<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
CENTURY MAINTENANCE SUPPLY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 5070 76-0542935
(State or other (Primary Standard Industrial (I.R.S. Employer)
jurisdiction of Classification Code Identification No.)
incorporation or Number)
organization)
9100 Winkler Drive
Houston, Texas 77017
(713) 947-6703
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------------------
Richard E. Penick
Chief Financial Officer, Vice President and Assistant Secretary
Century Maintenance Supply, Inc.
9100 Winkler Drive
Houston, Texas 77017
(713) 947-6703
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
Cynthia M. Dunnett, Esq.
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE AGGREGATE REGISTRATION
PER UNIT OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13 1/4% Series C Senior Exchangeable PIK Preferred
Stock due 2010 (Liquidation Preference
$100 per share) 560,000(1) $100.00(2) $28,000,000(2) $8,260.00
- ------------------------------------------------------------------------------------------------------------------------------------
13 1/4% Subordinated Exchange Debentures due 2010 (3)(4) (3)(4) (3)(4) (3)(4)
====================================================================================================================================
</TABLE>
(1) Includes 280,000 shares of 13 1/4% Series C Senior Exchangeable Preferred
Stock Due 2010 that may, at the option of Century Maintenance Supply, Inc.
("Century" or the "Company"), be issued as dividends on the 13 1/4% Series
C Senior Exchangeable Preferred Stock Due 2010. No additional registration
fee is payable in respect thereof.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended. The Proposed Maximum Aggregate Offering Price was calculated based
upon the book value of such securities as of the latest practicable date
prior to the date of filing, multiplied by 280,000 (the number of shares to
be received or cancelled by the Company in the transaction).
(3) At any time, at the Company's option, the 13 1/4% Subordinated Exchange
Debentures Due 2010 of the Company may be exchanged for the then
outstanding shares of 13 1/4% Series C Senior Exchangeable Preferred Stock
due 2010, in whole but not in part. No additional registration fee is
payable in respect thereof.
(4) Includes $28.0 million principal amount of the Exchange Debentures and up
to $28.0 million principal amount of Exchange Debentures which may be
issued as interest payments on the Exchange Debentures. No additional
registration fee is payable in respect thereof.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, COMPLETION OR AMENDMENT
WITHOUT NOTICE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THIS
PROSPECTUS IS DELIVERED IN FINAL FORM.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 1998
PROSPECTUS
CENTURY MAINTENANCE SUPPLY, INC.
Offer to Exchange its
13 1/4% Series C Senior Exchangeable PIK Preferred Stock due 2010
(Liquidation Preference $100 per share)
which has been registered under the Securities Act,
for any and all of its outstanding
13 1/4% Series A Senior Exchangeable PIK Preferred Stock due 2010
(Liquidation Preference $100 per share)
The Exchange Offer will expire at 5:00 P.M., New York City time, on
------------------------
, 1998, unless extended. Century Maintenance Supply, Inc.
("Century" or the "Company") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal" and together
with this Prospectus, the "Exchange Offer"), to exchange one share of its 13
1/4% Series C Senior Exchangeable PIK Preferred Stock due 2010 (Liquidation
Preference $100 per share) (the "Exchange Preferred Stock") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a registration statement (the "Registration Statement") of
which this Prospectus is a part, for one share of its Series A Senior
Exchangeable PIK Preferred Stock due 2010 (Liquidation Preference $100 per
share) (the "Initial Preferred Stock"), of which 280,000 shares are
outstanding as of the date hereof.
The Company will accept for exchange any and all validly tendered shares of
Initial Preferred Stock prior to 5:00 P.M., New York City time, on
, 1998, unless extended (the "Expiration Date"). Tenders of shares
of Initial Preferred Stock may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. The Exchange Offer is not conditioned
upon any minimum number of shares of Initial Preferred Stock being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions. In the event the Company terminates the Exchange Offer and does not
accept for exchange any shares of Initial Preferred Stock, the Company will
promptly return the shares of Initial Preferred Stock to the holders thereof.
The Company will not receive any proceeds from the Exchange Offer. See "The
Exchange Offer."
The Exchange Preferred Stock will be an equity security of the Company
evidencing the same equity interest as the Initial Preferred Stock, and will be
entitled to the rights and preferences set forth in the same Certificate of
Designation (the "Certificate of Designation"). See "Description of Exchange
Preferred Stock." The form and terms of the Exchange Preferred Stock are the
same as the form and terms of the Initial Preferred Stock in all material
respects except that the Exchange Preferred Stock has been registered under the
Securities Act and hence does not include certain rights to registration
thereunder and does not contain transfer restrictions. The Initial Preferred
Stock was issued on July 8, 1998 pursuant to an offering exempt from
registration under the Securities Act. See "The Exchange Offer."
The Exchange Preferred Stock is being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Agreement, dated as of
July 8, 1998 (the "Exchange Offer Registration Agreement"), by and
(Continued on following page)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF SHARES OF INITIAL PREFERRED STOCK ON , 1998.
