ineffective
or unenforceable provision will, without further action by the parties, be
automatically amended to effect the original purpose and intent of the invalid,
ineffective or unenforceable provision (including, without limitation, reducing
the duration or limiting the scope of such provision to that duration or scope
which is the maximum permitted by applicable law); provided, however, that such
amendment will apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made.
SECTION 7.6. Offer of Employment. Seller acknowledges that Buyer may
offer employment to certain of the employees of the Business and Seller agrees
to use commercially reasonable efforts (which efforts shall not include any
requirement of Seller to expend any money or to offer or grant any financial
accommodation, except for salary, benefits and other compensation now provided
to the employees, which Seller hereby covenants and agrees to pay on a timely
basis, consistent with past practice) to (i) take
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promptly all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations and Seller's general
corporate policies to retain the services of the employees and (ii) not to
obstruct Buyer in its efforts to hire such employees of the Business as Buyer
shall determine to hire (which shall not preclude Seller from offering
employment to any such employees in any other of Seller's businesses). In the
event that Buyer does employ any employees of the Business ("Transferred
Employees"), Buyer agrees to provide coverage and benefits to such Transferred
Employees under the same benefit plans and arrangements that cover its current
employees and Seller will have no responsibility therefor on and after the
Closing Date. Buyer will cause each of its benefit plans and arrangements to
recognize all service that the Transferred Employees had completed with Seller
prior to the Closing Date for all purposes for which such service was recognized
by Seller's Employee Plans. In addition, Buyer will cause its benefit plans
which provide medical or dental benefits to (i) waive any pre-existing
conditions and actively-at-work exclusions affecting Transferred Employees and
their eligible family members, and (ii) recognize any out-of-pocket medical and
dental expenses incurred by Transferred Employees and their eligible family
members during 1998 under Seller's Employee Plans on or before the Closing Date
for purposes of satisfying applicable annual deductible, coinsurance and
out-of-pocket maximum provisions.
SECTION 7.7. Claims. Seller agrees that upon the execution of this
Agreement it will immediately take all steps necessary to withdraw the
opposition that it has filed in the European Patent Office against EP-B-0 525
530 which is owned by Thermedics, Inc., titled "Perfume Samplers and Process for
Their Manufacture" which is licensed to Buyer; provided that if such patent is
issued, Buyer shall grant a Seller a non-exclusive license to use such patent
outside of the Business, at a royalty equal to that payable by Buyer under its
license from Thermedics, Inc. Seller also agrees to cooperate with Thermedics,
Inc. in the withdrawal of the opposition and not to otherwise further
participate in the opposition.
ARTICLE VIII
CONDITIONS
SECTION 8.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by this
Agreement are subject to the satisfaction at or prior to the Closing Date of
each of the following conditions:
(a) Governmental Approvals. All filings required to be made prior to
the Closing Date by Seller or Buyer with, and all consents, approvals and
authorizations required to be obtained prior to the Closing Date by Seller or
Buyer from, any Governmental Authority in connection with the execution,
delivery and performance of this Agreement shall have been made or obtained,
except where the failure to make or obtain the same would not have a Material
Adverse Effect or a material adverse effect on
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the ability of Buyer to consummate the transactions contemplated by this
Agreement and could not reasonably be expected to subject Seller or Buyer or any
of their respective affiliates or any directors or officers of any of the
foregoing to the risk of criminal liability; and
(b) No Injunctions or Restraints. No statute, law, rule,
regulation, decree, judgment, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Authority or other legal restraint or
prohibition preventing the consummation of the transactions contemplated by
this Agreement shall be in effect; provided, however, that each of the parties
shall have used reasonable good faith efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any injunction
or other order that may be entered.
SECTION 8.2. Conditions to Obligations of Buyer. The obligations of
Buyer to effect the transactions contemplated by this Agreement are subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in this Agreement shall be true and correct in all respects
as of the date of this Agreement and, except for the effect of any activities or
transactions which are specifically contemplated by this Agreement, shall be
true and correct in all material respects at the Closing Date with the same
effect as though all such representations and warranties had been made at such
time, and Seller shall have delivered to Buyer a certificate signed by an
authorized executive officer of Seller confirming the foregoing as of the
Closing Date;
(b) Performance of Obligations of Seller. Each and all of the covenants
and agreements of Seller to be performed or complied with pursuant to this
Agreement prior to the Closing Date shall have been fully performed and complied
with in all material respects, and Seller shall have delivered to Buyer a
certificate signed by an authorized executive officer of Seller confirming the
foregoing as of the Closing Date;
(c) No Material Adverse Change. On or after the date of this Agreement,
there shall not have occurred (or reasonably be expected to occur) any event,
change or development which has had or may reasonably be expected to have a
material adverse effect upon the financial condition, business, assets,
prospectus, properties or operation of the Business, and Seller shall have
delivered to Buyer a certificate signed by an authorized executive officer of
Seller confirming the foregoing as the Closing Date;
(d) Diligence. Buyer and its legal counsel shall be satisfied, in their
sole discretion, with the results of the due diligence investigation conducted
by Buyer;
(e) Other Agreements. On the Closing Date Buyer and Seller shall have
executed and delivered the Licenses and a transition services agreement on terms
and conditions mutually acceptable to Buyer and Seller.
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SECTION 8.3. Conditions to Obligation of Seller. The obligation of
Seller to effect the transactions contemplated by this Agreement is subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Buyer set forth in this Agreement shall be true and correct in all respects
as of the date of this Agreement and, except for the effect of any activities or
transactions which are specifically contemplated by this Agreement, shall be
true and correct in all material respects at the Closing Date with the same
effect as though all such representations and warranties had been made at such
time, and Buyer shall have delivered to Seller a certificate signed by an
authorized executive officer of Buyer confirming the foregoing as of the Closing
Date; and
(b) Performance of Obligations of Buyer. Each and all of the covenants
and agreements of Buyer to be performed or complied with pursuant to this
Agreement on or prior to the Closing Date shall have been fully performed and
complied with in all material respects, and Buyer shall have delivered to Seller
a certificate signed by an authorized executive officer of Buyer confirming the
foregoing as of the Closing Date.
ARTICLE IX
TERMINATION
SECTION 9.1. Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing Date:
(a) by the mutual written agreement of Buyer and Seller;
(b) by either Buyer or Seller, if the Closing Date shall not have
occurred on or before June 30, 1998 except that neither Buyer, on the one hand,
nor Seller, on the other hand, may so terminate this Agreement if the absence of
such occurrence is due to the failure of Buyer, on the one hand, or Seller, on
the other hand, to perform in all material respects each of its obligations
required to be performed prior to the Closing Date.
SECTION 9.2. Procedures and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by any or both of the parties pursuant to Section 10.1 hereof, written
notice thereof shall forthwith be given to the other party hereto and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by either of the parties hereto. If this
Agreement is terminated as provided herein:
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(a) Upon the request therefor, each party will return all documents,
work papers and other material of the other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same. Each party will destroy all work product
containing information of the other party and provide certification of
destruction from attorneys, consultants and corporate officers having access to
this information; and
(b) Any termination pursuant to Section 9.1 hereof shall not be deemed
to be a waiver or termination of any rights or remedies otherwise available
under this Agreement to any party, including any rights and remedies for breach
of any provisions of this Agreement occurring prior to such termination.
ARTICLE X
SURVIVAL
SECTION 10.1. Survival. The representations and warranties of Seller or
Buyer contained in this Agreement or any agreement or certificate delivered
pursuant hereto shall survive the Closing and remain in full force and effect
for six (6) months from the Closing Date. Upon and following expiration of any
representation or warranty hereunder, neither Seller nor Buyer shall have any
liability whatsoever with respect to such representation or warranty. The
covenants and agreements contained in this Agreement shall survive indefinitely.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1. Indemnification by Seller.
(a) General. Seller shall indemnify, defend and hold Buyer, its
affiliates and each of their employees, directors, officers and stockholders
(collectively, the "Buyer Group") harmless from and against any and all loss,
liability, damage or expense, including, without limitation, reasonable fees and
disbursements of legal counsel (collectively "Damages") actually incurred by any
member of the Buyer Group based upon, arising out of or otherwise in respect of
any breach of any of Seller's representations and warranties contained in this
Agreement, or the Licenses provided that, (i) the Seller shall not be liable
under this Section 11.1(a) unless the aggregate amount of damages with respect
to all matters referred to in this Section 11.1(a) exceeds $50,000, and then
only to the extent of such excess, and (ii) Seller's maximum liability under
this Section 11.1(a) shall not exceed 75% of the Purchase Price. Notwithstanding
the foregoing, Damages shall not include punitive, consequential and/or indirect
damages and Buyer hereby waives the right to make claims for such damages.
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(b) Special Indemnity. Seller shall indemnify, defend and hold the
Buyer Group harmless from and against any and all Damages actually incurred by
any member of the Buyer Group based upon, arising out of or otherwise in
respect of (i) any breach of any covenant or agreement of Seller contained in
this Agreement or the Licenses, (ii) non-compliance by Seller with any bulk
sales law applicable to the transfer of the Acquired Assets to Buyer, (iii) any
Retained Liabilities or other liabilities arising at, prior to or subsequent to
the Closing Date arising out of, based upon or resulting from any act,
omission, event or condition which occurred or existed prior to the Closing in
connection with the Acquired Assets or the conduct of the Business, (iv) any
liabilities resulting from any act, operations, omission, event or condition
relating to or arising from any of the Seller's assets or businesses other than
the Acquired Assets or the Business and (v) any breach of a representation or
warranty contained in this Agreement or Licenses, which breach occurs due to
the intentional, willful, reckless or grossly negligent conduct of Seller.
Notwithstanding the foregoing, Damages shall not include punitive,
consequential and/or indirect damages and Buyer hereby waives the right to make
claims for such damages.
SECTION 11.2. Indemnification by Buyer.
(a) General. Buyer shall indemnify, defend and hold Seller, its
affiliates and each of their employees, directors, officers and stockholders
(collectively, the "Seller Group") harmless from and against any and all loss,
liability, damage or expense, including, without limitation, reasonable fees and
disbursements of legal counsel (collectively "Damages") actually incurred by any
member of the Seller Group based upon, arising out of or otherwise in respect of
any breach of any of Buyer's representations and warranties contained in this
Agreement or the Licenses, provided that, (i) the Buyer shall not be liable
under this Section 11.2(a) unless the aggregate amount of damages with respect
to all matters referred to in this Section 11.2(a) exceeds $50,000, and then
only to the extent of such excess, and (ii) Buyer's maximum liability under this
Section 11.2(a) shall not exceed 75% of the Purchase Price. Notwithstanding the
foregoing, Damages shall not include punitive, consequential and/or indirect
damages and Seller hereby waives the right to make claims for such damages.
(b) Special Indemnity. Buyer shall indemnify, defend and hold the
Seller Group harmless from and against any and all Damages actually incurred by
any member of the Seller Group based upon, arising out of or otherwise in
respect of (i) any breach of any covenant or agreement of Buyer contained in
this Agreement or the Licenses, (ii) any Assumed Liabilities or other
liabilities arising subsequent to the Closing Date arising out of, based upon
or resulting from any act, omission, event or condition which occurred or
existed subsequent to the Closing in connection with the Acquired Assets or the
conduct of the Business, (iii) any liabilities resulting from any act,
operations, omission, event or condition relating to or arising from any of the
Buyer's assets or businesses other than the Acquired Assets or the Business and
(iv) any breach of a representation or warranty contained in this Agreement or
the Licenses, which breach occurs due to the intentional, willful, reckless or
grossly negligent conduct of Buyer. Notwithstanding the foregoing,
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Damages shall not include punitive, consequential and/or indirect damages and
Seller hereby waives the right to make claims for such damages.
SECTION 11.3. Notice of Circumstances. Promptly after receipt by any
member of the Buyer Group or the Seller Group of notice of any action,
proceeding, claim or potential claim or discovery by any member of the Buyer
Group or the Seller Group of any facts (any of which is hereinafter individually
referred to as a "Circumstance") which could give rise to a right to
indemnification pursuant to any provision of this Agreement, such Person (the
"Indemnified Party") shall give the party who may become obligated to provide
indemnification hereunder (the "Indemnifying Party") prompt written notice
describing the Circumstance in reasonable detail. If notice of a Circumstance is
not given to the Indemnifying Party within a sufficient period of time or in
sufficient detail to apprise the Indemnifying Party of the nature of the
Circumstance (in each instance taking into account the facts and circumstances
with respect to such Circumstance), the Indemnifying Party shall not be liable
to the Indemnified Party to the extent that the Indemnifying Party's position is
actually prejudiced as a result thereof. The Indemnifying Party shall have the
right, at its option, to settle, compromise or defend, at its own expense and by
its own counsel, any Circumstance involving the asserted liability of the
Indemnified Party. In the event the Indemnifying Party fails to take diligent
action to settle, compromise or defend such Circumstance within twenty (20) days
of receiving notice of such Circumstance from the Indemnified Party, the
Indemnifying Party shall forfeit its right to settle, compromise or defend such
Circumstance. If any Indemnifying Party shall undertake to settle, compromise or
defend any such asserted liability, it shall promptly notify the Indemnified
Party of its intention to do so, and the Indemnified Party agrees to cooperate
fully with the Indemnifying Party and its counsel in the settlement or
compromise of, or defense against, any such asserted liability, provided that
the Indemnifying Party shall not agree to any equitable relief with respect to
the Indemnified Party without the written consent of the Indemnified Party. All
out-of-pocket costs and expenses incurred (i) in connection with such
cooperation or (ii) following a failure by the Indemnifying Party to take
diligent action to settle, compromise or defend such Circumstance within twenty
(20) days of notice of a Circumstance, shall be borne by the Indemnifying Party.
In any event, the Indemnified Party shall have the right at its own expense to
participate in the defense of such asserted liability. Under no circumstances
shall the Indemnified Party settle or compromise any such asserted liability
without the written consent of the Indemnifying Party.
ARTICLE XII
ARBITRATION
SECTION 12.1. Good Faith Settlement. Each of the Buyer and Seller agree
to use their best efforts to resolve amicably any dispute which arises under
this Agreement or the Licenses, and will not take any action inconsistent
therewith. At the option of any of the Buyer and Seller, any such dispute shall
be submitted to the Vice President of
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Seller and the Chief Financial Officer of Buyer for their consideration
and resolution, and if no decision is then reached, to the Senior Executive
Officer of Seller and the Chief Executive Officer of Buyer for their
consideration and resolution. The resolution of any matter in accordance with
this Section 12.1 shall be binding on the Buyer and Seller for all purposes.
SECTION 12.2. Arbitration. All disputes between the Seller and Buyer,
including, without limitation, those relating to this Agreement or the Licenses
which are not resolved pursuant to Section 12.1, shall be resolved by
arbitration as provided in this Section 12.2. This agreement to arbitrate shall
survive the rescission or termination of this Agreement or the Licenses. All
arbitration shall be conducted pursuant to the Commercial Arbitration Rules of
the American Arbitration Association except as herein may be provided. The
decision of the arbitrators shall be final and binding on all parties. All
arbitration shall be undertaken pursuant to the Federal Arbitration Act, where
applicable, and the decision of the arbitrators shall be enforceable in any
court of competent jurisdiction.
In any dispute where a party seeks $50,000 or more in damages, three
arbitrators shall be employed. All costs attendant to the arbitration, excluding
attorney's and expert's fees, shall be borne equally by the parties. Each party
shall bear its own attorney's and expert's fees. The arbitrators shall not award
punitive, consequential, and/or indirect damages and each party hereby waives
the right to make claims for such damages with respect to the Agreement. In
resolving all disputes between parties, unless an agreement specifies otherwise,
the arbitrators shall apply the law of the State of New York, except as may be
modified by this Agreement. The arbitrators are by this Agreement directed to
conduct the arbitration hearing no later than three months from the service of
the statement of claim and demand for arbitration unless good cause is shown
establishing that the hearing cannot fairly and practically be so convened.
Except as needed for presentation in lieu of a live appearance,
depositions shall not be taken. Parties shall be entitled to conduct document
discovery by requesting production of documents. Responses or objections shall
be served twenty (20) days after receipt of a request. The arbitrators shall
resolve any discovery disputes by such pre-hearing conferences as may be needed.
All parties agree that the arbitrators and any counsel of record to the
proceeding shall have the power of subpoena process as provided by law.
The parties agree that either shall be entitled to pursue emergency or
preliminary injunctive relief in the court of competent jurisdiction, and each
party agrees that it shall consent to the stay of such judicial proceedings on
the merits of both this Agreement and the related transactions pending
arbitration of all underlying claims between the parties immediately following
the issuance of any such emergency or injunctive relief.
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ARTICLE XIII
CONFIDENTIALITY
SECTION 13.1. Confidentiality.
(a) Commercial Information. Except as expressly set forth in this
Article XIII Seller shall keep and shall cause its affiliates and its and their
respective officers, directors, employees, agents and subcontractors
(collectively, "Representatives") to keep confidential any and all commercial
information (whether in oral or written form) or physical object (including,
without limitation, the marketing data and business plans and projections of the
Business) relating to the Business Confidential Commercial Information"), and
Seller shall not disclose directly or indirectly, and shall cause its
Representatives not to disclose directly or indirectly, any Confidential
Commercial Information to anyone outside Seller, its affiliates and their
respective Representatives, except that Confidential Commercial Information
shall not include any information if such information is or hereafter becomes
generally available to the trade or public other than by reason of any breach or
default by the Seller, any of its affiliates or any Representative of the
foregoing with respect to a confidentiality obligation under this Agreement.