SEE "RISK FACTORS" ON PAGE 16 FOR INFORMATION THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THIS EXCHANGE OFFER.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(Continuation of cover page)
between the Company and the Initial Purchaser (as defined herein), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Exchange Offer is intended to satisfy the Company's
obligations under the Exchange Offer Registration Agreement to register the
Initial Preferred Stock under the Securities Act. Once the Exchange Offer is
consummated, the Company will have no further obligations to register any shares
of the Initial Preferred Stock not tendered by the holders of the Initial
Preferred Stock (the "Holders") for exchange. However, the Company has an
obligation pursuant to the Private Registration Agreement (as defined herein) to
file and use its best efforts to cause to become effective registration
statements for its Series B Senior Exchangeable Preferred Stock due 2010
(Liquidation Preference $100 per share) (the "Series B Preferred Stock") sold to
Dennis C. Bearden, Century's Chief Executive Officer, and to Freeman Spogli &
Co. LLC ("FS&Co.") (the "Private Placement") (the Series B Preferred Stock,
Exchange Preferred Stock and Initial Preferred Stock, collectively, the
"Preferred Stock"). The Private Registration Agreement also provides that (i)
the Company will bear all costs and expenses associated with filing the Private
Registration Statements (as defined herein) and causing them to become effective
and (ii) the Company will not file the Private Registration Statements until any
exchange offer registration statement or resale shelf registration statement
required by the Registration Rights Agreement (as defined herein) have ceased to
be effective and are no longer required to be effective. See "Risk Factors--
Consequences to Non-Tendering Holders of Initial Preferred Stock" and "Certain
Transactions--Private Placement and Registration Rights."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the Exchange Preferred Stock issued pursuant
to the Exchange Offer in exchange for Initial Preferred Stock may be offered for
resale, resold and otherwise transferred by holders thereof without compliance
with the registration and prospectus delivery provisions of the Securities Act.
However, any Holder who is an "affiliate" of the Company, any Holder who
intended to participate in the Exchange Offer for the purpose of distributing
the Exchange Preferred Stock or any broker-dealer who acquired Initial Preferred
Stock directly from the Company (i) cannot rely on the interpretation by the
staff of the Commission set forth in the above referenced no-action letters,
(ii) cannot tender its shares of Initial Preferred Stock in the Exchange Offer,
and (iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Initial
Preferred Stock, unless such sale or transfer is made pursuant to an exemption
from such requirements. See "Risk Factors--Consequences to Non-Tendering
Holders of Initial Preferred Stock." In addition, each broker-dealer that
receives Exchange Preferred Stock for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Preferred Stock. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Preferred
Stock received in exchange for Initial Preferred Stock where such Initial
Preferred Stock was acquired by such broker-dealer as a result of market-making
activities or other trading activities and not acquired directly from the
Company. The Company has agreed that for a period of 180 days after the
consummation of the Exchange Offer, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT
BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF EXCHANGE PREFERRED
STOCK.
The Initial Preferred Stock was initially represented by one Global
Certificate (as defined herein) in fully registered form, registered in the name
of a nominee of The Depository Trust Company ("DTC"), as depository. The
Exchange Preferred Stock exchanged for Initial Preferred Stock represented by
the Global Certificate may be initially represented by one or more global
securities ("Global Exchange Certificate") in fully registered form, each
registered in the name of the nominee of DTC. The Global Exchange Certificate
will be exchangeable for Exchange Preferred Stock in registered form. The
Exchange Preferred Stock in global form will trade in The Depository Trust
Company's Same-Day Funds Settlement System, and secondary market trading
activity in such Exchange Preferred Stock will therefore settle in immediately
available funds. See "Description of Exchange Preferred Stock--Book-Entry
System."
(Continued on following page)
<PAGE>
(Continuation of cover page)
Dividends on the Exchange Preferred Stock will accrue from the date of
issuance and will be payable semi-annually in arrears on January 1 and July 1 of
each year (each a "Dividend Payment Date"), commencing January 1, 1999, at a
rate per annum of 13 1/4% of the liquidation preference per share. The
liquidation preference of each share of Exchange Preferred Stock will be $100
(the "Liquidation Preference"). Dividends will be payable in cash, except that
on each Dividend Payment Date occurring on or prior to July 1, 2003, dividends
may be paid, at the Company's option, by the issuance of additional shares of
Exchange Preferred Stock (including fractional shares) having an aggregate
liquidation preference equal to the amount of such dividends. The Exchange
Preferred Stock will not be redeemable prior to July 1, 2003, except that, on or
prior to January 1, 2001, the Company may redeem at its option, (i) up to 50% or
(ii) all, but not less than all, of the outstanding shares of Exchange Preferred
Stock with the net proceeds of any Public Equity Offering of common stock of the
Company, at a redemption price of 113 1/4% of the Liquidation Preference thereof
plus accumulated and unpaid dividends. On or after July 1, 2003, the Exchange
Preferred Stock will be redeemable at the Company's option in whole or in part,
at the prices set forth herein plus accumulated and unpaid dividends, if any, to
the date of redemption. The Company is required to redeem the Exchange Preferred
Stock on July 1, 2010, at a redemption price equal to 100% of the Liquidation
Preference thereof plus accumulated and unpaid dividends, if any, to the date of
redemption.
Holders whose Initial Preferred Stock is accepted for exchange will receive
accrued dividends thereon to, but not including, the date of issuance of the
Exchange Preferred Stock. Such dividends will be paid with the first dividend
payment on the Exchange Preferred Stock. Dividends on the Initial Preferred
Stock accepted for exchange will cease to accrue interest upon cancellation of
the Initial Preferred Stock and issuance of the Exchange Preferred Stock.
The Exchange Preferred Stock will rank (i) senior to all existing and
future Junior Stock (as defined) of the Company and (ii) on a parity with all
existing and future Parity Stock (as defined) of the Company. As of the date of
this Prospectus there is no Parity Stock outstanding other than the 120,000
shares of Series B Preferred Stock outstanding. The Exchange Preferred Stock
will rank junior in right of payment to all obligations of the Company and its
subsidiaries.
At any time, the Company may, at its option, exchange the Exchange
Preferred Stock, in whole but not in part, for the Company's 13 1/4%
Subordinated Exchange Debentures due 2010 (the "Exchange Debentures"). The
Exchange Debentures will be registered under the Securities Act pursuant to the
Registration Statement of which this Prospectus is a part. The Exchange
Debentures will bear interest at a rate of 13 1/4% per annum, payable semi-
annually on January 1 and July 1 of each year, commencing with the first such
date to occur after the date of exchange. The Exchange Debentures will be
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company and will be effectively subordinated in right of payment
to all obligations of the Company's subsidiaries.
Prior to this offering, there has been no public market for the Initial
Preferred Stock. Following completion of the Exchange Offer, Century does not
intend to list the Exchange Preferred Stock on a national securities exchange or
to seek approval for quotation through the Nasdaq National Market. The Initial
Purchaser has informed the Company that it currently intends to make a market in
the Exchange Preferred Stock. However, the Initial Purchaser is not obligated
to do so and any such market making may be discontinued at any time without
notice. Therefore, no assurance can be given as to whether an active trading
market will develop or be maintained for the Exchange Preferred Stock. As the
Initial Preferred Stock was issued and the Exchange Preferred Stock is being
issued to a limited number of institutions who typically hold similar securities
for investment, the Company does not expect that an active public market for the
Exchange Preferred Stock will develop. In addition, resales by certain holders
of the Initial Preferred Stock or the Exchange Preferred Stock of a substantial
percentage of the aggregate principal amount of such notes could constrain the
ability of any market maker to develop or maintain a market for the Exchange
Preferred Stock. To the extent that a market for the Exchange Preferred Stock
should develop, the market value of the Exchange Preferred Stock will depend on
prevailing interest rates, the market for similar securities and other factors,
including the financial condition, performance and prospects the Company. Such
factors might cause the Exchange Preferred Stock to trade at a discount from
face value. See "Risk Factors--Lack of Public Market for the Exchange Preferred
Stock." The Company has agreed to pay the expenses of the Exchange Offer.
(Continued on following page)
(Continuation of cover page)
<PAGE>
THIS PROSPECTUS DESCRIBES CERTAIN DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM RICHARD E.
PENICK, CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND ASSISTANT SECRETARY, CENTURY
MAINTENANCE SUPPLY, INC., 9100 WINKLER DRIVE, HOUSTON, TEXAS 77017, TELEPHONE
NUMBER (713) 947-6703.
<PAGE>
AVAILABLE INFORMATION
The Registrant has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (together with all amendments
thereto, the "Registration Statement") under the Securities Act for the
registration of the Exchange Preferred Stock offered hereby and for the
registration of the Exchange Debentures into which the Exchange Preferred Stock
is exchangeable as set forth herein. As permitted by the rules and regulations
of the Commission, this Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Exchange Preferred Stock
offered hereby and with respect to the Exchange Debentures, reference is made to
the Registration Statement and to the exhibits and schedules filed therewith.
With respect to each such contract or other document filed with the Commission
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and any statement
concerning the contents of any such contract or document shall be deemed
qualified in its entirety by such reference.
Upon consummation of the Exchange Offer, the Registrant will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act") for a period following the effectiveness of the Registration
Statement. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports and other information filed by the Registrant with
the Commission in accordance with the Exchange Act may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained upon written
request from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission also maintains
a World Wide Web site (http://www.sec.gov) that contains reports, proxy and
other information regarding registrants that file electronically with the SEC.
While any Initial Preferred Stock remains outstanding, the Company will make
available, upon request, to any holder and any prospective purchaser of the
Initial Preferred Stock the information required by Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be mailed to Century
Maintenance Supply, Inc., 9100 Winkler Drive, Houston, Texas 77017. Telephone
requests may be directed to the Assistant Corporate Secretary at (713) 947-6703.
i
<PAGE>
SUMMARY TEXT
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
contained elsewhere in this Prospectus. As used herein and unless the context
requires otherwise, the "Company" and "Century" refer to Century Maintenance
Supply, Inc. Unless otherwise indicated, all references to non-financial data
are as of June 30, 1998. See "Risk Factors" for certain factors Holders of the
Initial Preferred Stock should consider in evaluating an investment in the
Exchange Preferred Stock.