Based on the Seller's good faith judgment with the advice of counsel,
Confidential Commercial Information may be disclosed in compliance with
applicable legal requirements to a public authority, if so required; provided,
however, that whenever the Seller becomes aware of any state of facts which
would or might result in disclosure of Confidential Commercial Information
above, it shall, promptly notify the Buyer prior to any such disclosure so that
the Buyer may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. Notwithstanding anything
contained above, the Seller shall furnish only that portion of the Confidential
Commercial Information which it is advised by counsel is legally required and
shall exercise reasonable efforts to obtain assurance that confidential
treatment shall be accorded the Confidential Commercial Information.
(b) Relief. Section 13.1 will cause serious and substantial damage to
Buyer, if Seller, its affiliates or their Representatives should in any way
breach or fail to comply with the terms of this Section 13.1, Buyer will be
entitled to an injunction restraining Seller, its affiliates and their
Representatives from any such breach or failure. Resort to the remedy specified
herein will not preclude or bar the concurrent or subsequent seeking of recovery
pursuant to Article XI.
SECTION 13.2. Use of Confidential Commercial Information. Seller agrees
that no Confidential Commercial Information shall:
(i) be used in its business or the businesses of it affiliates and
Representatives;
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(ii) be assigned, licensed, sublicensed, marketed, transferred, loaned,
duplicated or copied, directly or indirectly; and
(iii) be used or exploited by Seller or any of its affiliates or
Representatives for its or their respective benefit or for the benefit of any
other relationships with customers or other business associates of Seller, its
affiliates and their Representatives.
SECTION 13.3. Protection of Confidential Commercial Information. Seller
shall deal with Confidential Commercial Information so as to protect it from
disclosure with a degree of care not less than that used by it in dealing with
its own information intended to remain exclusively within its knowledge and
shall take reasonable steps to minimize the risk of disclosure of Confidential
Commercial Information.
ARTICLE XIV
GENERAL PROVISIONS
SECTION 14.1. Assignment. Seller shall not convey, assign or otherwise
transfer any of their rights or obligations under this Agreement (except the
license under Section 4.2(d) when conveyed, assigned or otherwise transferred
with the business to which it relates) without the express written consent of
Buyer. Buyer may (without obtaining any consent) assign its rights, interests or
obligations under this Agreement. Any conveyance, assignment or transfer
requiring the express written consent of Buyer which is made without such
consent shall be void. No assignment of this Agreement shall relieve the
assigning party of its obligations hereunder.
SECTION 14.2. Parties in Interest. This Agreement is binding upon and
is for the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any person,
firm, corporation or other entity not a party hereto, and no person, firm,
corporation or other entity other than the parties hereto or their respective
successors and permitted assigns shall acquire or have any right, remedy or
claim under or by virtue of this Agreement.
SECTION 14.3. Amendment. This Agreement cannot be amended or modified
except by a written agreement executed by the parties hereto.
SECTION 14.4. Waiver. At any time prior to the Closing Date, Buyer may
extend the time for the performance of or waive compliance with any of the
obligations or other acts of Seller contained herein or waive any inaccuracies
in the representations and warranties of Seller contained herein or in any
document delivered pursuant hereto, and Seller may extend the time for the
performance of or waive compliance with any of the obligations or other acts of
Buyer contained herein or waive any inaccuracies in the representations and
warranties of Buyer contained herein or in any document delivered pursuant
hereto. Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party to be bound thereby. The failure of
any party to
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this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 14.5. Fees and Expenses. Except as otherwise provided in this
Section 14.5, each of the parties hereto agrees to pay, without right of
reimbursement from the other, the costs incurred by it incident to the
performance of its obligations hereunder, including, without limitation, the
fees and disbursements of counsel, accountants, financial advisors, experts and
consultants employed by the respective parties in connection with the
transactions contemplated hereby, whether or not the transactions contemplated
by this Agreement are consummated.
SECTION 14.6. Notices. Any notice, request, instruction or other
communication to be given hereunder by any party to the others shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered personally, (ii) on the first business day following the date of
dispatch if delivered by Federal Express or other nationally reputable next-day
courier service, or (iii) on the third business day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice.
(a) If to Buyer:
Arcade Marketing, Inc.
120 East 56th Street
New York, New York 10022
Attention: Chief Executive Officer
and
Arcade Marketing, Inc.
1850 East Main Street
Chattanooga, Tennessee 37404
Attention: Chief Financial Officer
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
20th Floor
New York, NY 10022
Attention: L. Kevin O'Mara, Jr.
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(b) If to Seller:
Minnesota Mining and Manufacturing Company
3M Center
St. Paul, Minnesota 55144-1000
Attention: John J. Ursu
Senior Vice President and
General Counsel
With a copy to:
Corporate Financial Services
Minnesota Mining and Manufacturing Company
3M Center
St. Paul, Minnesota 55144-1000
Attention: John Barkholtz
SECTION 14.7. Brokers. Seller represents and warrants that there are no
Claims (or any basis for any Claims) for brokerage commissions, finder's fees or
like payments in connection with this Agreement or the transactions contemplated
hereby resulting from any action taken by or on behalf of Seller for which Buyer
may be found to be liable. Buyer represents and warrants that there are no
Claims (or any basis for any Claims) for brokerage commissions, finder's fees or
like payments in connection with this Agreement or the transactions contemplated
hereby resulting from any action taken by or on behalf of it for which Seller
may be found to be liable.
SECTION 14.8. Certain Definitions.
"Claims" shall mean any rights or claims of every nature, whether or
not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, known or unknown, secured or unsecured and
arising at any time.
"Employee Plan" shall mean any written and unwritten "employee benefit
plan" (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), or any other payroll practices,
bonus, stock option, stock appreciation, stock purchase, severance, termination,
lay-off, leave of absence, disability, workers compensation, pension, profit
sharing, retirement, medical plan, life insurance plan, hospitalization plan,
insurance, deferred compensation, phantom stock, other executive compensation
arrangement or other employee or welfare benefit plan, agreement or arrangement
which is sponsored, maintained or contributed to by Seller and is applicable to
Seller's past, present or future employees.
"fragrance" shall mean a scent that can be perceived by the human
olfactory system.
26
<PAGE>
"Governmental Authority" shall mean any United States, state, local or
foreign governmental entity or municipality or subdivision thereof or any
authority, department, commission, board, bureau, agency, court or
instrumentality.
"Intellectual Property" shall mean all inventions, discoveries,
patents, copyrights, know-how, intellectual property, licenses, developments,
research data, designs, drawings, technology, computer software secrets, test
procedures, processes, literature, reports and other confidential information,
intellectual and similar tangible property rights, whether or not patentable or
copyrightable (or otherwise subject to legally enforceable restrictions or
protections against unauthorized third party usage), and any and all
applications for, registrations of, and extensions, continuations in part,
divisions, renewals and reissuances of, any of the foregoing, and rights
therein.
"Laws" shall mean any statute, rule, regulation or other law.
"Lien" shall mean any lien, equity, claim, prior assignment, mortgage,
charge, security interest, pledge, conditional sales contract, collateral
security arrangement or other title retention arrangement or restriction.
"Material Adverse Effect" shall mean any effect that is or can
reasonably be expected to be materially adverse to the business, assets,
liabilities, properties, condition (financial or otherwise) or the results of
operations of the Business.
"non-proprietary fragrance" shall mean any fragrance other than
perfumes, colognes and other such premium fragrances, as well as fragrances that
are distinguishable as a signature fragrance corresponding to the unique
fragrance of a product formulated to help identify that product (e.g., cleaning
products). Non-proprietary fragrances shall specifically include fragrances
offered for sale as of May 1, 1998 by Seller on repositionable note products
(e.g., apple, banana, black cherry, bubble gum, chocolate, cinnamon, dill
pickle, floral, natural gas, grape, lemon, orange, peppermint, pine, pineapple,
pizza, root beer, rose, strawberry and watermelon).
"Taxes" shall mean all income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
customs duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority (domestic or foreign).
In addition, the following terms shall have the respective meanings set
forth in the Section noted:
TERM SECTION
- ---- -------
Acquired Assets............................................ 1.1
Assigned Contracts......................................... 1.1(c)
27
<PAGE>
Assumed Liabilities........................................ 2.1
Business................................................... Recitals
Business Records........................................... 1.1(b)
Buyer...................................................... Preamble
Buyer Group................................................ 11.1
Circumstance............................................... 11.3
Closing.................................................... 4.1
Confidential Commercial Information........................ 13.1
Closing Date............................................... 4.1
Contracts.................................................. 1.1(c)
Damages.................................................... 11.1
Excluded Assets............................................ 1.2
Excluded Liabilities....................................... 2.2
Financial Information...................................... 5.11
Fixed Assets............................................... 1.1(a)
Income Statements.......................................... 5.11
Indemnified Party.......................................... 11.3
Indemnifying Party......................................... 11.3
Purchase Price............................................. 3.1
Representatives............................................ 13.1
Related Agreements......................................... 5.1
Seller..................................................... Preamble
Seller Group............................................... 11.2
Transfer Taxes............................................. 4.4
SECTION 14.9. Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Unless otherwise specified, all references herein to numbered
sections and articles are to sections and articles of this Agreement and all
references herein to Exhibits and Schedules are to Exhibits and Schedules to
this Agreement.
SECTION 14.10. Entire Agreement. This Agreement and the Related
Agreements constitute the entire agreement between the parties with respect to
the subject matter hereof and this Agreement supersedes all prior agreements or
understandings of the parties relating thereto.
SECTION 14.11. Specific Performance. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and provisions
of this Agreement, the party or parties who are or are to be thereby aggrieved
shall have the right to seek specific performance and injunctive relief giving
effect to its or their rights under this Agreement, in addition to any and all
other rights and remedies at law or in equity, and all such rights and remedies
shall be cumulative. The parties agree that the remedies at law for any breach
or threatened breach, including monetary damages, are inadequate compensation
for any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
28
<PAGE>
SECTION 14.12. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions thereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
SECTION 14.13. Waiver of Jury Trial. The parties hereto waive any right
to a jury trial.
SECTION 14.14. Representatives. No individual representative of any
party to this Agreement shall be personally liable for any Damages under this
Agreement irrespective of the legal theory asserted.
SECTION 14.15. Public Announcement. Each of the parties agree not to
issue any press release or make any public statements with respect to this
Agreement or the transactions contemplated hereby without first obtaining the
written consent of the other party.
SECTION 14.16. Exhibits and Schedules. All Exhibits and Schedules
attached hereto are hereby incorporated in and made a part of this Agreement as
if set forth in full herein. Capitalized terms used in the Exhibits and
Schedules hereto but not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
SECTION 14.17. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
SECTION 14.18. Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto on the date first herein
above written.
BUYER: ARCADE MARKETING, INC.
By: _____________________________
Roger L. Barnett
President
SELLER: MINNESOTA MINING AND
MANUFACTURING COMPANY
By: _____________________________
Name:
Title:
<PAGE>
EXECUTION COPY
===============================================================================
AKI HOLDING CORP.
$50,000,000
-------------------------------------------
13 1/2% SENIOR DISCOUNT DEBENTURES DUE 2009
-------------------------------------------
--------------------------
INDENTURE
DATED AS OF JUNE 25, 1998
--------------------------
STATE STREET BANK AND TRUST COMPANY
Trustee
===============================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
<S> <C>
310(a)(1).................................................................................................7.10
(a)(2) ...................................................................................................7.10
(a)(3)....................................................................................................N.A.
(a)(4)....................................................................................................N.A.
(a)(5)....................................................................................................7.10
(b) .....................................................................................................7.10
(c) .....................................................................................................N.A.
311(a)....................................................................................................7.11
(b) .....................................................................................................7.11
(c) .....................................................................................................N.A.
312 (a)...................................................................................................2.05
(b) .....................................................................................................11.03
(c) .....................................................................................................11.03
313(a)....................................................................................................7.06
(b)(1)....................................................................................................10.03
(b)(2)....................................................................................................7.07
(c) .....................................................................................................7.06;
11.02
(d) .....................................................................................................7.06
314(a)....................................................................................................4.03;
11.02
(b) .....................................................................................................10.02
(c)(1)....................................................................................................11.04
(c)(2)....................................................................................................11.04
(c)(3)....................................................................................................N.A.
(e) .....................................................................................................11.05
(f) .....................................................................................................N.A.
315 (a)...................................................................................................7.01
(b) .....................................................................................................7.05,
11.02
(c) .....................................................................................................7.01
(d) .....................................................................................................7.01
(e) .....................................................................................................6.11
316 (a)(last sentence)....................................................................................2.09
(a)(1)(A).................................................................................................6.05
(a)(1)(B).................................................................................................6.04
(a)(2)....................................................................................................N.A.
(b) .....................................................................................................6.07
(c) .....................................................................................................2.12
317(a)(1).................................................................................................6.08
(a)(2)....................................................................................................6.09
(b) .....................................................................................................2.04
318(a)....................................................................................................11.01
(b) .....................................................................................................N.A.
(c) .....................................................................................................11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
SECTION 1.01. DEFINITIONS......................................................................................1
SECTION 1.02. OTHER DEFINITIONS...............................................................................14
SECTION 1.03. TRUST INDENTURE ACT TERMS.......................................................................14
SECTION 1.04. RULES OF CONSTRUCTION...........................................................................15
ARTICLE 2. THE DEBENTURES........................................................................................15
SECTION 2.01. FORM AND DATING.................................................................................15
SECTION 2.02. EXECUTION AND AUTHENTICATION....................................................................16
SECTION 2.03. REGISTRAR AND PAYING AGENT......................................................................17
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.............................................................17
SECTION 2.05. HOLDER LISTS....................................................................................17
SECTION 2.06. TRANSFER AND EXCHANGE...........................................................................18
SECTION 2.07. REPLACEMENT DEBENTURES..........................................................................29
SECTION 2.08. OUTSTANDING DEBENTURES..........................................................................30
SECTION 2.09. TREASURY DEBENTURES.............................................................................30
SECTION 2.10. TEMPORARY DEBENTURES............................................................................30
SECTION 2.11. CANCELLATION....................................................................................30
SECTION 2.12. DEFAULTED INTEREST..............................................................................31
ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................31
SECTION 3.01. NOTICES TO TRUSTEE..............................................................................31
SECTION 3.02. SELECTION OF DEBENTURES TO BE REDEEMED..........................................................31
SECTION 3.03. NOTICE OF REDEMPTION............................................................................32
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION..................................................................32
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<PAGE>
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.....................................................................32
SECTION 3.06. DEBENTURES REDEEMED IN PART.....................................................................33
SECTION 3.07. OPTIONAL REDEMPTION.............................................................................33
SECTION 3.08. NO MANDATORY REDEMPTION OR SINKING FUND PAYMENTS................................................33
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.............................................34
ARTICLE 4. COVENANTS.............................................................................................35
SECTION 4.01. PAYMENT OF DEBENTURES...........................................................................35
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.................................................................36
SECTION 4.03. REPORTS.........................................................................................36
SECTION 4.04. COMPLIANCE CERTIFICATE..........................................................................36
SECTION 4.05. TAXES...........................................................................................37
SECTION 4.06. STAY, EXTENSION AND USURY LAWS..................................................................37
SECTION 4.07. RESTRICTED PAYMENTS.............................................................................37
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES..................................40
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK......................................40
SECTION 4.10. ASSET SALES.....................................................................................43
SECTION 4.11. TRANSACTIONS WITH AFFILIATES....................................................................43
SECTION 4.12. LIENS...........................................................................................44
SECTION 4.13. BUSINESS ACTIVITIES.............................................................................44
SECTION 4.14. CORPORATE EXISTENCE.............................................................................44
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL......................................................45
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS...................................................45
ARTICLE 5. SUCCESSORS............................................................................................46
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS........................................................46
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED...............................................................46
ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................47
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<PAGE>
SECTION 6.01. EVENTS OF DEFAULT...............................................................................47
SECTION 6.02. ACCELERATION....................................................................................48
SECTION 6.03. OTHER REMEDIES..................................................................................49
SECTION 6.04. WAIVER OF PAST DEFAULTS.........................................................................49
SECTION 6.05. CONTROL BY MAJORITY.............................................................................49
SECTION 6.06. LIMITATION ON SUITS.............................................................................49
SECTION 6.07. RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT..............................................50
SECTION 6.08. COLLECTION SUIT BY TRUSTEE......................................................................50
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................50
SECTION 6.10. PRIORITIES......................................................................................51
SECTION 6.11. UNDERTAKING FOR COSTS...........................................................................51
ARTICLE 7. TRUSTEE...............................................................................................51
SECTION 7.01. DUTIES OF TRUSTEE...............................................................................51
SECTION 7.02. RIGHTS OF TRUSTEE...............................................................................52
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE....................................................................53
SECTION 7.04. TRUSTEE'S DISCLAIMER............................................................................53
SECTION 7.05. NOTICE OF DEFAULTS..............................................................................53
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES.................................................54
SECTION 7.07. COMPENSATION AND INDEMNITY......................................................................54
SECTION 7.08. REPLACEMENT OF TRUSTEE..........................................................................55
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC................................................................56
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION...................................................................56
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............................................56
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................56
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE........................................56
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE..................................................................56
iii
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SECTION 8.03. COVENANT DEFEASANCE.............................................................................57
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE......................................................57
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS........................................................................58
SECTION 8.06. REPAYMENT TO COMPANY............................................................................59
SECTION 8.07. REINSTATEMENT...................................................................................59
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER......................................................................59
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF DEBENTURES........................................................59
SECTION 9.02. WITH CONSENT OF HOLDERS OF DEBENTURES...........................................................60
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.............................................................61
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS...............................................................61
SECTION 9.05. NOTATION ON OR EXCHANGE OF DEBENTURES...........................................................61
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.................................................................62
ARTICLE 10. MISCELLANEOUS........................................................................................62
SECTION 10.01. TRUST INDENTURE ACT CONTROLS...................................................................62
SECTION 10.02. NOTICES........................................................................................62
SECTION 10.03. COMMUNICATION BY HOLDERS OF DEBENTURES WITH OTHER HOLDERS OF DEBENTURES........................63
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.............................................63
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..................................................64
SECTION 10.06. RULES BY TRUSTEE AND AGENTS....................................................................64
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.......................64
SECTION 10.08. GOVERNING LAW..................................................................................64
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..................................................65
SECTION 10.10. SUCCESSORS.....................................................................................65
SECTION 10.11. SEVERABILITY...................................................................................65
SECTION 10.12. COUNTERPART ORIGINALS..........................................................................65
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC...............................................................65
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A: FORM OF NOTE
Exhibit B: FORM OF CERTIFICATE OF TRANSFER
Exhibit C: FORM OF CERTIFICATE OF EXCHANGE
Exhibit D: FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
v
<PAGE>
INDENTURE dated as of June 25, 1998 between AKI Holding
Corp., a Delaware corporation ("Holding"), and State Street Bank and Trust
Company, as trustee (the "Trustee").