THE COMPANY
Century Maintenance Supply, Inc. ("Century" or the "Company") is a leading
distributor of maintenance, repair, and operations ("MRO") supplies to the $2
billion multifamily apartment market segment of the $10 billion domestic MRO
market. The Company offers a broad selection of high quality MRO items, with
prompt, free delivery provided through the Company's extensive distribution
network. Century currently supplies over 4,100 name brand and private label
stock-keeping units ("SKUs"), including plumbing, hardware, electrical, heating,
ventilation and air conditioning ("HVAC") and lighting products, to over 25,000
active customer accounts. The Company markets its products to individual
apartment maintenance managers as well as to larger property management
companies which own and/or manage multiple apartment complexes. Century
provides free same-day or next-day service on virtually all orders by delivering
its products via Company-operated trucks from 30 distribution centers which are
strategically located in major metropolitan markets throughout the United
States. Since its inception in 1988, the Company has reported increased annual
net sales, operating income and Adjusted EBITDA. From 1993 to 1997 the Company
has realized compound annual sales growth of 38.6%, increased operating income
from $2.3 million in 1993 to $11.3 million in 1997 and improved Adjusted EBITDA
(as defined) margins from 6.2% in 1993 to 13.0% in 1997. See footnotes (e) and
(f) to "--Summary Historical and Pro Forma Financial Information" for
information with respect to EBITDA and Adjusted EBITDA, and "--Summary
Historical and Pro Forma Financial Information" for certain cash flow
information.
In July 1997, the Company acquired Nationwide Apartment Supply, Inc.
("Nationwide"), an operator of 11 distribution centers located primarily in the
midwestern United States (the "Nationwide Acquisition"). The Nationwide
Acquisition has expanded the Company's geographic reach, generated efficiencies
through the consolidation of three distribution centers and provided the
potential for purchasing synergies and margin improvements, as well as with what
it believes is a complementary management team. For the twelve months ended
June 30, 1997, Nationwide generated $35.0 million of annual sales, operating
income of $2.5 million and $2.8 million of EBITDA. Pro forma for the Nationwide
Acquisition, the Company's 1997 net sales, operating income and Adjusted EBITDA
were $166.0 million, $12.7 million and $20.7 million, respectively. See the
Combined Financial Statements of Nationwide Apartment Supply, Inc. contained
elsewhere in this Prospectus and "--Summary Historical and Pro Forma Financial
Information" for EBITDA and Adjusted EBITDA information, and for certain cash
flow information.
BUSINESS STRATEGY
The central focus of the Company's business strategy is to provide the
highest level of customer service in the industry. The Company has historically
focused on the multifamily apartment segment of the MRO market, specifically on
two or three story, garden style apartment complexes with 75 or more units
located in major metropolitan markets. The Company believes that such apartment
complexes have more frequent maintenance requirements and generate higher
average invoice amounts than complexes with fewer units. The Company's business
strategy is based upon (i) developing and maintaining strong and enduring
customer relationships through a strong local presence, (ii) controlling the
distribution of its products to provide reliable same-day or next-day delivery,
(iii) maintaining superior fill rates in order to satisfy customer needs, and
(iv) enhancing its ability to service and secure relationships with national
accounts, including large, nationally-focused property owners and
1
<PAGE>
management companies. In addition, the Company continues to realize operating
efficiencies by centralizing key corporate functions and integrating new
distribution centers.
DEVELOP AND MAINTAIN STRONG CUSTOMER RELATIONSHIPS THROUGH STRONG LOCAL
PRESENCE. Century maintains high levels of customer service through its local
outside salesforce which maintains frequent personal customer contact. The
outside salesforce is complemented by an inside salesforce which is primarily
responsible for receiving customer orders and providing technical support. In
addition, Century's products are delivered through its Company-operated fleet of
trucks, by a driver with whom the customer is typically familiar and who can
address the customer's specific needs or requests. The personalized interaction
that results from this strong local presence helps the Company build and
maintain a loyal customer base. Century reinforces its customer loyalty by
providing value-added services, such as educational classes and training for its
customers held at most of the Company's distribution centers. In addition, the
Company participates in over 80 apartment associations, thereby enhancing its
understanding of and presence in local markets.
CONTROL OF DISTRIBUTION. Through its extensive network of local
distribution centers and Company-operated delivery fleet, Century is able to
control the entire distribution process. In this manner, the Company strives to
distinguish itself from many of its competitors and maintain high levels of
customer satisfaction. The Company limits the number of different parties
handling a product, which minimizes faulty deliveries and damage while reducing
delivery time. The Company guarantees same-day or next-day delivery of its
products in virtually all of its markets. Century's distribution system allows
for quicker and less costly delivery of large and heavy items, for which United
Parcel Service and similar services are not as competitively priced.
MAINTAIN HIGH FILL RATES. By carefully managing levels of inventory at
each distribution center and maintaining up to date information on customer
buying patterns, the Company estimates it is able to achieve a fill rate in
excess of 97%. The Company continually monitors the demand for all products and
adjusts inventory levels accordingly to maintain appropriate stock levels at
each distribution center in order to meet customer needs. In addition, each
distribution center is able to offer an additional 100 SKUs in order to meet
specific local needs. Maintaining high fill rates reduces the risk of losing
customers to competition and reinforces customer loyalty.
SERVICE NATIONAL ACCOUNTS. The consolidation of the apartment market has
created a new class of national customers who demand the high quality service,
broad product line, competitive pricing and national distribution capability
which Century offers. Century's high level of service and extensive network of
distribution centers has enabled the Company to develop supply relationships
with national apartment management companies and group purchasing organizations
("GPOs"). In 1995, the Company established a national salesforce to complement
its local salesforce by focusing on servicing these national customers. Of the
largest 50 property management companies, 46 are active customers of Century.
Furthermore, the Company is a preferred supplier to Buyers Access Group, a major
GPO. Sales to the Company's top five national accounts (including GPOs)
increased from 9.1% of overall sales in 1995 to 15.0% in 1997. With its core
base of national accounts and extensive network of distribution centers, Century
believes that it is better positioned to capitalize on the consolidation trends
in the industry than are smaller local and regional suppliers. The Company
plans to open additional distribution centers to expand its national presence.
See "--Growth Strategy."
GROWTH STRATEGY
The Company's growth strategy is based on the following elements: (i)
continuing comparable-center sales growth; (ii) entering new geographic markets;
and (iii) actively developing strategies to enter new end-user markets.
CONTINUING COMPARABLE-CENTER SALES GROWTH. Century's strategy for
comparable-center sales growth is focused on: (i) expanding the customer base
served by existing distribution centers and (ii) gaining a larger portion of
each existing customer's MRO dollar, primarily through the selective addition of
SKUs. In each year since 1993, the Company has realized comparable center sales
growth rates ranging from 20.8% to 28.2%.
2
<PAGE>
Century's comparable-center growth is primarily driven by the relationship-
building efforts of its outside salesforce, which regularly calls on prospective
customers. Once the outside salesforce makes a successful sales call, Century's
management believes that its combination of service, reliable same day/next day
delivery, high fill rate and competitive pricing allows it to gain market share
and increase its loyal customer base. Moreover, as the consolidation of the
Company's customer base continues, Century expects to supply additional
properties built or acquired by existing customers and capture a larger share
from the many local and regional competitors which currently comprise 70-80% of
the total apartment MRO market. In addition, the Company expects comparable
center sales will grow due to market growth caused by the increase in
construction of new apartment buildings and the higher standard of amenities in
the typical apartment unit.
Century's management believes that by continuing to provide superior
service to its existing customer base, it is capturing a growing portion of each
customer's MRO dollar. Century has been successful in introducing new products
into existing markets. In 1997, the Company introduced approximately 150 new
products, which contributed more than $3 million to net sales.
ENTERING NEW GEOGRAPHIC MARKETS. The Company plans to open new
distribution centers in carefully selected markets. These target markets
typically contain more than 60,000 apartment units in complexes of more than 75
units. From 1993 to 1997, the Company opened 14 new distribution centers,
generating an aggregate of $48.4 million in sales in 1997. The Company's goal
is to add at least 10 new distribution centers by the end of the year 2000. In
addition, the Company plans to extend the range of its distribution centers
through mail-order and line-haul delivery methods to locations that do not meet
the Company's criteria for a local distribution center. Line-haul delivery is a
distribution method in which freight lines deliver aggregated customer orders to
a location beyond the local delivery range, at which point the orders are
subsequently transferred to third-party delivery services.
NEW END-USER MARKETS. The Company believes substantial growth
opportunities exist by targeting new end-user markets, which it estimates have
$8 billion in yearly sales volume. Potential new markets include high rise
apartment buildings, hotels/motels, nursing homes, prisons, military
installations, and schools and universities. The Company believes that these
new end-user markets have demands similar to those of the apartment MRO market
and can be served by the Company's present distribution channel with the
addition of certain SKUs.
THE RECAPITALIZATION
On July 8, 1998, the Company consummated a recapitalization pursuant to an
Agreement and Plan of Merger (the "Recapitalization Agreement"). Under the
terms of the Recapitalization Agreement, Century Acquisition Corporation, an
entity formed by affiliates of Freeman Spogli & Co. LLC ("FS&Co.") merged with
and into the Company, with the Company as the surviving corporation.
Pursuant to the Recapitalization, FS&Co. invested $67.5 million, a director
of the Company invested $750,000, and a third party, The Parthenon Group,
invested $125,000, in cash for common stock of the Company (the "Common Stock
Investment") and stockholders of the Company (the "Continuing Stockholders")
retained common stock with a value of $54.2 million (based on the valuation of
the Company used in the Recapitalization). As part of the Recapitalization,
shares of Series A 13 1/4% Senior Exchangeable PIK Preferred Stock due 2010 of
the Company with an aggregate liquidation preference of $28.0 million were sold
(the "Offering"), and shares of Series B 13 1/4% Senior Exchangeable Preferred
Stock of the Company with an aggregate liquidation preference of $12.0 million
were sold to FS&Co. and Dennis C. Bearden, the Company's Chief Executive
Officer, in a private placement that was consummated simultaneously with the
Offering (the "Private Placement" and, together with the Offering, the "Sales of
Preferred"). Immediately following consummation of the Recapitalization, FS&Co.
and the Continuing Stockholders beneficially owned approximately 55.1% and 44.2%
of the outstanding common stock of the Company, respectively, and FS&Co. and Mr.
Bearden beneficially owned 10.0% and 20.0% respectively of the outstanding
Preferred Stock sold pursuant to the Offering and the Private Placement
combined.
On July 8, 1998, the Company entered into a credit agreement (the "New
Credit Facility") providing for a $100.0 million secured term loan facility (the
"Term Loan Facility"), which was funded in connection with the
3
<PAGE>
consummation of the Recapitalization, and a $25.0 million revolving loan
facility (the "Revolving Credit Facility"). The Revolving Credit Facility will
be available to the Company and its subsidiaries (i) for future working capital
and general corporate purposes, (ii) to finance certain permitted acquisitions,
and (iii) for issuing commercial and standby letters of credit. See "Description
of New Credit Facility."
The Offering and the Private Placement and the application of the net
proceeds from each, the payments to the Continuing Stockholders and to option
holders under the Recapitalization Agreement, the Common Stock Investment and
the related borrowings under the New Credit Facility are collectively referred
to herein as the "Recapitalization."