Holding and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 13 1/2%
Senior Discount Debentures due 2009 (the "Series A Debentures") and the new 13
1/2% Senior Discount Debentures due 2009 to be issued pursuant to the Debenture
Registration Rights Agreement (the "Series B Debentures" and, together with the
Series A Debentures, the "Debentures"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Debenture" means a global note in the form of
Exhibit A-1 hereto bearing the Global Debenture Legend and the Private
Placement Legend and deposited with or on behalf of, and registered in the name
of, the Depositary or its nominee that will be issued in a denomination equal
to the outstanding principal amount of the Debentures sold in reliance on Rule
144A.
"Accreted Value" means for each $1,000 of Debentures, as of
any date of determination prior to July 1, 2003, the sum of (i) the initial
offering price of each Debenture and (ii) that portion of the excess of the
principal amount of each Debenture over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on
a daily basis and compounded semi-annually on each January 1 and July 1 at the
rate of 13 1/2% per annum from the date of issuance of the Debentures through
the date of determination.
"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, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, 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.
"Agent" means any Registrar, Paying Agent or co-registrar.
<PAGE>
"Applicable Procedures" means, with respect to any transfer
or exchange of or for beneficial interests in any Global Debenture, the rules
and procedures of the Depositary, Euroclear and Cedel that apply to such
transfer or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition (a "disposition") of any assets or rights (including, without
limitation, by way of a sale and leaseback) provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed
by 4.15 and 5.01 and not by the provisions of the Section 4.10 hereof, and (ii)
the issue or sale by Holding or any of its Restricted Subsidiaries of Equity
Interests of any of Holding's Restricted Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $3.0 million or (b)
for net proceeds in excess of $3.0 million. Notwithstanding the foregoing the
following items shall not be deemed to be Asset Sales: (i) a disposition of
assets by Holding to a Restricted Subsidiary or by a Restricted Subsidiary to
Holding or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Restricted Subsidiary to Holding or to another Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by Section 4.07
hereof, (iv) a disposition in the ordinary course of business, (v) the sale and
leaseback of any assets within 90 days of the acquisition thereof, (vi)
foreclosures on assets and (vii) any exchange of property pursuant to Section
1031 on the Internal Revenue Code of 1986, as amended, for use in a Related
Business.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of Holding.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
Government Securities having maturities of not more than six months from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Credit Agreement or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations
2
<PAGE>
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the rating of "P-2" (or higher) from Moody's Investors
Service, Inc. or "A-3" (or higher) from Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition and (vi) any
fund investing exclusively in investments of the type described in clauses (i)
through (v) above.
"Cedel" means Cedel Bank, SA.
"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 Holding 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 or their Related
Parties (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of Holding, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that 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 more than 50% of the Voting Stock of Holding (measured by
voting power rather than number of shares), or (iv) the first day on which a
majority of the members of the Board of Directors of Holding are not Continuing
Directors.
"Company" means AKI, Inc., a Delaware corporation, and any
and all successors thereto.
"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), plus (ii) provision for taxes based on
income or profits of such Person and its 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 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, 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 expenses in any future period or amortization of
a prepaid cash expense 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 expenses were deducted in computing such Consolidated Net
Income, plus (v) expenses and charges of Holding or the Company related to the
Refinancing which are paid, taken or otherwise accounted for within 90 days of
the consummation of the Refinancing, plus (vi) any non-capitalized transaction
costs incurred in connection with actual or proposed financings, acquisitions
or divestitures (including, but not limited to, financing and refinancing fees
and costs incurred in connection with the Refinancing). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that Net
Income of such Subsidiary was included in calculating Consolidated Net Income
of such Person.
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"Consolidated Interest Expense" means, with respect to any
Person for any period, the sum of, without duplication, (a) the interest
expense of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP (including amortization
of original issue discount, non-cash interest payments, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, 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
that in no event shall any amortization of deferred financing costs be included
in Consolidated Interest Expense); and (b) the consolidated capitalized
interest of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be included only to the extent (and in the
same proportion) that the net income of such Restricted Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, 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 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, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to Holding or one of
its Restricted Subsidiaries for purposes of Section 4.09 hereof and shall be
included for purposes of Section 4.07 hereof only to the extent of the amount
of dividends or distributions paid in cash to Holding or one of its Restricted
Subsidiaries.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of Holding who (i) was a
member of such Board of Directors on the date of this Indenture 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 members of such Board at the
time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 hereof or such other address
as to which the Trustee may give notice to Holding.
"Credit Agreement" means that certain Credit Agreement, dated
as of April 30, 1996, as amended on December 12, 1997, between the Company and
Heller Financial, Inc., providing for revolving credit borrowings, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Custodian" means the Trustee, as custodian with respect to
the Debenture in global form, or any successor entity thereto.
"Debenture Registration Rights Agreement" means the Debenture
Registration Rights Agreement, dated as of June 25, 1998, by and among Holding
and the other parties named on the
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signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"Debentures" has the meaning assigned to it in the preamble
to this Indenture.
"Default" means any event that is, or with the passage of
time or the giving of notice or both would be an Event of Default.
"Definitive Debenture" means a certificated Debenture
registered in the name of the Holder thereof and issued in accordance with
Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such
Debenture shall not bear the Global Debenture Legend and shall not have the
"Schedule of Exchanges of Interests in the Global Debenture" attached thereto.
"Depositary" means, with respect to the Debentures issuable
or issued in whole or in part in global form, the Person specified in Section
2.03 hereof as the Depositary with respect to the Debentures, and any and all
successors thereto appointed as depositary hereunder and having become such
pursuant to the applicable provision of this Indenture.
"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), 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 Debentures
mature; provided, however, that any Capital Stock that would not qualify as
Disqualified Stock but for change of control provisions shall not constitute
Disqualified Stock if the provisions are not more favorable to the holders of
such Capital Stock than the provisions described under Section 4.15 hereof
applicable to the Holders of the Debentures.
"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).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Debentures" means the Debentures issued in the
Exchange Offer pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Debenture
Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Debenture Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of Holding and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.
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"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the Consolidated Interest Expense
of such Person for such period, (ii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iii) the product of (a) all dividend payments, whether or not in cash, 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 of Holding, 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
for such period to the Fixed Charges of such Person for such period. In the
event that Holding or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues 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 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 Holding 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 calculated to include the Consolidated Cash Flow of
the acquired entities on a pro forma basis after giving effect to cost savings
resulting from employee terminations, facilities consolidations and closings,
standardization of employee benefits and compensation policies, consolidation
of property, casualty and other insurance coverage and policies,
standardization of sales and distribution methods, reductions in taxes other
than income taxes and other cost savings reasonably expected to be realized
from such acquisition, 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, (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 (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 Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of Holding that is
not organized under the laws of a state or territory of the United States or
the District of Columbia.
"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 this
Indenture.
"Global Debentures" means, individually and collectively,
each of the Restricted Global Debentures and the Unrestricted Global
Debentures, in the form of Exhibit A hereto issued in accordance with Section
2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof.
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"Global Debenture Legend" means the legend set forth in
Section 2.06(g)(ii), which is required to be placed on all Global Debentures
issued under this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"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 currency exchange rates.
"Holder" means a Person in whose name a Debenture is
registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, 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 bankers' 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; provided that Indebtedness shall not include the pledge by
Holding of the Capital Stock of an Unrestricted Subsidiary of Holding to secure
Non-Recourse Debt of such Unrestricted Subsidiary. 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, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Debenture through a Participant.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"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 Holding or any Restricted Subsidiary of Holding sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of Holding such that, after giving effect to any such sale or
disposition, such Person is
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no longer a Restricted Subsidiary of Holding, Holding shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of Section 4.07 hereof.
"Issue Date" means the date of original issuance of the
Debentures.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or the city in which the principal
corporate trust office of the Trustee is located or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by Holding and sent to all Holders of the Debentures for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Debenture Registration Rights Agreement.
"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 disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted 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
Holding or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), the amounts required to be
applied to the payment of Indebtedness (other than Indebtedness incurred
pursuant to the Credit Agreement), secured by a Lien on the asset or assets
that were the subject of the 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 Holding nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the
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holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Debentures being offered hereby and the
Notes being offered concurrently by the Company) of Holding or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock (other than stock of an
Unrestricted Subsidiary pledged by Holding to secure debt of such Unrestricted
Subsidiary) or assets of Holding or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" means the Company's $115,000,000 in aggregate
principal amount of 10 1/2% Senior Notes due 2008.
"Note Indenture" means the indenture, dated as of June 25,
between the Company and IBJ Schroder Bank and Trust Company, as trustee,
governing the Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Debentures by Holding.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary, Assistant Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed by (i) the
Chairman of the Board of Directors, the Chief Executive Officer, the President
or a Vice President of Holding and (ii) the Chief Financial Officer or the
Secretary of Holding, that meets the requirements of Sections 10.04 and 10.05
hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of
Sections 10.04 and 10.05 hereof. The counsel may be an employee of or counsel
to Holding, any Subsidiary of Holding or the Trustee.
"Participant" means, with respect to the Depositary,
Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear
or Cedel, respectively (and, with respect to The Depository Trust Company,
shall include Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in
the Debenture Registration Rights Agreement.
"Permitted Business" means any business in which Holding and
its Restricted Subsidiaries are engaged on the date of this Indenture or any
business reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in Holding
or in a Restricted Subsidiary of Holding that is engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by Holding
or any Restricted Subsidiary of Holding in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary of Holding that is
engaged in a Permitted Business or (ii)
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<PAGE>
such Person is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, Holding
or a Restricted Subsidiary of Holding that is engaged in a Permitted Business;
(d) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of Holding;
and (f) other Investments made after the date of this Indenture in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed $10.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under
the Credit Agreement that was permitted by the terms of this Indenture to be
incurred or other Indebtedness allowed to be incurred under clause (i) of
Section 4.09 hereof; (ii) Liens in favor of Holding; (iii) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
Holding or any Restricted Subsidiary of Holding, provided that such Liens were
not incurred in contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person merged into or consolidated with
Holding or any Restricted Subsidiary; (iv) Liens on property existing at the
time of acquisition thereof by Holding or any Restricted Subsidiary of Holding,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date of
this Indenture; (vii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of
Section 4.09 hereof; (ix) Liens securing Permitted Refinancing Indebtedness
where the Liens securing the Permitted Refinancing Indebtedness were permitted
under this Indenture; (x) Liens incurred in the ordinary course of business of
Holding or any Restricted Subsidiary of Holding with respect to obligations
that do not exceed $5.0 million at any one time outstanding and that (a) are
not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business)
and (b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by
Holding or such Restricted Subsidiary; and (xi) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness
of Holding or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Holding or any of its Restricted Subsidiaries;
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, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date no earlier 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, replaced, defeased or refunded; and (iii)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Debentures, 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 Debentures on
terms at least as favorable to the Holders of Debentures as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
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"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint venture,
or a governmental agency or political subdivision thereof.
"Principals" means Roger L. Barnett, DLJ Merchant Banking
Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore
Partners II, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners,
L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK
Investment Plan 1997 Partners and DLJ First ESC L.P.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Debentures issued under this Indenture
except where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means a public offering of Equity
Interests (other than Disqualified Stock) of (i) Holding or (ii) Acquisition
Corp. to the extent the net proceeds thereof are contributed to Holding as a
capital contribution, that, in each case, results in net proceeds to Holding of
at least $25.0 million.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Debentures" means the Regulation S
Temporary Global Debentures or the Regulation S Permanent Global Debentures as
applicable.
"Regulation S Permanent Global Debentures" means the
permanent global notes that are deposited with and registered in the name of
the Depositary or its nominee, representing a series of Debentures sold in
reliance on Regulation S.
"Regulation S Temporary Global Debentures" means the
temporary global notes that are deposited with and registered in the name of
the Depositary or its nominee, representing a series of Debentures sold in
reliance on Regulation S.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or partner, 80% (or more) owned Subsidiary, or spouse
or immediate family member (in the case of an individual) of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clause (A).
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Debenture" means a Definitive
Debenture bearing the Private Placement Legend.
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"Restricted Global Debenture" means a Global Debenture
bearing the Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Period" means the 40-day restricted period as
defined in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 144A Global Debenture" means a permanent global note
that is deposited with and registered in the name of the Depositary or its
nominee, representing a series of Debentures sold in reliance on Rule 144A.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Debenture Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time 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 or limited liability company (a)
the sole general partner or the managing general partner or managing member 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).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
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"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Debenture" means one or more
Definitive Debentures that do not bear and are not required to bear the Private
Placement Legend.
"Unrestricted Global Debenture" means a permanent global
Debenture in the form of Exhibit A-1 attached hereto that bears the Global
Debenture Legend and that has the "Schedule of Exchanges of Interests in the
Global Debenture" attached thereto, and that is deposited with or on behalf of
and registered in the name of the Depositary, representing a series of
Debentures that do not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary 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 Holding or any Restricted
Subsidiary of Holding unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Holding or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Holding; (c) is a Person with respect to
which neither Holding 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; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of Holding 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 Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Holding as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
Section 4.09 hereof, Holding shall be in default of such covenant). The Board
of Directors of Holding 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 by a Restricted Subsidiary of Holding of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall be permitted only if (i) such Indebtedness is permitted under
the covenant described under Section 4.09 hereof and (ii) no Default or Event
of Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"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.
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"Wholly Owned Subsidiary" of any Person means a 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 Subsidiaries of such Person and
one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"............................................................4.11
"Asset Sale Offer".................................................................3.09
"Authentication Order".............................................................2.02
"Change of Control Offer"..........................................................4.15
"Change of Control Payment"........................................................4.15
"Change of Control Payment Date" ..................................................4.15
"Covenant Defeasance"..............................................................8.03
"Event of Default".................................................................6.01
"Excess Proceeds"..................................................................4.10
"incur"............................................................................4.09
"Legal Defeasance" ................................................................8.02
"Offer Amount".....................................................................3.09
"Offer Period".....................................................................3.09
"Paying Agent".....................................................................2.03
"Permitted Debt"...................................................................4.09
"Purchase Date"....................................................................3.09
"Registrar"........................................................................2.03
"Restricted Payments"..............................................................4.07
</TABLE>
SECTION 1.03. TRUST INDENTURE ACT TERMS.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Debentures;
"indenture security Holder" means a Holder of a Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Debentures means Holding and any successor
obligor upon the Debentures.
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All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement of successor sections or rules adopted by the SEC
from time to time.
ARTICLE 2.
THE DEBENTURES
SECTION 2.01. FORM AND DATING.