The sources and uses of funds in connection with the Recapitalization are
presented in the following table (dollars in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
<S> <C>
New Credit Facility....................................... $100.0
Sales of Preferred(1)..................................... 40.0
Common Stock Investment................................... 68.3
Continuing Stockholders' retained interest................ 54.2
------
Total sources of funds............................... $262.5
======
USES OF FUNDS:
Payment of cash consideration in Recapitalization(2)...... $179.3
Repayment of existing indebtedness, net of cash........... 14.0
Continuing Stockholders' retained interest................ 54.2
Other fees and expenses................................... 15.0
------
Total uses of funds.................................. $262.5
======
</TABLE>
___________________
(1) Comprised of (a) $28.0 million of Preferred Stock sold in the Offering and
(b) $12.0 million of Preferred Stock sold in the Private Placement.
(2) Comprised of (a) payments of approximately $178.3 million to Continuing
Stockholders upon conversion of certain shares of common stock of the
Company and to option holders and (b) bonus payments of approximately $1.0
million to certain employees. See "Certain Transactions--Payments Relating
to the Recapitalization."
RISK FACTORS
Holders of the Initial Preferred Stock should consider carefully the
information set forth under the caption "Risk Factors" and all other information
set forth in this Prospectus in evaluating an investment in the Exchange
Preferred Stock.
4
<PAGE>
TERMS OF THE EXCHANGE PREFERRED STOCK
<TABLE>
<S> <C>
Issuer....................... Century Maintenance Supply, Inc.
Securities Offered........... 280,000 shares of 13 1/4% Series C Senior Exchangeable PIK Preferred Stock due 2010 (the "Exchange
Preferred Stock").
Dividends.................... Dividends on the Exchange Preferred Stock will accrue at a rate per share of 13 1/4% per annum of the
Liquidation Preference thereof. Dividends will be payable in cash, except that on each Dividend
Payment Date occurring on or prior to July 1, 2003, dividends may be paid, at the Company's option,
by the issuance of additional shares of Exchange Preferred Stock (including fractional shares having
an aggregate Liquidation Preference equal to the amount of such dividends. It is not anticipated that
the Company will pay any dividends in cash for any period ending on or prior to July 1, 2003. The
terms of the New Credit Facility currently prohibit the Company from paying any cash dividends on the
Exchange Preferred Stock. See "Risk Factors--Ability to Make Distributions on Exchange Preferred
Stock," "Risk Factors--Holding Company Structure" and "Description of New Credit Facility."
Dividend Payment Dates....... Dividends on the Exchange Preferred Stock will be payable semi-annually in arrears on January 1 and
July 1 of each year (each a "Dividend Payment Date") commencing January 1, 1999.
Liquidation Preference....... $100 per share.
Ranking...................... The Exchange Preferred Stock will rank (i) senior to all existing and future Junior Stock; and (ii)
on a parity with all existing and future Parity Stock. In addition, the Exchange Preferred Stock will
rank junior in right of payment to all obligations of the Company and its subsidiaries. As of June
30, 1998, after giving effect to the Recapitalization, the Company would have had no Parity Stock or
Junior Stock outstanding, other than the Series B Preferred Stock, and would have had Senior Debt
outstanding of $100.0 million and the Company's subsidiaries would have had total balance sheet
liabilities of $18.9 million, all of which is senior or effectively senior to the Preferred Stock. In
addition, the Company would have had up to $25.0 million of undrawn commitments available under the
Revolving Credit Facility. See "Description of the Exchange Preferred Stock--Ranking."
Optional Redemption.......... The Exchange Preferred Stock will not be redeemable prior to July 1, 2003, except that, prior to
January 1, 2001, the Company may redeem, at its option, (i) up to 50% or (ii) all, but not less than
all, of the outstanding Exchange Preferred Stock with the net proceeds of any Public Equity Offering
by the Company at a redemption price of 113.25% of the Liquidation Preference thereof plus
accumulated and unpaid dividends. On or after July 1, 2003, the Exchange Preferred Stock is
redeemable at the option of the Company, in whole or in part, at the redemption prices set forth
herein plus accumulated and unpaid dividends, if any, to the date of redemption. See "Description of
the Exchange Preferred Stock--Optional Redemption."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Mandatory Redemption......... The Exchange Preferred Stock is subject to mandatory redemption at its Liquidation
Preference, plus accumulated and unpaid dividends, if any, on July 1, 2010, out of any
funds legally available therefor.
Change of Control............ In the event of a Change of Control, the Company will be required to make an offer to repurchase all
or any part of each holder's Exchange Preferred Stock, at a purchase price equal to 101% of the
aggregate Liquidation Preference thereof, plus accrued and unpaid dividends, if any, to the date of
purchase. The New Credit Facility includes events of default triggered by a Change of Control of the
Company and prohibits the Company from repurchasing the Exchange Preferred Stock, including upon a
Change of Control. In addition, there can be no assurance that in the event of a Change of Control
the Company would have sufficient or legally available funds to purchase all shares of Preferred
Stock tendered. See "Risk Factors--Possible Inability to Make Required Payment Upon a Change of
Control."
Voting Rights................ Holders of the Exchange Preferred Stock will have no voting rights, except as required by law and
except that holders of the Exchange Preferred Stock, voting together as a class with the holders of
any other series of preferred stock upon which like rights have been conferred and are exercisable,
will be entitled to elect two additional members to the Board of Directors of the Company and the
number of members of the Board of Directors will be immediately and automatically increased by two if
(i) the Company fails to pay dividends, in cash or additional shares of Exchange Preferred Stock, as
applicable, for six or more Dividend Periods (as defined), whether or not consecutive, (ii) the
Company fails to satisfy any mandatory redemption obligation with respect to the Exchange Preferred
Stock, (iii) the Company fails to make an offer to purchase all of the outstanding shares of Exchange
Preferred Stock following a Change of Control, (iv) the Company fails to comply with the covenants
set forth in the Certificate of Designation (as defined) or, (v) the Company fails to pay, at final
maturity, the principal amount of any indebtedness of the Company or any subsidiary of the Company or
in the event that the stated maturity of any such indebtedness is accelerated because of a default
and the total amount of such indebtedness unpaid or accelerated exceeds $7.5 million. In addition,
holders of the Exchange Preferred Stock shall have the right to approve each authorization by the
Company of any class of Senior Stock (as defined herein) or Parity Stock or the issuance by the
Company of additional shares of Exchange Preferred Stock (other than additional shares of Exchange
Preferred Stock to be issued as dividends on outstanding shares of Exchange Preferred Stock).
However, the Company may create additional classes of stock or issue series of Junior Stock without
the consent of the holders of Exchange Preferred Stock. See "Description of the Exchange Preferred
Stock--Voting Rights."
Certain Covenants............ The Certificate of Designation for the Exchange Preferred Stock (the "Certificate of Designation")
contains limitations on, among other things: (i) the ability of the Company and any Restricted
Subsidiaries to incur additional Debt, (ii) the making of certain Restricted Payments including
certain Investments, (iii) the issuance and sale of Capital Stock of Restricted Subsidiaries, (iv)
payment restrictions affecting Restricted Subsidiaries, (v) transactions with Affiliates, (vi) the
ability of the Company to engage in
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
any business or activity other than the business currently conducted by it and its Restricted
Subsidiaries and Related Businesses, and (vii) certain mergers, consolidations and sales of property
involving the Company or its Restricted Subsidiaries (the foregoing capitalized terms are defined in
"Description of the Exchange Preferred Stock--Certain Definitions"). All of these limitations will be
subject to a number of important qualifications. See "Description of the Exchange Preferred Stock--
Certain Covenants."
Debt Restrictions............ The New Credit Facility prohibits the redemption or repurchase of the Exchange Preferred Stock
(except out of a portion of the proceeds of an initial public offering), including upon a redemption
or upon a Change of Control, and currently prohibits the payment of cash dividends on the Exchange
Preferred Stock (provided that payment of cash dividends is permitted after July 1, 2003, subject to
financial performance tests). The New Credit Facility prohibits the exchange of the Exchange
Preferred Stock for Exchange Debentures. Other future debt of the Company may require repayment upon
a Change of Control and may prohibit the Company from repurchasing Exchange Preferred Stock. See
"Risk Factors--Ability to Make Distributions on Exchange Preferred Stock" and "Description of New
Credit Facility."
Exchange Feature............. At any time, the Company may, at its option, exchange all but not less than all of the shares of the
Exchange Preferred Stock then outstanding for Exchange Debentures in a principal amount equal to the
Liquidation Preference of the shares of Exchange Preferred Stock being exchanged. The New Credit
Facility currently prohibits the Company from exchanging the Exchange Preferred Stock.
TERMS OF THE EXCHANGE DEBENTURES
Securities Offered........... 13 1/4% Subordinated Exchange Debentures due 2010 issuable in exchange for the Preferred Stock in an
aggregate principal amount equal to the Liquidation Preference of the Preferred Stock, plus
accumulated and unpaid dividends to the date of exchange (the "Exchange Debentures").
Maturity Date................ July 1, 2010.
Interest Rate................ The Exchange Debentures will bear interest at a rate of 13 1/4% per annum. On or prior to July 1,
2003, interest may, at the option of the Company, be paid by issuing additional Exchange Debentures
with a principal amount equal to such interest. After July 1, 2003, interest on the Exchange
Debentures may be paid only in cash.
Interest Payment Dates....... Interest will accrue on the Exchange Debentures from the date of exchange (the "Exchange Date") and
will be payable semiannually on each January 1 and July 1 commencing with the first of such dates to
occur after the Exchange Date.
Subordination................ The Exchange Debentures will be general unsecured obligations of the Company, subordinated in right
of payment to all existing and future Senior Debt of the Company, including the Company's obligations
under the New Credit Facility. The Exchange Debentures will also be effectively subordinated to all
obligations of the Company's subsidiaries. As of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
June 30, 1998, after giving effect to the Recapitalization, the Company would have had Senior Debt
outstanding of $100.0 million and the Company's subsidiaries would have had total balance sheet
liabilities of $18.9 million (excluding guaranties under the New Credit Facility), all $118.9 million
of which would have been senior or effectively senior in right of payment to the Exchange Debentures.
In addition, the Company would have had up to $25.0 million in undrawn commitments available under
the Revolving Credit Facility, which when drawn would constitute Senior Debt. See "Description of the
Exchange Debentures--Subordination."