(a) General. The Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Debentures may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Debenture shall be dated the date of its
authentication. The Debentures shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Debentures shall constitute,
and are hereby expressly made, a part of this Indenture and Holding and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Debenture conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Debentures. Debentures issued in global form shall be
substantially in the form of Exhibits A-1 or A-2 attached hereto (including the
Global Debenture Legend thereon and the "Schedule of Exchanges of Interests in
the Global Debenture" attached thereto). Debentures issued in definitive form
shall be substantially in the form of Exhibit A-1 attached hereto (but without
the Global Debenture Legend thereon and without the "Schedule of Exchanges of
Interests in the Global Debenture" attached thereto). Each Global Debenture
shall represent such of the outstanding Debentures as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Debentures from time to time endorsed thereon and that
the aggregate principal amount of outstanding Debentures represented thereby
may from time to time be reduced or increased, as appropriate, to reflect
exchanges and redemptions. Any endorsement of a Global Debenture to reflect the
amount of any increase or decrease in the aggregate principal amount of
outstanding Debentures represented thereby
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shall be made by the Trustee or the Debenture Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Debentures. Debentures offered and sold in
reliance on Regulation S shall be issued initially in the form of the
Regulation S Temporary Global Debenture, which shall be deposited on behalf of
the purchasers of the Debentures represented thereby with the Trustee, at its
New York, New York office, as custodian for the Depositary, and registered in
the name of the Depositary or the nominee of the Depositary for the accounts of
designated agents holding on behalf of Euroclear or Cedel Bank, duly executed
by Holding and authenticated by the Trustee as hereinafter provided. The
Restricted Period shall be terminated upon the receipt by the Trustee of (i) a
written certificate from the Depositary, together with copies of certificates
from Euroclear and Cedel Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Debenture (except to the extent of
any beneficial owners thereof who acquired an interest therein during the
Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Debenture or an IAI Global Debenture bearing a Private Placement
Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an
Officers' Certificate from Holding. Following the termination of the Restricted
Period, beneficial interests in the Regulation S Temporary Global Debenture
shall be exchanged for beneficial interests in Regulation S Permanent Global
Debentures pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Debentures, the Trustee shall
cancel the Regulation S Temporary Global Debenture. The aggregate principal
amount of the Regulation S Temporary Global Debenture and the Regulation S
Permanent Global Debentures may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel
Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Debenture and the
Regulation S Permanent Global Debentures that are held by Participants through
Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Debentures for Holding by manual
or facsimile signature. Holding's seal shall be reproduced on the Debentures
and may be in facsimile form.
If an Officer whose signature is on a Debenture no longer
holds that office at the time a Debenture is authenticated, the Debenture shall
nevertheless be valid.
A Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Debenture has been authenticated under this Indenture.
The Trustee shall, upon a written order of Holding signed by
one Officer (an "Authentication Order"), authenticate Debentures for original
issue up to the aggregate principal amount stated in paragraph 4 of the
Debentures. The aggregate principal amount of Debentures outstanding at any
time may not exceed such amount except as provided in Section 2.07 hereof.
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The Trustee may appoint an authenticating agent acceptable to
Holding to authenticate Debentures. An authenticating agent may authenticate
Debentures whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of Holding.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
Holding shall maintain an office or agency where Debentures
may be presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Debentures may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Debentures and of their
transfer and exchange. Holding may appoint one or more co-registrars and one or
more additional paying agents. The term "Registrar" includes any co-registrar
and the term "Paying Agent" includes any additional paying agent. Holding may
change any Paying Agent or Registrar without notice to any Holder. Holding
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If Holding fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such. Holding or any of
its Subsidiaries may act as Paying Agent or Registrar.
Holding initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Debentures.
Holding initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Debenture Custodian with respect to
the Global Debentures.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
Holding shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Debentures, and will notify the Trustee of any default by Holding in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. Holding at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than Holding or a
Subsidiary) shall have no further liability for the money. If Holding or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to Holding, the
Trustee shall serve as Paying Agent for the Debentures.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIAss. 312(a). If the
Trustee is not the Registrar, Holding shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times
as the Trustee may request in writing, a list in such form and as of such date
as the Trustee may reasonably require of the names and addresses of the Holders
of Debentures and Holding shall otherwise comply with TIAss. 312(a).
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SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Debentures. A Global
Debenture may not be transferred as a whole except by the Depositary to a
nominee of the Depositary, by a nominee of the Depositary to the Depositary or
to another nominee of the Depositary, the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Debentures will be exchanged by Holding for Definitive Debentures if (i)
Holding delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by Holding within 120 days after the date of such
notice from the Depositary or (ii) Holding in its sole discretion determines
that the Global Debentures (in whole but not in part) should be exchanged for
Definitive Debentures and delivers a written notice to such effect to the
Trustee; provided that in no event shall the Regulation S Temporary Global
Debenture be exchanged by Holding for Definitive Debentures prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities
Act. Upon the occurrence of either of the preceding events in (i) or (ii)
above, Definitive Debentures shall be issued in such names as the Depositary
shall instruct the Trustee. Global Debentures also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Debenture authenticated and delivered in exchange for, or in lieu of, a
Global Debenture or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Debenture. A Global Debenture may not be exchanged
for another Debenture other than as provided in this Section 2.06(a), however,
beneficial interests in a Global Debenture may be transferred and exchanged as
provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the
Global Debentures. The transfer and exchange of beneficial interests in the
Global Debentures shall be effected through the Depositary, in accordance with
the provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Debentures shall be subject to restrictions
on transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Debentures also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of Beneficial Interests in the Same Global Debenture.
Beneficial interests in any Restricted Global Debenture may be transferred
to Persons who take delivery thereof in the form of a beneficial interest
in the same Restricted Global Debenture in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Temporary Regulation S Global Debenture may
not be made to a U.S. Person or for the account or benefit of a U.S.
Person (other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Debenture may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Debenture. No written orders or instructions shall be required to
be delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Debentures. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above, the
transferor of such beneficial interest must deliver to the Registrar
either (A) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to credit or cause to be credited a
beneficial interest in another Global Debenture in an amount equal to the
beneficial interest to be transferred or exchanged and (2) instructions
given in accordance with the Applicable Procedures containing
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information regarding the Participant account to be credited with such
increase or (B) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive
Debenture in an amount equal to the beneficial interest to be transferred
or exchanged and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such Definitive
Debenture shall be registered to effect the transfer or exchange referred
to in (1) above; provided that in no event shall Definitive Debentures be
issued upon the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Debenture prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act. Upon consummation
of an Exchange Offer by Holding in accordance with Section 2.06(f) hereof,
the requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Debentures. Upon satisfaction of all of
the requirements for transfer or exchange of beneficial interests in
Global Debentures contained in this Indenture and the Debentures or
otherwise applicable under the Securities Act, the Trustee shall adjust
the principal amount of the relevant Global Debenture(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Debenture. A beneficial interest in any Restricted Global Debenture may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Debenture if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Debenture, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Debenture or the
Regulation S Global Debenture, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications
in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Debenture, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications and certificates and Opinion of Counsel required by item
(3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Debenture for Beneficial Interests in the Unrestricted Global Debenture.
A beneficial interest in any Restricted Global Debenture may be exchanged by
any holder thereof for a beneficial interest in an Unrestricted Global
Debenture or transferred to a Person who takes delivery thereof in the form of
a beneficial interest in an Unrestricted Global Debenture if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Debenture Registration Rights
Agreement and the holder of the beneficial interest to be transferred, in
the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Debentures or (3) a Person who is an affiliate (as defined in
Rule 144) of Holding;
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(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Debenture Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Debenture Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Debenture proposes to exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Debenture, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item (1)(a)
thereof; or
(2) if the Holder of such beneficial interest in a Restricted
Global Debenture proposes to transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Debenture, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in
form reasonably acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Debenture has not yet been
issued, Holding shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Debentures in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Debenture
cannot be exchanged for, or transferred to Persons who take delivery thereof in
the form of, a beneficial interest in a Restricted Global Debenture.
(c) Transfer or Exchange of Beneficial Interests for
Definitive Debentures.
(i) Beneficial Interests in Restricted Global Debentures to Restricted
Definitive Debentures. If any holder of a beneficial interest in a Restricted
Global Debenture proposes to exchange such beneficial interest for a Restricted
Definitive Debenture or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Debenture, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Debenture proposes to exchange such beneficial interest for a
Restricted Definitive Debenture, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (2)(a)
thereof;
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(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to
Holding or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(b)
thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Debenture to be reduced accordingly pursuant to Section 2.06(h)
hereof, and Holding shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive
Debenture in the appropriate principal amount. Any Definitive Debenture
issued in exchange for a beneficial interest in a Restricted Global
Debenture pursuant to this Section 2.06(c) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Debentures to the
Persons in whose names such Debentures are so registered. Any Definitive
Debenture issued in exchange for a beneficial interest in a Restricted
Global Debenture pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all restrictions on
transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (c) hereof, a beneficial
interest in the Regulation S Temporary Global Debenture may not be exchanged
for a Definitive Debenture or transferred to a Person who takes delivery
thereof in the form of a Definitive Debenture prior to (x) the expiration of
the Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in
the case of a transfer pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
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(iii) Beneficial Interests in Restricted Global Debentures to
Unrestricted Definitive Debentures. A holder of a beneficial interest in a
Restricted Global Debenture may exchange such beneficial interest for an
Unrestricted Definitive Debenture or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Debenture only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Debenture Registration Rights
Agreement and the holder of such beneficial interest, in the case of
an exchange, or the transferee, in the case of a transfer, certifies
in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Debentures or (3) a Person who is an affiliate (as defined in
Rule 144) of Holding;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Debenture Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Debenture Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Debenture proposes to exchange such beneficial
interest for a Definitive Debenture that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b) thereof;
or
(2) if the holder of such beneficial interest in a
Restricted Global Debenture proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of a
Definitive Debenture that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to
the Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend
are no longer required in order to maintain compliance with the
Securities Act.
(iv) Beneficial Interests in Unrestricted Global Debentures to
Unrestricted Definitive Debentures. If any holder of a beneficial interest in
an Unrestricted Global Debenture proposes to exchange such beneficial interest
for a Definitive Debenture or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Debenture, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
Trustee shall cause the aggregate principal amount of the applicable Global
Debenture to be reduced accordingly pursuant to Section 2.06(h) hereof, and
Holding shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Debenture in the appropriate
principal amount. Any Definitive Debenture issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such name
or names and in such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through instructions from
the Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive
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Debentures to the Persons in whose names such Debentures are so registered. Any
Definitive Debenture issued in exchange for a beneficial interest pursuant to
this Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Debentures for
Beneficial Interests.
(i) Restricted Definitive Debentures to Beneficial Interests in
Restricted Global Debentures. If any Holder of a Restricted Definitive
Debenture proposes to exchange such Debenture for a beneficial interest in a
Restricted Global Debenture or to transfer such Restricted Definitive
Debentures to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Debenture, then, upon receipt by the Registrar
of the following documentation:
(A) if the Holder of such Restricted Definitive Debenture
proposes to exchange such Debenture for a beneficial interest in a
Restricted Global Debenture, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Debenture is being
transferred to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such Restricted Definitive Debenture is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Debenture is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144 under
the Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Debenture is being
transferred to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities Act
other than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable;
(F) if such Restricted Definitive Debenture is being
transferred to Holding or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Debenture is being
transferred pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof;
the Trustee shall cancel the Restricted Definitive Debenture, increase or cause
to be increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Debenture, in the case of clause (B)
above, the 144A Global Debenture, in the case of clause (c) above, the
Regulation S Global Debenture, and in all other cases, the IAI Global
Debenture.
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(ii) Restricted Definitive Debentures to Beneficial Interests in
Unrestricted Global Debentures. A Holder of a Restricted Definitive Debenture
may exchange such Debenture for a beneficial interest in an Unrestricted Global
Debenture or transfer such Restricted Definitive Debenture to a Person who
takes delivery thereof in the form of a beneficial interest in an Unrestricted
Global Debenture only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Debenture Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Debentures or (3) a
Person who is an affiliate (as defined in Rule 144) of Holding;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Debenture Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Debenture Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Debentures
proposes to exchange such Debentures for a beneficial interest in the
Unrestricted Global Debenture, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item (1)(c)
thereof; or
(2) if the Holder of such Definitive Debentures
proposes to transfer such Debentures to a Person who shall take
delivery thereof in the form of a beneficial interest in the
Unrestricted Global Debenture, a certificate from such Holder in the
form of Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Debentures
and increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Debenture.
(iii) Unrestricted Definitive Debentures to Beneficial Interests in
Unrestricted Global Debentures. A Holder of an Unrestricted Definitive
Debenture may exchange such Debenture for a beneficial interest in an
Unrestricted Global Debenture or transfer such Definitive Debentures to a
Person who takes delivery thereof in the form of a beneficial interest in
an Unrestricted Global Debenture at any time. Upon receipt of a request
for such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Debenture and increase or cause to be increased
the aggregate principal amount of one of the Unrestricted Global
Debentures.
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If any such exchange or transfer from a Definitive Debenture
to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Debenture has not yet been
issued, Holding shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Debentures in an aggregate principal amount equal to the
principal amount of Definitive Debentures so transferred.
(e) Transfer and Exchange of Definitive Debentures for
Definitive Debentures.
Upon request by a Holder of Definitive Debentures and such
Holder's compliance with the provisions of this Section 2.06(e), the Registrar
shall register the transfer or exchange of Definitive Debentures. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Debentures duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his attorney, duly authorized in
writing. In addition, the requesting Holder shall provide any additional
certifications, documents and information, as applicable, required pursuant to
the following provisions of this Section 2.06(e).
(i) Restricted Definitive Debentures to Restricted Definitive
Debentures. Any Restricted Definitive Debenture may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Debenture if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Debentures to Unrestricted Definitive
Debentures. Any Restricted Definitive Debenture may be exchanged by the
Holder thereof for an Unrestricted Definitive Debenture or transferred to
a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Debenture if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Debenture Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Debentures or (3) a
Person who is an affiliate (as defined in Rule 144) of Holding;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Debenture Registration
Rights Agreement;
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(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Debenture Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive
Debentures proposes to exchange such Debentures for an Unrestricted
Definitive Debenture, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted Definitive
Debentures proposes to transfer such Debentures to a Person who shall
take delivery thereof in the form of an Unrestricted Definitive
Debenture, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to Holding to the effect that such exchange or transfer is
in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Debentures to Unrestricted Definitive
Debentures. A Holder of Unrestricted Definitive Debentures may transfer
such Debentures to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Debenture. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted Definitive
Debentures pursuant to the instructions from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with
the Debenture Registration Rights Agreement, Holding shall issue and, upon
receipt of an Authentication Order in accordance with Section 2.02, the Trustee
shall authenticate (i) one or more Unrestricted Global Debentures in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Debentures tendered for acceptance by
Persons that certify in the applicable Letters of Transmittal that (x) they are
not broker-dealers, (y) they are not participating in a distribution of the
Exchange Debentures and (z) they are not affiliates (as defined in Rule 144) of
Holding, and accepted for exchange in the Exchange Offer and (ii) Definitive
Debentures in an aggregate principal amount equal to the principal amount of
the Restricted Definitive Debentures accepted for exchange in the Exchange
Offer. Concurrently with the issuance of such Debentures, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global
Debentures to be reduced accordingly, and Holding shall execute and the Trustee
shall authenticate and deliver to the Persons designated by the Holders of
Definitive Debentures so accepted Definitive Debentures in the appropriate
principal amount.
(g) Legends.
The following legends shall appear on the face of all Global
Debentures and Definitive Debentures issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
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(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Debenture and each Definitive Debenture (and all Debentures
issued in exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY
BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Debenture or
Definitive Debenture issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Debentures issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Debenture Legend. Each Global Debenture shall bear a
legend in substantially the following form:
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"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(iii) Regulation S Temporary Global Debenture Legend. The Regulation S
Temporary Global Debenture shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(iv) Original Issue Discount Legend. Each Note shall bear a legend in
substantially the following form:
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH
ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS
SECURITY, THE ISSUE PRICE IS $519.24, THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $480.76, THE ISSUE DATE IS JUNE 25, 1998 AND THE YIELD TO
MATURITY IS 13 1/2% PER ANNUM."
(h) Cancellation and/or Adjustment of Global Debentures. At such time
as all beneficial interests in a particular Global Debenture have been
exchanged for Definitive Debentures or a particular Global Debenture has been
redeemed, repurchased or canceled in whole and not in part, each such Global
Debenture shall be returned to or retained and canceled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Debenture is exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Debenture or for Definitive Debentures, the principal amount
of Debentures represented by such Global Debenture shall be reduced accordingly
and an endorsement shall be made on such Global Debenture by the Trustee or by
the Depositary at the direction of the Trustee to reflect such reduction; and
if the beneficial interest is being exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Debenture, such other Global Debenture shall be increased accordingly
and an endorsement shall be made on such Global Debenture by the Trustee or by
the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
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(i) To permit registrations of transfers and exchanges, Holding shall
execute and the Trustee shall authenticate Global Debentures and
Definitive Debentures upon Holding's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Debenture or to a Holder of a Definitive Debenture
for any registration of transfer or exchange, but Holding may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05
hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Debenture selected for redemption in whole or in part,
except the unredeemed portion of any Debenture being redeemed in part.
(iv) All Global Debentures and Definitive Debentures issued upon any
registration of transfer or exchange of Global Debentures or Definitive
Debentures shall be the valid obligations of Holding, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Global Debentures or Definitive Debentures surrendered upon such
registration of transfer or exchange.
(v) Holding shall not be required (A) to issue, to register the
transfer of or to exchange any Debentures during a period beginning at
the opening of business 15 days before the day of any selection of
Debentures for redemption under Section 3.02 hereof and ending at the
close of business on the day of selection, (B) to register the transfer
of or to exchange any Debenture so selected for redemption in whole or in
part, except the unredeemed portion of any Debenture being redeemed in
part or (C) to register the transfer of or to exchange a Debenture
between a record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Debenture, the Trustee, any Agent and Holding may deem and treat the
Person in whose name any Debenture is registered as the absolute owner of
such Debenture for the purpose of receiving payment of principal of and
interest on such Debentures and for all other purposes, and none of the
Trustee, any Agent or Holding shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Debentures and Definitive
Debentures in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT DEBENTURES.
If any mutilated Debenture is surrendered to the Trustee or Holding
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Debenture, Holding shall issue and the Trustee, upon receipt of
an Authentication Order, shall authenticate a replacement Debenture if the
Trustee's requirements are met. If required by the Trustee or Holding, an
indemnity bond must be supplied by the Holder that is sufficient in the
judgment of the Trustee and Holding to protect Holding, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a
Debenture is replaced. Holding may charge for its expenses in replacing a
Debenture.
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Every replacement Debenture is an additional obligation of
Holding and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Debentures duly issued hereunder.
SECTION 2.08. OUTSTANDING DEBENTURES.
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Debenture
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Debenture does not cease to be outstanding because Holding or an
Affiliate of Holding holds the Debenture.
If a Debenture is replaced pursuant to Section 2.07 hereof,
it ceases to be outstanding unless the Trustee receives proof satisfactory to
it that the replaced Debenture is held by a bona fide purchaser.
If the principal amount of any Debenture is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
If the Paying Agent (other than Holding, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Debentures payable on that date, then on and after that date
such Debentures shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.09. TREASURY DEBENTURES.
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, waiver or consent,
Debentures owned by Holding, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
Holding, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Debentures that the Trustee
actually knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY DEBENTURES.
Until certificates representing Debentures are ready for
delivery, Holding may prepare and the Trustee, upon receipt of an
Authentication Order, shall authenticate temporary Debentures. Temporary
Debentures shall be substantially in the form of certificated Debentures but
may have variations that Holding considers appropriate for temporary Debentures
and as shall be reasonably acceptable to the Trustee. Without unreasonable
delay, Holding shall prepare and the Trustee shall authenticate definitive
Debentures in exchange for temporary Debentures.
Holders of temporary Debentures shall be entitled to all of
the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
Holding at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered
for registration of transfer, exchange, payment, replacement or cancellation
and shall destroy
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canceled Debentures (subject to the record retention requirement of the
Exchange Act). Certification of the destruction of all canceled Debentures
shall be delivered to Holding. Holding may not issue new Debentures to replace
Debentures that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If Holding defaults in a payment of interest on the
Debentures, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, in each case at the rate
provided in the Debentures and in Section 4.01 hereof. Holding shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Debenture and the date of the proposed payment. Holding shall fix or cause
to be fixed each such special record date and payment date, provided that no
such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, Holding (or, upon the written request of Holding, the Trustee in
the name and at the expense of Holding) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If Holding elects to redeem Debentures pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 35 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the clause of this Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Debentures to be redeemed and (iv) the redemption
price.
SECTION 3.02. SELECTION OF DEBENTURES TO BE REDEEMED.
If less than all of the Debentures are to be redeemed or
purchased in an offer to purchase at any time, the Trustee shall select the
Debentures to be redeemed or purchased among the Holders of the Debentures in
compliance with the requirements of the principal national securities exchange,
if any, on which the Debentures are listed or, if the Debentures are not so
listed, on a pro rata basis, provided that no Debentures having a principal
amount at maturity of $1,000 or less shall be redeemed in part. In the event of
partial redemption by lot, the particular Debentures to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding
Debentures not previously called for redemption.
The Trustee shall promptly notify Holding in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed. Debentures
and portions of Debentures selected shall be in amounts of $1,000 or whole
multiples of $1,000; except that if all of the Debentures of a Holder are to be
redeemed, the entire outstanding amount of Debentures held by such Holder, even
if not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Debentures
called for redemption also apply to portions of Debentures called for
redemption.
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SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, Holding shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Debentures are to be redeemed at its registered address.
The notice shall identify the Debentures to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
redemption date upon surrender of such Debenture, a new Debenture or Debentures
in principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Debenture;
(d) the name and address of the Paying Agent;
(e) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless Holding defaults in making such redemption payment,
interest on Debentures called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Debentures and/or Section of this Indenture
pursuant to which the Debentures called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Debentures.
At Holding's request, the Trustee shall give the notice of
redemption in Holding's name and at its expense; provided, however, that
Holding shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Debentures called for redemption become irrevocably due
and payable on the redemption date at the redemption price. A notice of
redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, Holding shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Debentures to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to Holding any
money deposited with the Trustee or the Paying Agent by Holding in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Debentures to be redeemed.
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If Holding complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Debentures or the portions of Debentures called for redemption. If a
Debenture is redeemed on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest shall
be paid to the Person in whose name such Debenture was registered at the close
of business on such record date. If any Debenture called for redemption shall
not be so paid upon surrender for redemption because of the failure of Holding
to comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case
at the rate provided in the Debentures and in Section 4.01 hereof.
SECTION 3.06. DEBENTURES REDEEMED IN PART.
Upon surrender of a Debenture that is redeemed in part,
Holding shall issue and, upon Holding's written request, the Trustee shall
authenticate for the Holder at the expense of Holding a new Debenture equal in
principal amount to the unredeemed portion of the Debenture surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, Holding
shall not have the option to redeem the Debentures pursuant to this Section
3.07 prior to July 1, 2003. Thereafter, Holding shall have the option to redeem
the Debentures, 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
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on July 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003...................................................................106.750%
2004...................................................................103.375%
2005 and thereafter....................................................100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time prior to July 1, 2001, Holding may on one or more occasions redeem
up to 100% of the aggregate principal amount at maturity of Debentures
originally issued at a redemption price of equal to 113.5% of the Accreted
Value thereof (determined at the date of redemption), plus Liquidated Damages
thereon, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings; provided that at least 65% of the original
aggregate principal amount at maturity of Debentures remains outstanding
immediately after the occurrence of such redemption; provided, further, that
such redemption shall occur within 90 days of the date of the closing of such
Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. NO MANDATORY REDEMPTION OR SINKING FUND PAYMENTS.
Holding shall not be required to make mandatory redemption or
sinking fund payments with respect to the Debentures.
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SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, Holding
shall be required to commence an offer to all Holders to purchase Debentures
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), Holding shall purchase the principal amount of Debentures
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Debentures tendered in
response to the Asset Sale Offer. Payment for any Debentures so purchased shall
be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Debenture is registered at
the close of business on such record date, and no additional interest shall be
payable to Holders who tender Debentures pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, Holding shall
send, by first class mail, a notice to the Trustee and each of the Holders,
with a copy to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Debentures pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Debenture not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless Holding defaults in making such payment, any
Debenture accepted for payment pursuant to the Asset Sale Offer shall cease to
accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Debenture purchased pursuant to an
Asset Sale Offer may only elect to have all of such Debenture purchased and may
not elect to have only a portion of such Debenture purchased;
(f) that Holders electing to have a Debenture purchased pursuant to
any Asset Sale Offer shall be required to surrender the Debenture, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Debenture completed, or transfer by book-entry transfer, to Holding, a
depositary, if appointed by Holding, or a Paying Agent at the address specified
in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
Holding, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the
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Debenture the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Debenture purchased;
(h) that, if the aggregate principal amount of Debentures surrendered
by Holders exceeds the Offer Amount, Holding shall select the Debentures to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by Holding so that only Debentures in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Debentures were purchased only in part shall be
issued new Debentures equal in principal amount to the unpurchased portion of
the Debentures surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, Holding shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Debentures or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Debentures
tendered, and shall deliver to the Trustee an Officers' Certificate stating
that such Debentures or portions thereof were accepted for payment by Holding
in accordance with the terms of this Section 3.09. Holding, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Debentures tendered by such
Holder and accepted by Holding for purchase, and Holding shall promptly issue a
new Debenture, and the Trustee, upon written request from Holding shall
authenticate and mail or deliver such new Debenture to such Holder, in a
principal amount equal to any unpurchased portion of the Debenture surrendered.
Any Debenture not so accepted shall be promptly mailed or delivered by Holding
to the Holder thereof. Holding shall publicly announce the results of the Asset
Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF DEBENTURES.
Holding shall pay or cause to be paid the principal of,
premium, if any, and interest on the Debentures on the dates and in the manner
provided in the Debentures. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than Holding or a
Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money
deposited by Holding in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due.
Holding shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Debenture Registration Rights
Agreement.
Holding shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Debentures to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
Holding shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Debentures may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon Holding in respect of the Debentures and this Indenture may
be served. Holding shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time Holding shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
Holding may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve Holding of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. Holding
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
Holding hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of Holding in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of
the Commission, so long as any Debentures are outstanding, Holding will furnish
to the Holders of Debentures (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if Holding were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by Holding's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if Holding were required to file
such reports. In addition, following the consummation of the Exchange Offer,
whether or not required by the rules and regulations of the SEC, Holding shall
file a copy of all such information and reports with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
(b) Holding shall at all times comply with TIA ss. 314(a).
(c) For so long as any Debentures remain outstanding, Holding
shall furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) Holding shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of Holding and its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether Holding has kept, observed, performed and fulfilled
its obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge
Holding has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and
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conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action Holding is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Debentures is prohibited or if such
event has occurred, a description of the event and what action Holding is
taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by
a written statement of Holding's independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that Holding has violated any
provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) Holding shall, so long as any of the Debentures are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action Holding is taking or proposes to take with
respect thereto.
SECTION 4.05. TAXES.
Holding shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Debentures.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
Holding covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and Holding (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it shall not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of Holding's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment on such Equity Interests in connection with any merger or consolidation
involving Holding) or to the direct or indirect holders of Holding's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Holding); (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, in connection with any merger
or consolidation involving Holding) any Equity Interests of Holding or any
direct or indirect parent of Holding (other than any such Equity Interests
owned by Holding or any Restricted
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Subsidiary of Holding); (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 Debentures, except scheduled payments
of interest or principal at Stated Maturity of such Indebtedness; 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 after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Holding would, after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holding and its Restricted Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by clauses
(i), (ii), (iii), (iv), (viii) (other than those permitted by clause (f) of the
definition of "Permitted Investments"), (ix), (xii) and (xiii) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of Holding for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of this
Indenture to the end of Holding'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 net cash proceeds
received by Holding as a contribution to Holding's capital or received by
Holding from the issue or sale since the date of this Indenture of Equity
Interests of Holding (other than Disqualified Stock) or of Disqualified Stock
or debt securities of Holding that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Restricted Subsidiary of Holding 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 this Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment, plus (iv) if any
Unrestricted Subsidiary (A) is redesignated as a Restricted Subsidiary, the
fair market value of such redesignated Subsidiary (as determined in good faith
by the Board of Directors) as of the date of its redesignation or (B) pays any
cash dividends or cash distributions to Holding or any of its Restricted
Subsidiaries, 50% of any such cash dividends or cash distributions made after
the date of this Indenture.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of Holding in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale or issuance (other than to a Restricted Subsidiary of Holding) of, other
Equity Interests of Holding (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of Holding to the holders of
its Equity Interests on a pro rata basis; (v) the declaration or payment of
dividends to Acquisition Corp. or Holding for expenses incurred by Acquisition
Corp. in its capacity as holding company or for services rendered on behalf of
Holding, including, without limitation, (a) customary salary,
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bonus and other benefits payable to officers and employees of Acquisition
Corp., (b) fees and expenses paid to members of the Board of Directors of
Acquisition Corp., (c) general corporate overhead expenses of Acquisition
Corp., (d) management, consulting or advisory fees paid to Acquisition Corp.
not to exceed $4.0 million in any fiscal year, and (e) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of Acquisition Corp. held by any member or former member of Acquisition Corp.'s
(or any of its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement, stockholders agreement or stock option
agreement; provided, however, the aggregate amount paid pursuant to the
foregoing clauses (a) through (e) does not exceed $5.0 million in any fiscal
year (with any unused amounts in any fiscal year being carried over to
succeeding fiscal years, subject to a maximum (without giving effect to the
following clause (y)) of $10.0 million in any calendar year, plus (y) the
aggregate cash proceeds received by Holding from any reissuance of Equity
Interests by Acquisition Corp. to members of management of Holding and its
Restricted Subsidiaries; (vi) Investments in any Person (other than Holding or
a Restricted Subsidiary) engaged in a Permitted Business in an amount not to
exceed $5.0 million; (vii) other Investments in Unrestricted Subsidiaries
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (vii) that are at that time
outstanding, not to exceed $2.0 million; (viii) Permitted Investments; (ix) the
declaration or payment of dividends or other payments to Acquisition Corp.
pursuant to any tax sharing agreement or other arrangement among Acquisition
Corp. and other members of the affiliated corporations of which Acquisition
Corp. is the common parent; (x) other Restricted Payments in an aggregate
amount not to exceed $10.0 million; (xi) so long as no Default or Event of
Default has occurred and is continuing, the declaration and payment of
dividends on Disqualified Stock issued or after the date of this Indenture, the
incurrence of which satisfied the covenant set forth in the first paragraph of
Section 4.09 hereof; (xii) the declaration or payment of dividends to
Acquisition Corp. to satisfy any required purchase price adjustment payment
arising out of the Acquisition; and (xiii) the declaration or payment of
dividends or other payments to Acquisition Corp. in an amount not to exceed
$2.0 million dollars to satisfy redemption obligations in respect of Equity
Interests of Acquisition Corp. that are held by management of Acquisition
Corp., Holding or the Company; provided, that such amount shall not be applied
against expenses incurred pursuant to clause (v)(e) above.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by Holding
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
fair market value of such Investments at the time of such designation (as
determined in good faith by the Board of Directors). 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 Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Holding or such Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any non-cash Restricted Payment shall be determined in good faith by the
Board of Directors whose resolution with respect thereto shall be delivered to
the Trustee; such determination will 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, Holding shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.07 were computed, together with a copy of any fairness opinion or appraisal
required by this Indenture.
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SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions
to Holding 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 Holding or any of its Restricted
Subsidiaries, (ii) make loans or advances to Holding or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to Holding or
any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of this Indenture, (b) the Credit Agreement as in effect as
of the date of this 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 in the aggregate (as determined in the good faith judgment of
Holding's Board of Directors) with respect to such dividend and other payment
restrictions than those contained in the Credit Agreement as in effect on the
date of this Indenture, (c) this Indenture and the Debentures and the Note
Indenture and the Notes, (d) any applicable law, rule, regulation or order, (e)
any instrument of a Person acquired by Holding or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
incurred 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 by the terms of this Indenture to be incurred, (f)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (e) above on the property
so acquired, (h) Permitted Refinancing Indebtedness, provided that the material
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, in the good faith judgment of Holding's
Board of Directors, taken as a whole, to the Holders of Debentures than those
contained in the agreements governing the Indebtedness being refinanced, (i)
contracts for the sale of assets, including, without limitation, 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, (j) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into
in the ordinary course of business and (k) other Indebtedness or Disqualified
Stock of Restricted Subsidiaries permitted to be incurred subsequent to the
Issuance Date pursuant to the provisions of Section 4.09 hereof.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
Holding shall not, and shall not permit any of its
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) and that Holding shall not issue any Disqualified Stock and
shall not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that Holding may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock or preferred stock and
Holding's Restricted Subsidiaries may incur Indebtedness (including Acquired
Debt) and issue Disqualified Stock or preferred stock if the Fixed Charge
Coverage Ratio for Holding'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 or preferred stock is issued would have been at least 1.5 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock or preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period.
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The foregoing provisions shall not apply to the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company of Indebtedness and letters of
credit pursuant to the Credit Agreement; provided that the aggregate principal
amount of all such Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) then classified as having been incurred in reliance on this clause
(i) that remains outstanding under the Credit Agreement after giving effect to
such incurrence does not exceed the sum of $20.0 million;
(ii) the incurrence by Holding and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by Holding of Indebtedness represented by the
Debentures and the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by Holding or any of its Restricted Subsidiaries
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
improvement of property, plant or equipment used in the business of Holding or
such Restricted Subsidiary (whether through the direct purchase of assets or
the Capital Stock of any Person owning such Assets), in an aggregate principal
amount or accreted value, as applicable, not to exceed $10.0 million;
(v) the incurrence by Holding or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new Restricted
Subsidiary; provided that such Indebtedness was incurred by the prior owner of
such assets or such Restricted Subsidiary prior to such acquisition by Holding
or one of its Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by Holding or one of its Subsidiaries;
provided further that the principal amount (or accreted value, as applicable)
of such Indebtedness, together with any other outstanding Indebtedness incurred
pursuant to this clause (v), does not exceed $5.0 million;
(vi) the incurrence by Holding 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 that was permitted
by this Indenture to be incurred;
(vii) the incurrence by Holding or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among Holding and any of its Restricted
Subsidiaries; provided, however, that (i) if Holding 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 Debentures and (ii)(A)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than Holding or a Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either Holding or a Restricted Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by Holding or
such Restricted Subsidiary, as the case may be;
(viii) the incurrence by Holding or any of its Restricted Subsidiaries
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 or (ii) exchange
rate risk with respect to any agreement or Indebtedness of such Person payable
in a currency other than U.S. dollars;
(ix) the Guarantee by Holding or any of its Restricted Subsidiaries of
Indebtedness of Holding or a Restricted Subsidiary of Holding that was
permitted to be incurred by another provision of this Section 4.09;
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(x) the incurrence by Holding's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
Holding;
(xi) Indebtedness incurred by Holding or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including, without
limitation, to letters of credit in respect to workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xii) Indebtedness arising from agreements of Holding 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, asset or Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that (x) such Indebtedness is not reflected on the balance sheet of
Holding or any Restricted Subsidiary (contingent obligations referred to in a
footnote or footnotes to financial statements and not otherwise reflected on
the balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (x)) and (y) the maximum assumable liability in respect
of such Indebtedness shall at no time exceed 50% of the gross proceeds
including non-cash proceeds (the fair market value of such non-cash proceeds
being measured at the time received and without giving effect to any such
subsequent changes in value) actually received by Holding and/or such
Restricted Subsidiary in connection with such disposition;
(xiii) obligations in respect of performance and surety bonds and
completion guarantees provided by Holding or any Restricted Subsidiary in the
ordinary course of business;
(xiv) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 million at any time outstanding;
and
(xv) the incurrence by Holding or any of its Restricted Subsidiaries
of additional Indebtedness, including Attributable Debt incurred after the date
of this Indenture, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xv), not to exceed $20.0 million.
For purposes of determining compliance with this Section 4.09, 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 (xv) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.09,
Holding shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this Section 4.09 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. In addition, Holding may, at any time,
change the classification of an item of Indebtedness (or any portion thereof)
to any other clause or to the first paragraph hereof provided that Holding
would be permitted to incur such item of Indebtedness (or portion thereof)
pursuant to such other clause or the first paragraph hereof, as the case may
be, at such time of reclassification. Accrual of interest, accretion or
amortization of original issue discount and the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
Section 4.09.
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SECTION 4.10. ASSET SALES.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) Holding (or the Restricted
Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution
of the Board of Directors set forth in an Officers' Certificate delivered to
the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by
Holding or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on
Holding's or such Restricted Subsidiary's most recent balance sheet) of Holding
or any Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Debentures or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Holding or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by Holding or any such Restricted Subsidiary from such
transferee that are converted by Holding or such Restricted Subsidiary into
cash or Cash Equivalents within 180 days (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision; and provided further
that the 75% limitation referred to in clause (ii) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Sale complied with the aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, Holding or any such Restricted Subsidiary may apply such Net
Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness of
Holding or any Indebtedness of any Restricted Subsidiary or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net
Proceeds, Holding may temporarily reduce the revolving Indebtedness under the
Credit Agreement or otherwise invest such Net Proceeds in any manner that is
not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holding will be required to make an
offer to all Holders of Debentures (an "Asset Sale Offer") to purchase the
maximum principal amount of Debentures that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the Accreted
Value thereof on the date of repurchase (if such date of repurchase is prior to
July 1, 2003) or 100% of the principal amount thereof (if such date of
repurchase is on or after July 1, 2003) plus, in each case, accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in this Indenture. To the extent that
the aggregate amount of Debentures tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, Holding may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of Debentures
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Debentures to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 4.10, Holding will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding,
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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 Holding or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by Holding or such Restricted Subsidiary with an unrelated Person
and (ii) Holding delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving either aggregate consideration in
excess of $5.0 million or an aggregate consideration in excess of $3.0 million
where there are no disinterested members of the Board of Directors, an opinion
as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing; provided that the following shall not be
deemed Affiliate Transactions: (q) customary directors' fees, indemnification
or similar arrangements or any employment agreement or other compensation plan
or arrangement entered into by Holding or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of
Holding or such Restricted Subsidiary, (r) transactions between or among
Holding and/or its Restricted Subsidiaries, (s) Permitted Investments and
Restricted Payments that are permitted by Section 4.07 hereof, (t) customary
loans, advances, fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of Holding or any of
its Restricted Subsidiaries, (u) transactions pursuant to any contract or
agreement in effect on the date of this Indenture as the same may be amended,
modified or replaced from time to time so long as any such amendment,
modification or replacement is no less favorable to Holding and its Restricted
Subsidiaries than the contract or agreement as in effect on the Issue Date, (v)
transactions between Holding or its Restricted Subsidiaries on the one hand,
and Donaldson, Lufkin & Jenrette Securities Corporation or its Affiliates
("DLJ") on the other hand, involving the provision of financial, advisory,
placement or underwriting services by DLJ; provided that fees payable to DLJ do
not exceed the usual and customary fees of DLJ for similar services, (w)
insurance arrangements among Acquisition Corp., Holding and its Subsidiaries
that are not less favorable to Holding or any of its Subsidiaries than those
that are in effect on the date hereof provided such arrangements are conducted
in the ordinary course of business consistent with past practices, (x) payments
under any tax sharing agreement or other arrangement among Acquisition Corp.,
Holding and other members of the affiliated group of corporations of which
either is the common parent and (y) payments in connection with the Refinancing
(including the payment of fees and expenses with respect thereto).
SECTION 4.12. LIENS.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired.
SECTION 4.13. BUSINESS ACTIVITIES.
Holding shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than a Permitted Business, except
to such extent as would not be material to Holding and its Restricted
Subsidiaries taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, Holding shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or
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other existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of
Holding or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of Holding and its Subsidiaries; provided, however,
that Holding shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Holding and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Debentures.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder
of Debentures will have the right to require Holding to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Debentures pursuant to the offer described in this Section 4.15 (the "Change of
Control Offer") at an offer price in cash equal to 101% of the Accreted Value
thereof on the date of repurchase (if such repurchase is prior to July 1, 2003)
or 101% of the aggregate principal amount thereof (if such date of repurchase
is on or after July 1, 2003) plus, in each case, accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of repurchase (the "Change
of Control Payment"). Within 60 days following any Change of Control, Holding
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Debentures on
the date specified in such notice, which date shall be no earlier than 30 days
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 this Indenture
and described in such notice. Holding 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 Debentures 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 this Indenture relating to such Change of Control Offer,
Holding will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this
Indenture by virtue thereof.
(b) On the Change of Control Payment Date, Holding will, to the
extent lawful, (1) accept for payment all Debentures or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an Officers'
Certificate stating the aggregate principal amount of Debentures or portions
thereof being purchased by Holding. The Paying Agent will promptly mail to each
Holder of Debentures so tendered the Change of Control Payment for such
Debentures, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Debenture equal in principal
amount to any unpurchased portion of the Debentures surrendered, if any;
provided that each such new Debenture will be in a principal amount of $1,000
or an integral multiple thereof.
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
Holding shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Holding or any Restricted Subsidiary may enter into a sale and leaseback
transaction if (i) Holding or such Restricted Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to Section 4.09 hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof;
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the
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Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and Holding applies the proceeds of such
transaction in compliance with, Section 4.10 hereof.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
Holding shall not consolidate or merge with or into (whether
or not Holding is the surviving corporation), or sell, assign, transfer, 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) Holding is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than Holding) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
Holding) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of Holding under the Debentures and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) Holding or the entity or Person formed by or surviving any such
consolidation or merger (if other than Holding), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof or (b) would (together with
its Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio
immediately after such transaction (after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period) than the Fixed Charge Coverage Ratio of Holding and its subsidiaries
immediately prior to the transaction. The foregoing clause (iv) will not
prohibit (a) a merger between Holding and a Wholly Owned Subsidiary of
Acquisition Corp. created for the purpose of holding the Capital Stock of
Holding, (b) a merger between Holding and a Wholly Owned Subsidiary or (c) a
merger between Holding and an Affiliate incorporated solely for the purpose of
reincorporating Holding in another state of the United States so long as, in
each case, the amount of Indebtedness of Holding and its Restricted
Subsidiaries is not increased thereby. The Indenture will also provide that
Holding may not, directly or indirectly, lease all or substantially all of its
properties or assets, in one or more related transactions, to any other Person.
The provisions of this Section 5.01 will not be applicable to a sale,
assignment, transfer, conveyance or other disposition of assets between or
among Holding and its Wholly Owned Restricted Subsidiaries.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of Holding in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which Holding is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to Holding), and may
exercise every right and power of Holding under this Indenture with the same
effect as if such successor Person had been named as Holding herein; provided,
however, that the predecessor Company shall not be relieved from the obligation
to pay
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the principal of and interest on the Debentures except in the case of a sale of
all of Holding's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Debentures;
(b) default in payment when due of the principal of or premium, if
any, on the Debentures;
(c) failure by Holding to comply with the provisions described under
Section 4.10 or 4.14 hereof;
(d) failure by Holding for 30 days after notice from the Trustee or at
least 25% in principal amount of the Debentures then outstanding to comply with
the provisions described under Sections 4.07 or 4.09 hereof;
(e) failure by Holding for 60 days after notice from the Trustee or
holders of at least 25% in principal amount of the Debentures then outstanding
to comply with any of its other agreements in this Indenture or the Debentures;
(f) 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 Holding or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holding or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the date of this Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express 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;
(g) failure by Holding or any of its Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; and
(h) Holding, any of its Restricted Subsidiaries that are Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, pursuant to or within the meaning of
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
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(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against Holding, any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary,
in an involuntary case;
(ii) appoints a Custodian of Holding, any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary
or for all or substantially all of the property of Holding, any of its
Restricted Subsidiaries that are Significant Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of Holding, any of its
Restricted Subsidiaries that are Significant Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (h) or (i) of Section 6.01 hereof with respect to Holding,
any Restricted Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the then outstanding Debentures may declare all the
Debentures to be due and payable immediately. Upon any such declaration, the
Debentures shall become due and payable immediately. Notwithstanding the
foregoing, if an Event of Default specified in clause (h) or (i) of Section
6.01 hereof occurs with respect to Holding, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary, all outstanding Debentures
shall be due and payable immediately without further action or notice. The
Holders of a majority in aggregate principal amount of the then outstanding
Debentures by written notice to the Trustee may on behalf of all of the Holders
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal or interest that has become due solely because
of the acceleration) have been cured or waived.
If an Event of Default occurs on or after July 1, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of Holding with the intention of avoiding payment of the premium that Holding
would have had to pay if Holding then had elected to redeem the Debentures
pursuant to Section 3.07 hereof, then, upon acceleration of the Debentures, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Debentures to the
contrary notwithstanding. If an Event of Default occurs prior to July 1, 2003
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of Holding with the intention of avoiding the prohibition on redemption
of the Debentures prior to such date, then, upon acceleration of the
Debentures, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 1 of the years
set forth
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below, as set forth below (expressed as a percentage of the principal amount of
the Debentures to the date of payment that would otherwise be due but for the
provisions of this sentence):
YEAR PERCENTAGE
- ---- ----------
1998...............................................................113.500%
1999...............................................................112.150%
2000...............................................................110.800%
2001...............................................................109.450%
2002...............................................................108.100%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium,
if any, and interest on the Debentures or to enforce the performance of any
provision of the Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Debentures or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a Debenture in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Debentures by notice to the Trustee may on
behalf of the Holders of all of the Debentures waive an existing Default or
Event of Default and its consequences hereunder, except a continuing Default or
Event of Default in the payment of the principal of, premium and Liquidated
Damages, if any, or interest on, the Debentures (including in connection with
an offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Debentures may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Debentures may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Debentures or that
may involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Debenture may pursue a remedy with respect to
this Indenture or the Debentures only if:
(a) the Holder of a Debenture gives to the Trustee written
notice of a continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the
then outstanding Debentures make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Debenture or Holders of Debentures offer
and, if requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Debentures do not give the Trustee a
direction inconsistent with the request.
A Holder of a Debenture may not use this Indenture to
prejudice the rights of another Holder of a Debenture or to obtain a preference
or priority over another Holder of a Debenture.
SECTION 6.07. RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Debenture to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Debenture, on or after the
respective due dates expressed in the Debenture (including in connection with
an offer to purchase), or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without
the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against Holding for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Debentures and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Debentures allowed in any judicial proceedings relative
to Holding (or any other obligor upon the Debentures), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Debentures for amounts due and unpaid
on the Debentures for principal, premium and Liquidated Damages, if any, and
interest, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Debentures for principal, premium, and
Liquidated Damages, if any, and interest, respectively; and
Third: to Holding or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Debentures pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Debenture pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Debentures.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
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(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), (c), (e) and (f) of this Section and Section 7.02.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with Holding. Money
held in trust by the Trustee need not be segregated from other funds except to
the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) In connection with the Trustee's rights and duties under
this Indenture, the Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from Holding shall be sufficient if
signed by an Officer of Holding.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) In no event shall the Trustee be required to take notice
of any default or breach hereof or any Event of Default hereunder, except for
Events of Default specified in Sections 6.01(a) and (b) hereof, unless and
until the Trustee shall have received from a Holder or from Holding express
written notice of the circumstances constituting the breach, default or Event
of Default and stating that said circumstances constitute an Event of Default
hereunder.
(h) Except with respect to Section 4.01 hereof, the Trustee
shall have no duty to inquire as to the performance of Holding's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.01(a), 6.01(b) and 4.01 or (ii) any Default or
Event of Default of which the Trustee shall have received written notification
or obtained actual knowledge.
(i) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters as it may see fit and if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of Holding personally or by agent or attorney.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Debentures and may otherwise deal with Holding
or any Affiliate of Holding with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Debentures, it shall not be accountable for Holding's use of the proceeds from
the Debentures or any money paid to Holding or upon Holding's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Debentures or any other document in connection with the sale
of the Debentures or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, or if appropriate notice is provided in writing
in accordance with Section 7.02(g), as applicable, the
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Trustee shall mail to Holders of Debentures a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or
Event of Default in payment of principal of, premium, if any, or interest on
any Debenture, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Debentures.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES.
Within 60 days after each July 1 beginning with the July 1
following the date of this Indenture, and for so long as Debentures remain
outstanding, the Trustee shall mail to the Holders of the Debentures a brief
report dated as of such reporting date that complies with TIA ss. 313(a) (but
if no event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the
Holders of Debentures shall be mailed to Holding and filed with the SEC and
each stock exchange on which the Debentures are listed in accordance with TIA
ss. 313(d). Holding shall promptly notify the Trustee when the Debentures are
listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
Holding shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. Holding shall reimburse the Trustee promptly upon
request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
Holding shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against Holding
(including this Section 7.07) and defending itself against any claim (whether
asserted by Holding or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify Holding
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify Holding shall not relieve Holding of its obligations hereunder.
Holding shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and Holding shall pay the reasonable fees
and expenses of such counsel. Holding need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of Holding under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure Holding's payment obligations in this Section, the
Trustee shall have a Lien prior to the Debentures on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Debentures. Such Lien shall survive the satisfaction and
discharge of this Indenture.
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When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying Holding. The Holders
of Debentures of a majority in principal amount of the then outstanding
Debentures may remove the Trustee by so notifying the Trustee and Holding in
writing. Holding may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, Holding shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Debentures may appoint a successor Trustee to replace the successor Trustee
appointed by Holding.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee,
Holding, or the Holders of Debentures of at least 10% in principal amount of
the then outstanding Debentures may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a
Debenture who has been a Holder of a Debenture for at least six months, fails
to comply with Section 7.10, such Holder of a Debenture may petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to Holding. Thereupon, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Debentures. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, Holding's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIAss. 311(a), excluding any
creditor relationship listed in TIAss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIAss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
Holding may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Debentures upon compliance with the conditions set forth below in this
Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon Holding's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, Holding shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding
Debentures on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means
that Holding shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Debentures, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and
the other Sections of this Indenture referred to in (a) and (b) below, and to
have satisfied all its other obligations under such Debentures and this
Indenture (and the Trustee, on demand of and at the expense of Holding, shall
execute proper instruments acknowledging the same), except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Debentures to receive
solely from the trust fund described in Section 8.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages on such Debentures when such payments
are due, (b) Holding's obligations with respect to such Debentures under
Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and Holding's obligations in connection
therewith and (d) this Article 8. Subject to compliance
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with this Article 8, Holding may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon Holding's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, Holding shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 5.01 hereof with respect to the
outstanding Debentures on and after the date the conditions set forth in
Section 8.04 are satisfied (hereinafter, "Covenant Defeasance") and the
Debentures shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Debentures shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to
the outstanding Debentures, Holding may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and
such Debentures shall be unaffected thereby. In addition, upon Holding's
exercise under Section 8.01 hereof of the option applicable to this Section
8.03 hereof, subject to the satisfaction of the conditions set forth in Section
8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute
Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Debentures:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) Holding must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States 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 and Liquidated
Damages, if any, and interest on the outstanding Debentures on the stated date
for payment thereof or on the applicable redemption date, as the case may be,
and Holding must specify whether the Debentures are being defeased to maturity
or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof,
Holding shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) Holding has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding
Debentures 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;
(c) in the case of an election under Section 8.03 hereof,
Holding shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that,
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subject to customary assumptions and exclusions, the Holders of the outstanding
Debentures 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;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds all or a portion of the proceeds
of which will be used to defease the Debentures pursuant to this Article 8
concurrently with such borrowing) or insofar as Sections 6.01(h) or 6.01(i)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which Holding or any of
its Subsidiaries is a party or by which Holding or any of its Subsidiaries is
bound;
(f) Holding shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary assumptions and exclusions) to the
effect that on the 91st day following the deposit, the trust funds will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
any analogous New York State law provision to any other applicable federal or
New York bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally;
(g) Holding shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by Holding with the intent of
preferring the Holders over any other creditors of Holding or with the intent
of defeating, hindering, delaying or defrauding any other creditors of Holding;
and
(h) Holding shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel (which opinion may be subject to
customary assumptions and exclusions), each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Debentures shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Debentures and this Indenture, to the
payment, either directly or through any Paying Agent (including Holding acting
as Paying Agent) as the Trustee may determine, to the Holders of such
Debentures of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
Holding shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Debentures.
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Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to Holding from time to time upon the request
of Holding any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by Holding, in trust for the payment of the principal of, premium, if
any, or interest on any Debenture and remaining unclaimed for two years after
such principal, and premium, if any, or interest has become due and payable
shall be paid to Holding on its request or (if then held by Holding) shall be
discharged from such trust; and the Holder of such Debenture shall thereafter,
as a secured creditor, look only to Holding for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of Holding as Trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of Holding cause to be published
once, in the New York Times and The Wall Street Journal (national edition),
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to Holding.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then Holding's obligations under this Indenture
and the Debentures shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if Holding
makes any payment of principal of, premium, if any, or interest on any
Debenture following the reinstatement of its obligations, Holding shall be
subrogated to the rights of the Holders of such Debentures to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9. ,
AMENDMENT, SUPPLEMENT AND WAIVER ,
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF DEBENTURES.
Notwithstanding Section 9.02 of this Indenture, Holding and
the Trustee may amend or supplement this Indenture or the Debentures without
the consent of any Holder of a Debenture:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Debentures in addition to
or in place of certificated Debentures or to alter the provisions of Article 2
hereof (including the related definitions) in a manner that does not materially
adversely affect any Holder;
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(c) to provide for the assumption of Holding's obligations to
the Holders of the Debentures by a successor to Holding pursuant to Article 5
hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Debentures or that does not adversely
affect the legal rights hereunder of any Holder of the Debenture; or
(e) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the request of Holding accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with Holding in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF DEBENTURES.
Except as provided below in this Section 9.02, Holding and
the Trustee may amend or supplement this Indenture (including Sections 3.09,
4.10 and 4.15 hereof) and the Debentures may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
Debentures then outstanding voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Debentures), and, subject to Sections 6.04 and 6.07 hereof, any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premium, if any, or interest on the
Debentures, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture or the
Debentures may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Debentures voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for, or purchase of, the Debentures). Section 2.08 hereof shall determine
which Debentures are considered to be "outstanding" for purposes of this
Section 9.02.
Upon the request of Holding accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Debentures as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with Holding in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture directly affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of
Debentures under this Section 9.02 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, Holding shall mail to the Holders of Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of Holding to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental
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Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Debentures then outstanding
voting as a single class may waive compliance in a particular instance by
Holding with any provision of this Indenture or the Debentures. However,
without the consent of each Holder affected, an amendment or waiver under this
Section 9.02 may not (with respect to any Debentures held by a non-consenting
Holder):
(a) reduce the principal amount of Debentures whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Debenture or alter or waive any of the provisions with respect to the
redemption of the Debentures, except as provided above with respect to Sections
3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of
interest on any Debenture;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Debentures (except a
rescission of acceleration of the Debentures by the Holders of at least a
majority in aggregate principal amount of the Debentures and a waiver of the
payment default that resulted from such acceleration);
(e) make any Debenture payable in money other than that
stated in the Debentures;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Debentures to
receive payments of principal of, interest, or premium, if any, on the
Debentures;
(g) waive a redemption payment with respect to any Debenture
(other than a payment required by Section 4.10 or 4.15 hereof); or
(h) amend this Section 9.02.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the
Debentures shall be set forth in a amended or supplemental Indenture that
complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Debenture is a continuing consent by the Holder
of a Debenture and every subsequent Holder of a Debenture or portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture,
even if notation of the consent is not made on any Debenture. However, any such
Holder of a Debenture or subsequent Holder of a Debenture may revoke the
consent as to its Debenture if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF DEBENTURES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Debenture thereafter authenticated.
Holding in exchange for all Debentures may issue and
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the Trustee shall, upon receipt of an Authentication Order, authenticate new
Debentures that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Debenture shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
Holding may not sign an amendment or supplemental Indenture until the Board of
Directors approves it. In executing any amended or supplemental indenture, the
Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall
be fully protected in relying upon, in addition to the documents required by
Section 10.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10. ,
MISCELLANEOUS ,
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
SECTION 10.02. NOTICES.
Any notice or communication by Holding or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address.
If to Holding:
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier No.: 423-624-3301
Attention: Chief Financial Officer
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telecopier No.: 214-746-7777
Attention: R. Scott Cohen
If to the Trustee:
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State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telecopier No.: 860-244-1897
Attention: Steve Cimalore
With a copy to:
Brown, Rudnick, Freed & Gesmer
Cityplace I
185 Asylum Street
Hartford, Connecticut 06103
Telecopier No.: 860-509-6501
Attention: Kevin Mallery
Holding or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and
the next Business Day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA ss. 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If Holding mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF DEBENTURES WITH OTHER
HOLDERS OF DEBENTURES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Debentures.
Holding, the Trustee, the Registrar and anyone else shall have the protection
of TIA ss. 312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by Holding to the Trustee to
take any action under this Indenture, Holding shall furnish to the Trustee:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder
of Holding, as such, shall have any liability for any obligations of Holding
under the Debentures, this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Debentures
by accepting a Debenture waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Debentures.
SECTION 10.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
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APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or Indebtedness agreement of Holding or its Subsidiaries or of
any other Person. Any such indenture, loan or Indebtedness agreement may not be
used to interpret this Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of Holding in this Indenture and the
Debentures shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Debentures
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of June ___, 1998
AKI HOLDING CORP.
BY:
--------------------------
Name:
Title:
State Street Bank and Trust Company
BY:
--------------------------
Name:
Title:
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EXHIBIT A-1
(Face of Global Debenture)
===============================================================================
CUSIP/CINS________________
13 1/2% Senior Discount Debentures due 2009
No. __ $______________
AKI HOLDING CORP.
promises to pay to _______________, or registered assigns, the principal sum of
_________________ Dollars on July 1, 2009.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
DATED:
AKI HOLDING CORP.
BY:
----------------------------
Name:
Title:
This is one of the Global Debentures referred to
in the within-mentioned Indenture:
State Street Bank and Trust Company,
as Trustee
By:
-----------------------------------
Name:
===============================================================================
A1-1
<PAGE>
(Back of Debenture)
13 1/2% [Series A] [Series B] Senior Discount Debentures due 2009
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS
$519.24, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $480.76, THE ISSUE DATE IS
JUNE 25, 1998 AND THE YIELD TO MATURITY IS 13 1/2% PER ANNUM.
[INSERT THE FOLLOWING IF THE DEBENTURE IS ISSUED IN GLOBAL FORM.]
[Unless and until it is exchanged in whole or in part for Debentures in
definitive form, this Debenture may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL in as much as the registered owner hereof, Cede & Co., has an
interest herein.]
[INSERT THE GLOBAL DEBENTURE LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE, PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. AKI Holding Corp., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Debenture
at 13 1/2% per annum from July 1, 2003 until maturity, shall pay the aggregate
principal amount of this Debenture on July 1, 2009 and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Debenture Registration Rights
Agreement referred to below. Holding shall pay interest and Liquidated Damages,
if any, semi-annually in arrears on January 1 and July 1 (each an "Interest
Payment Date") of each applicable year, or if any such day is not a Business
Day, on the next succeeding Business Day. The Debentures will accrete at a rate
of 13 1/2% per annum, compounded semi-annually to an aggregate principal amount
of $50,000,000 at July 1, 2003. Thereafter, interest on the Debentures will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from July 1, 2003. No cash interest will be payable on
the Debentures prior to July 1, 2003.
Holding shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium,
if any, from time to time on demand at a rate that is 1% per annum in excess of
the rate then in effect; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
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2. METHOD OF PAYMENT. Holding will pay interest on the
Debentures (except defaulted interest) and Liquidated Damages to the Persons
who are registered Holders of Debentures at the close of business on the
December 15 or June 15 next preceding the Interest Payment Date, even if such
Debentures are canceled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. The Debentures will be payable as to principal, premium
and Liquidated Damages, if any, and interest at the office or agency of Holding
maintained for such purpose within or without the City and State of New York,
or, at the option of Holding, payment of interest and Liquidated Damages may be
made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all Global Debentures and all other
Debentures the Holders of which shall have provided wire transfer instructions
to Holding or the Paying Agent. Such payment shall be in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company, the Trustee under the Indenture, will act as Paying Agent
and Registrar. Holding may change any Paying Agent or Registrar without notice
to any Holder. Holding or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. Holding issued the Debentures under an
Indenture dated as of June 25, 1998 (the "Indenture") between Holding and the
Trustee. The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Debentures are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Debenture
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Debentures are general,
unsecured obligations of Holding limited to $115.0 million in aggregate
principal amount, plus amounts, if any, issued to pay Liquidated Damages on
outstanding Debentures as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Paragraph 5, Holding
shall not have the option to redeem the Debentures prior to July 1, 2003.
Thereafter, Holding shall have the option to redeem the Debentures, 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 thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003........................................................... 106.750%
2004........................................................... 103.375%
2005 and thereafter............................................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to July 1, 2001, Holding may on one or more
occasions redeem up to 35% of the aggregate principal amount at maturity of
Debentures originally issued at a redemption price equal to 113.5% of the
Accreted Value thereof (determined at the date of redemption), plus Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings; provided that at least 65% of the original
aggregate principal amount at maturity of Debentures remains outstanding
A1-3
<PAGE>
immediately after the occurrence of such redemption; provided, further, that
such redemption shall occur within 90 days of the date of the closing of such
Public Equity Offering.
(c) Any redemption pursuant to this subparagraph 5 shall be
made pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7
below, Holding shall not be required to make mandatory redemption payments with
respect to the Debentures.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder
of Debentures will have the right to require Holding to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Debentures pursuant to the offer described in Section 4.15 of the Indenture
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
Accreted Value thereof on the date of repurchase (if such date of repurchase is
prior to July 1, 2003) or 101% of the aggregate principal amount thereof (if
such date is on or after July 1, 2003) plus, in each case, accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of repurchase (the
"Change of Control Payment"). Within 60 days following any Change of Control,
Holding will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Debentures on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the Indenture and described in such
notice.
(b) Within 360 days after the receipt of any Net Proceeds
from an Asset Sale, Holding or any such Restricted Subsidiary may apply such
Net Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness
of Holding or any Indebtedness of any Restricted Subsidiary or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net
Proceeds, Holding may temporarily reduce the revolving Indebtedness under the
Credit Agreement 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 $10.0 million, Holding will be required to make an offer to
all Holders of Debentures (an "Asset Sale Offer") to purchase the maximum
principal amount of Debentures that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the Accreted
Value thereof on the date of repurchase (if such date of repurchase is prior to
July 1, 2003) or 100% of the aggregate principal amount thereof (if such date
of repurchase is on or after July 1, 2003) plus, in each case, 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. To the
extent that the aggregate amount of Debentures tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, Holding may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Debentures surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Debentures to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Holders of Debentures that are the subject of
an offer to purchase may elect to have such Debentures purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Debentures.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Debentures are to be redeemed at its registered address.
Debentures in denominations larger than $1,000 may be redeemed in part but only
in whole multiples of $1,000, unless all of the Debentures held by a Holder are
to be
A1-4
<PAGE>
redeemed. On and after the redemption date interest ceases to accrue on
Debentures or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Debentures are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Debentures may be registered and
Debentures may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and Holding may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture. Holding need not
exchange or register the transfer of any Debenture or portion of a Debenture
selected for redemption, except for the unredeemed portion of any Debenture
being redeemed in part. Also, Holding need not exchange or register the
transfer of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a
Debenture may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Debentures may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Debentures and any existing Default or compliance with any
provision of the Indenture or the Debentures may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Debentures. Without the consent of any Holder of a Debenture, the Indenture or
the Debentures may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to provide for the assumption of Holding's
obligations to Holders of the Debentures in case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of the Debentures or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture under
the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Each of the following constitutes
an "Event of Default": (a) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Debentures; (b) default
in payment when due of the principal of or premium, if any, on the Debentures;
(c) failure by Holding to comply with the provisions described under Section
4.10 or 4.14 of the Indenture; (d) failure by Holding for 30 days after notice
from the Trustee or at least 25% in principal amount of the Debentures then
outstanding to comply with the provisions described under Sections 4.07 or 4.09
of the Indenture; (e) failure by Holding for 60 days after notice from the
Trustee or holders of at least 25% in principal amount of the Debentures then
outstanding to comply with any of its other agreements in the Indenture or the
Debentures; (f) 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 Holding or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holding or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the date of the Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express 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; (g) failure by Holding or any of its Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; and (h) certain events of
bankruptcy or insolvency as described in the Indenture.
A1-5
<PAGE>
If any Event of Default (other than certain events of
bankruptcy or insolvency) occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Debentures may
declare all the Debentures to be due and payable immediately. Upon any such
declaration, the Debentures shall become due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Debentures shall be
due and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Debentures by
written notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived. Holding is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and Holding 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.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for Holding or its Affiliates, and may otherwise deal with
Holding or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer,
employee, incorporator or stockholder, of Holding, as such, shall not have any
liability for any obligations of Holding under the Debentures or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Debenture waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the Debentures.
15. AUTHENTICATION. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL
DEBENTURES AND RESTRICTED DEFINITIVE DEBENTURES. In addition to the rights
provided to Holders of Debentures under the Indenture, Holders of Restricted
Global Debentures and Restricted Definitive Debentures shall have all the
rights set forth in the Debenture Registration Rights Agreement dated as of
June 25, 1998, between Holding and the parties named on the signature pages
thereof (the "Debenture Registration Rights Agreement"
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, Holding has
caused CUSIP numbers to be printed on the Debentures and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Debentures or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
Holding will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Debenture Registration Rights
Agreement. Requests may be made to:
A1-6
<PAGE>
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
A1-7
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
to transfer this Debenture on the books of Holding. The agent may substitute
another to act for him.
Date: Your Signature:______________________________
(Sign exactly as your name appears on the Debenture)
Tax Identification No:_______________________
Signature Guarantee.
A1-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by
Holding pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Debenture
purchased by Holding pursuant to Section 4.10 or Section 4.15 of the Indenture,
state the amount you elect to have purchased: $________
Date: Your Signature:__________________________________
(Sign exactly as your name appears on the Debenture)
Tax Identification No:___________________________
Signature Guarantee.
A1-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE 1
The following exchanges of a part of this Global Debenture
for an interest in another Global Debenture or for a Definitive Debenture, or
exchanges of a part of another Global Debenture or Definitive Debenture for an
interest in this Global Debenture, have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global authorized officer
in Principal Amount in Principal Amount Debenture following of Trustee or
of this of this such decrease Debenture
Date of Exchange Global Debenture Global Debenture (or increase) Custodian
- ---------------- ---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
- -------------
1 This should be included only if the Note is issued in global form.
A1-10
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Debenture)
===============================================================================
CUSIP/CINS________________
13 1/2% Senior Discount Debentures due 2009
No.__ $________________
AKI HOLDING CORP.
promises to pay to _______________, or registered assigns, the principal sum of
_____________ Dollars on July 1, 2009.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
DATED:
AKI HOLDING CORP.
BY:_____________________________
Name:
Title:
This is one of the Global Debentures referred to
in the within-mentioned Indenture:
State Street Bank and Trust Company,
as Trustee
By: ______________________________
Name:
===============================================================================
A2-1
<PAGE>
(Back of Regulation S Temporary Global Debenture)
13 1/2% [Series A] [Series B] Senior Discount Debentures due 2009
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS
$519.24, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $480.76, THE ISSUE DATE IS
JUNE 25, 1998 AND THE YIELD TO MATURITY IS 13 1/2% PER ANNUM."
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a)
INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF THE
SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT
OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
A2-2
<PAGE>
1. INTEREST. AKI Holding Corp., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Debenture
at 13 1/2% per annum from July 1, 2003 until maturity, shall pay the aggregate
principal amount of this Debenture on July 1, 2009 and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Debenture Registration Rights
Agreement referred to below. Holding shall pay interest and Liquidated Damages,
if any, semi-annually in arrears on January 1 and July 1 (each an "Interest
Payment Date") of each applicable year, or if any such day is not a Business
Day, on the next succeeding Business Day. The Debentures will accrete at a rate
of 13 1/2% per annum, compounded semi-annually to an aggregate principal amount
of $50,000,000 at July 1, 2003. Thereafter, interest on the Debentures will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from July 1, 2003. No cash interest will be payable on
the Debentures prior to July 1, 2003.
Holding shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium,
if any, from time to time on demand at a rate that is 1% per annum in excess of
the rate then in effect; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. Holding will pay interest on the
Debentures (except defaulted interest) and Liquidated Damages to the Persons
who are registered Holders of Debentures at the close of business on the
December 15 or June 15 next preceding the Interest Payment Date, even if such
Debentures are canceled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. The Debentures will be payable as to principal, premium
and Liquidated Damages, if any, and interest at the office or agency of Holding
maintained for such purpose within or without the City and State of New York,
or, at the option of Holding, payment of interest and Liquidated Damages may be
made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all Global Debentures. Such payment
shall be in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company, the Trustee under the Indenture, will act as Paying Agent
and Registrar. Holding may change any Paying Agent or Registrar without notice
to any Holder. Holding or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. Holding issued the Debentures under an
Indenture dated as of June 25, 1998 (the "Indenture") between Holding and the
Trustee. The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Codess.ss. 77aaa-77bbbb). The Debentures are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Debenture
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Debentures are general,
unsecured obligations of Holding limited to $115.0 million in aggregate
principal amount, plus amounts, if any, issued to pay Liquidated Damages on
outstanding Debentures as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
A2-3
<PAGE>
(a) Except as set forth in clause (b) of this Paragraph 5,
Holding shall not have the option to redeem the Debentures prior to July 1,
2003. Thereafter, Holding shall have the option to redeem the Debentures, 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 thereon, if any,
to the applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003....................................................... 106.750%
2004....................................................... 103.375%
2005 and thereafter........................................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of
this Paragraph 5, at any time prior to July 1, 2001, Holding may on one or more
occasions redeem up to 35% of the aggregate principal amount at maturity of
Debentures originally issued at a redemption price equal to 113.5% of the
Accreted Value thereof (determined at the date of redemption), plus Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings; provided that at least 65% of the original
aggregate principal amount at maturity of Debentures remains outstanding
immediately after the occurrence of such redemption; provided, further, that
such redemption shall occur within 90 days of the date of the closing of such
Public Equity Offering.
(c) Any redemption pursuant to this subparagraph 5 shall be
made pursuant to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7
below, Holding shall not be required to make mandatory redemption payments with
respect to the Debentures.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder
of Debentures will have the right to require Holding to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Debentures pursuant to the offer described in Section 4.15 of the Indenture
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
Accreted Value thereof on the date of repurchase (if such date of repurchase is
prior to July 1, 2003) or 101% of the aggregate principal amount thereof (if
such date is on or after July 1, 2003) plus, in each case, accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of repurchase (the
"Change of Control Payment"). Within 60 days following any Change of Control,
Holding will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Debentures on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the Indenture and described in such
notice.
(b) Within 360 days after the receipt of any Net Proceeds
from an Asset Sale, Holding or any such Restricted Subsidiary may apply such
Net Proceeds, at its option, (a) to repay or repurchase pari passu Indebtedness
of Holding or any Indebtedness of any Restricted Subsidiary or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net
Proceeds, Holding may temporarily reduce the revolving Indebtedness under the
Credit Agreement or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds
A2-4
<PAGE>
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 $10.0 million, Holding will be
required to make an offer to all Holders of Debentures (an "Asset Sale Offer")
to purchase the maximum principal amount of Debentures that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100% of the Accreted Value thereof on the date of repurchase (if such date of
repurchase is prior to July 1, 2003) or 100% of the aggregate principal amount
thereof (if such date of repurchase is on or after July 1, 2003) plus, in each
case, 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. To the extent that the aggregate amount of Debentures tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, Holding may
use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Debentures surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Debentures to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero. Holders of Debentures that
are the subject of an offer to purchase may elect to have such Debentures
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Debentures.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Debentures are to be redeemed at its registered address.
Debentures in denominations larger than $1,000 may be redeemed in part but only
in whole multiples of $1,000, unless all of the Debentures held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Debentures or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Debentures are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Debentures may be registered and
Debentures may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and Holding may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture. Holding need not
exchange or register the transfer of any Debenture or portion of a Debenture
selected for redemption, except for the unredeemed portion of any Debenture
being redeemed in part. Also, Holding need not exchange or register the
transfer of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a
Debenture may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Debentures may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Debentures and any existing Default or compliance with any
provision of the Indenture or the Debentures may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Debentures. Without the consent of any Holder of a Debenture, the Indenture or
the Debentures may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to provide for the assumption of Holding's
obligations to Holders of the Debentures in case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of the Debentures or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture under
the Trust Indenture Act.
A2-5
<PAGE>
12. DEFAULTS AND REMEDIES. Each of the following constitutes
an "Event of Default": (a) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Debentures; (b) default
in payment when due of the principal of or premium, if any, on the Debentures;
(c) failure by Holding to comply with the provisions described under Section
4.10 or 4.14 of the Indenture; (d) failure by Holding for 30 days after notice
from the Trustee or at least 25% in principal amount of the Debentures then
outstanding to comply with the provisions described under Sections 4.07 or 4.09
of the Indenture; (e) failure by Holding for 60 days after notice from the
Trustee or holders of at least 25% in principal amount of the Debentures then
outstanding to comply with any of its other agreements in the Indenture or the
Debentures; (f) 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 Holding or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holding or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the date of the Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express 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; (g) failure by Holding or any of its Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; and (h) certain events of
bankruptcy or insolvency as described in the Indenture.
If any Event of Default (other than certain events of
bankruptcy or insolvency) occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Debentures may
declare all the Debentures to be due and payable immediately. Upon any such
declaration, the Debentures shall become due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Debentures shall be
due and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Debentures by
written notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived. Holding is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and Holding 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.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for Holding or its Affiliates, and may otherwise deal with
Holding or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer,
employee, incorporator or stockholder, of Holding, as such, shall not have any
liability for any obligations of Holding under the Debentures or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Debenture waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the Debentures.
15. AUTHENTICATION. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
A2-6
<PAGE>
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL
DEBENTURES AND RESTRICTED DEFINITIVE DEBENTURES. In addition to the rights
provided to Holders of Debentures under the Indenture, Holders of Restricted
Global Debentures and Restricted Definitive Debentures shall have all the
rights set forth in the Debenture Registration Rights Agreement dated as of
June 25, 1998, between Holding and the parties named on the signature pages
thereof (the "Debenture Registration Rights Agreement"
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, Holding has
caused CUSIP numbers to be printed on the Debentures and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Debentures or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
Holding will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Debenture Registration Rights
Agreement. Requests may be made to:
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
A2-7
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
to transfer this Debenture on the books of Holding. The agent may substitute
another to act for him.
Date: Your Signature:____________________________
(Sign exactly as your name appears on the Debenture)
Tax Identification No:_____________________
Signature Guarantee.
A2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by
Holding pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Debenture
purchased by Holding pursuant to Section 4.10 or Section 4.15 of the Indenture,
state the amount you elect to have purchased: $________
Date: Your Signature:________________________________
(Sign exactly as your name appears on the Debenture)
Tax Identification No:_________________________
Signature Guarantee.
A2-9
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S
Temporary Global Debenture for an interest in another Global Debenture, or of
other Restricted Global Debentures for an interest in this Regulation S
Temporary Global Debenture, have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global authorized officer
in Principal Amount in Principal Amount Debenture following of Trustee or
of this of this such decrease Debenture
Date of Exchange Global Debenture Global Debenture (or increase) Custodian
- ---------------- ---------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telecopier no.: 860-244-1844
Attention: Steve Cimalore
Re: 13 1/2% Senior Discount Debentures due 2009
Reference is hereby made to the Indenture, dated as of June
25, 1998 (the "Indenture"), between AKI Holding Corp. ("Holding"), as issuer,
and State Street Bank and Trust Company, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
- --------- -------
______________, (the "Transferor") owns and proposes to
transfer the Debenture[s] or interest in such Debenture[s] specified in Annex A
hereto, in the principal amount of $___________ in such Debenture[s] or
interests (the "Transfer"), to __________ (the "Transferee"), as further
specified in Annex A hereto. In connection with the Transfer, the Transferor
hereby certifies that: ---------- -------- ----------
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL DEBENTURE OR A DEFINITIVE DEBENTURE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Debenture is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Debenture for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A and such Transfer is in compliance with any
applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Debenture will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Debenture and/or the Definitive Debenture and
in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL DEBENTURE, THE REGULATION S GLOBAL DEBENTURE OR A
DEFINITIVE DEBENTURE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities
Act and, accordingly, the Transferor hereby further certifies that (i) the
Transfer is not being made to a Person in the United States and (x) at the time
the buy order was
B-1
<PAGE>
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed
in, on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not
being made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Upon consummation of the proposed transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Debenture will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the Regulation S
Global Debenture , the Temporary Regulation S Global Debenture and/or the
Definitive Debenture and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL DEBENTURE OR A DEFINITIVE DEBENTURE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Debentures and
Restricted Definitive Debentures and pursuant to and in accordance with the
Securities Act and any applicable blue sky securities laws of any state of the
United States, and accordingly the Transferor hereby further certifies that
(check one):
(a) such Transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) such Transfer is being effected to Holding or a subsidiary thereof;
or
(c) such Transfer is being effected pursuant to an effective registration
statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or
Rule 904, and the Transferor hereby further certifies that it has not
engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Debenture or Restricted Definitive Debentures and the requirements of
the exemption claimed, which certification is supported by (1) a
certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount
of Debentures at the time of transfer of less than $250,000, an
Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to
the effect that such Transfer is in compliance with the Securities
Act. Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or
Definitive Debenture will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the IAI Global
Debenture and/or the Definitive Debentures and in the Indenture and
the Securities Act.
B-2
<PAGE>
4. Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Debenture or of an Unrestricted Definitive Debenture.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Debenture will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Debentures, on Restricted Definitive Debentures and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Debenture will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Debentures, on Restricted Definitive Debentures and in
the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903
or Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Debenture will not be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Debentures or Restricted Definitive Debentures and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of Holding.
________________________________
[Insert Name of Transferor]
BY:_____________________________
Name:
Title:
Dated: ____________, ____
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) [ ] 144A Global Debenture (CUSIP ), or
(ii) [ ] Regulation S Global Debenture (CUSIP ), or
(iii) [ ] IAI Global Debenture (CUSIP ), or
(b) a Restricted Definitive Debenture.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) [ ] 144A Global Debenture (CUSIP ), or
(ii) [ ] Regulation S Global Debenture (CUSIP ), or
(iii) [ ] IAI Global Debenture (CUSIP ), or
(iv) [ ] Unrestricted Global Debenture (CUSIP ), or
(b) a Restricted Definitive Debenture, or
(c) an Unrestricted Definitive Debenture,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telecopier no.: 860-244-1844
Attention: Steve Cimalore
Re: 13 1/2% Senior Discount Debentures due 2009
Reference is hereby made to the Indenture, dated as of
June 25, 1998 (the "Indenture"), between AKI Holding Corp. ("Holding"), as
issuer, and State Street Bank and Trust Company, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
____________, (the "Owner") owns and proposes to exchange the
Debenture[s] or interest in such Debenture[s] specified herein, in the
principal amount of $____________ in such Debenture[s] or interests (the
"Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Debentures or Beneficial Interests in a
Restricted Global Debenture for Unrestricted Definitive Debentures or
Beneficial Interests in an Unrestricted Global Debenture
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL DEBENTURE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL
DEBENTURE. In connection with the Exchange of the Owner's beneficial interest
in a Restricted Global Debenture for a beneficial interest in an Unrestricted
Global Debenture in an equal principal amount, the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Global Debentures and pursuant to and in
accordance with the United States Securities Act of 1933, as amended (the
"Securities Act"), (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest in
an Unrestricted Global Debenture is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL DEBENTURE TO UNRESTRICTED DEFINITIVE DEBENTURE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global
Debenture for an Unrestricted Definitive Debenture, the Owner
C-1
<PAGE>
hereby certifies (i) the Definitive Debenture is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Debentures and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Definitive Debenture is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
DEBENTURE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL DEBENTURE. In
connection with the Owner's Exchange of a Restricted Definitive Debenture for a
beneficial interest in an Unrestricted Global Debenture, the Owner hereby
certifies (i) the beneficial interest is being acquired for the Owner's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Debentures
and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
DEBENTURE TO UNRESTRICTED DEFINITIVE DEBENTURE. In connection with the Owner's
Exchange of a Restricted Definitive Debenture for an Unrestricted Definitive
Debenture, the Owner hereby certifies (i) the Unrestricted Definitive Debenture
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Debentures and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Unrestricted
Definitive Debenture is being acquired in compliance with any applicable blue
sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Debentures or Beneficial Interests in
Restricted Global Debentures for Restricted Definitive Debentures or Beneficial
Interests in Restricted Global Debentures
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL DEBENTURE TO RESTRICTED DEFINITIVE DEBENTURE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global
Debenture for a Restricted Definitive Debenture with an equal principal amount,
the Owner hereby certifies that the Restricted Definitive Debenture is being
acquired for the Owner's own account without transfer. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the Restricted
Definitive Debenture issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Definitive Debenture and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
DEBENTURE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL DEBENTURE. In
connection with the Exchange of the Owner's Restricted Definitive Debenture for
a beneficial interest in the [CHECK ONE] "144A Global Debenture", "Regulation S
Global Debenture", "IAI Global Debenture" with an equal principal amount, the
Owner hereby certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer and (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to the Restricted
Global Debentures and pursuant to and in accordance with the Securities Act,
and in compliance with any applicable blue sky securities laws of any state of
the United States. Upon consummation of the proposed Exchange in accordance
with the terms of the Indenture, the beneficial
C-2
<PAGE>
interest issued will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the relevant Restricted Global
Debenture and in the Indenture and the Securities Act.
.
C-3
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of Holding.
______________________________
[Insert Name of Owner]
BY:___________________________
Name:
Title:
Dated: __________, ____
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
AKI Holding Corp.
1815 East Main Street
Chattanooga, Tennessee 37404
Telecopier no.: 423-624-3301
Attention: Chief Financial Officer
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telecopier no.: 860-244-1844
Attention: Steve Cimalore
Re: 13 1/2% Senior Discount Debentures due 2009
Reference is hereby made to the Indenture, dated as of June 25, 1998
(the "Indenture"), among AKI Holding Corp. ("Holding"), as issuer and State
Street Bank and Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Debenture, or
(b) [ ] a Definitive Debenture,
we confirm that:
1. We understand that any subsequent transfer of the Debentures or any
interest therein is subject to certain restrictions and conditions set
forth in the Indenture and the undersigned agrees to be bound by, and
not to resell, pledge or otherwise transfer the Debentures or any
interest therein except in compliance with, such restrictions and
conditions and the United States Securities Act of 1933, as amended
(the "Securities Act").
2. We understand that the offer and sale of the Debentures have not been
registered under the Securities Act, and that the Debentures and any
interest therein may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we
should sell the Debentures or any interest therein, we will do so only
(A) to Holding or any subsidiary thereof, (B) in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (c) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to you and to Holding
a signed letter substantially in the form of this letter and, if such
transfer is in respect of a principal
D-1
<PAGE>
amount of Debentures, at the time of transfer of less than $250,000,
an Opinion of Counsel in form reasonably acceptable to Holding to the
effect that such transfer is in compliance with the Securities Act,
(D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions
of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing the Definitive
Debenture or beneficial interest in a Global Debenture from us in a
transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof
are restricted as stated herein.
3. We understand that, on any proposed resale of the Debentures or
beneficial interest therein, we will be required to furnish to you and
Holding such certifications, legal opinions and other information as
you and Holding may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand
that the Debentures purchased by us will bear a legend to the
foregoing effect. We further understand that any subsequent transfer
by us of the Debentures or beneficial interest therein acquired by us
must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Debentures, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.
5. We are acquiring the Debentures or beneficial interest therein
purchased by us for our own account or for one or more accounts (each
of which is an institutional "accredited investor") as to each of
which we exercise sole investment discretion.
You and Holding are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
__________________________________________________
[Insert Name of Accredited Investor]
By:_______________________________________________
Name:
Title:
Dated: __________________, ____
D-2
<PAGE>
EXHIBIT 12.1
AKI, INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------------------------------
NINE MONTHS JULY 1,
FISCAL YEAR ENDED JUNE 30, ENDED 1997 TO
----------------------------------- MARCH 31, DECEMBER 15,
1995 1996 1997 1997 1997
----------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Income (loss) before
income taxes ............ 7,247 4,279 7,117 6,676 3,234
Add:
Interest on all
indebtedness which
includes amortization
of deferred financing
costs ................... 6,170 6,762 6,203 4,694 2,646
----- ----- ----- ----- -----
Earnings available for
fixed charges ........... 13,417 11,041 13,320 11,370 5,880
Fixed charges ............ 6,170 6,762 6,203 4,694 2,646
------ ------ ------ ------ -----
Ratio of earnings to
fixed charges .......... 2.2 1.6 2.1 2.4 2.2
<CAPTION>
THE COMPANY
-----------------------------------------
PRO FORMA
--------------------------
DECEMBER 16, FISCAL YEAR NINE MONTHS
1997 TO ENDED ENDED
MARCH 31, JUNE 30, MARCH 31,
1998 1997 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Income (loss) before
income taxes ............ (1,325) 2,137 1,881
Add:
Interest on all
indebtedness which
includes amortization
of deferred financing
costs ................... 5,163 12,961 9,642
------ ------ -----
Earnings available for
fixed charges ........... 3,838 15,098 11,523
Fixed charges ............ 5,163 12,961 9,642
------ ------ ------
Ratio of earnings to
fixed charges .......... -- 1.2 1.2
</TABLE>
Earnings were not sufficient to cover fixed charges by $1,325 for the period
from December 16, 1997 to March 31, 1998.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated April 22, 1998 relating
to the consolidated financial statements of AKI, Inc. and Subsidiaries,
formerly known as Arcade Holding Corporation (the "Predecessor") which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended June 30, 1997 listed
under Item 21(b) of this Registration Statement when such schedule is read in
conjunction with the consolidated financial statements referred to in our
report. The audits referred to in such report also included this schedule. We
also consent to the reference to us under the headings "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Nashville, Tennessee
August 7, 1998