Optional Redemption.......... The Exchange Debentures will not be redeemable prior to July 1, 2003, except that, prior to January
1, 2001, the Company may redeem, at its option, (i) up to 50% or (ii) all, but not less than all, of
the aggregate principal amount of the Exchange Debentures at the redemption price set forth herein
with the net proceeds of any Public Equity Offering by the Company, in whole or in part, at the
redemption prices set forth herein of 113 1/4% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of redemption.
Change of Control............ In the event of a Change of Control, the Company will be required to make an offer to repurchase all
or any part of each holder's Exchange Debentures at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. There
can be no assurance that the Company will have sufficient funds available at the time of any Change
of Control to effect the repurchase of Exchange Debentures tendered by holders pursuant to such
offer.
Certain Covenants............ The indenture under which the Exchange Debentures will be issued (the "Exchange Indenture") will
contain limitations on, among other things: (i) the ability of the Company and any Restricted
Subsidiaries to Incur additional Debt, (ii) the making of certain Restricted Payments including
certain Investments, (iii) the creation of certain Liens, (iv) the issuance and sale of Capital Stock
of Restricted Subsidiaries, (v) Asset Sales, (vi) payment restrictions affecting Restricted
Subsidiaries, (vii) transactions with Affiliates, (viii) the ability of the Company to engage in any
business or activity other than the business currently conducted by it and its Restricted
Subsidiaries and Related Businesses, and (ix) certain mergers, consolidations and sales of property
involving the Company and the Restricted Subsidiaries (the foregoing capitalized terms are defined in
"Description of the Exchange Debentures--Certain Definitions" or in "Description of the Exchange
Preferred Stock--Certain Definitions"). All of these limitations will be subject to a number of
important qualifications. See "Description of the Exchange Debentures--Certain Covenants."
Debt Restrictions............ The New Credit Facility prohibits the redemption or repurchase of the Exchange Debentures, including
upon a Change of Control. The New Credit Facility prohibits the exchange of the Exchange Preferred
Stock for Exchange Debentures. See "Risk Factors--Ability to Make Distributions on Exchange Preferred
Stock" and "Description of New Credit Facility."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
THE EXCHANGE OFFER
The Exchange Offer........... 280,000 shares of Exchange Preferred Stock in exchange for 280,000 shares of Initial Preferred Stock.
As of the date hereof, 280,000 shares of Initial Preferred Stock are outstanding. The Company will
issue the Exchange Preferred Stock to Holders on or promptly after the Expiration Date.
Based on an interpretation by the staff of the Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange Preferred Stock issued pursuant to the Exchange
Offer in exchange for Initial Preferred Stock may be offered for resale, resold and otherwise
transferred by Holders thereof without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Preferred Stock is acquired in the
ordinary course of such holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Preferred Stock. However, the Company does not
intend to request the Commission to consider, and the Commission has not considered, the Exchange
Offer in a no-action letter and there can be no assurance that the Commission would make a similar
determination with respect to the Exchange Offer. However, any Holder who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Preferred Stock (i) cannot rely on the interpretation by the staff of the Commission set
forth in the above referenced no-action letters, (ii) cannot tender its Initial Preferred Stock in
the Exchange Offer, and (iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Initial Preferred Stock, unless
such sale or transfer is made pursuant to an exemption from such requirements. See "Risk Factors--
Consequences to Non-Tendering Holders of Initial Preferred Stock."
Each broker-dealer that receives Exchange Preferred Stock for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Preferred Stock. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of Exchange Preferred Stock
received in exchange for Initial Preferred Stock where such Initial Preferred Stock were acquired by
such broker-dealer as a result of market-making activities or other trading activities and not
acquired directly from the Company. The Company has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
Expiration Date.............. 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended,
in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer
is extended.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Dividends on the Exchange
Preferred Stock; Accrued
Dividends on the Initial
Preferred Stock............. Dividends will accrue on the Exchange Preferred Stock from their issuance date. Holders whose Initial
Preferred Stock is accepted for exchange will receive accrued dividends thereon to, but excluding,
the issuance date of the Exchange Preferred Stock. Such dividends will be paid with the first
dividend payment on the Exchange Preferred Stock. Dividends on the Initial Preferred Stock accepted
for exchange will cease to accrue upon cancellation of the Initial Preferred Stock and issuance of
the Exchange Preferred Stock. Holders of Initial Preferred Stock whose Initial Preferred Stock is not
exchanged will receive the accrued dividend payable on January 1, 1999 on such date in accordance
with the terms of the Certificate of Designation.
Condition to the Exchange
Preferred Stock............. The Exchange Offer is subject to certain customary conditions. The conditions are limited and relate
in general to proceedings which have been instituted or laws which have been adopted that might
impair the ability of the Company to proceed with the Exchange Offer. As of , 1998, none of these
events had occurred, and the Company believes their occurrence to be unlikely. If any such conditions
do exist prior to the Expiration Date, the Company may (i) refuse to accept any Initial Preferred
Stock and return all previously tendered Initial Preferred Stock, (ii) extend the Exchange Offer or
(iii) waive such conditions. See "The Exchange Offer--Conditions."
Procedures for Tendering Initial
Preferred Stock............. Each Holder of Initial Preferred Stock wishing to accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile,
together with such Initial Preferred Stock to be exchanged and any other required documentation to
United States Trust Company of New York, as Exchange Agent, at the address set forth herein and
therein or effect a tender of such Initial Preferred Stock pursuant to the procedures for book-entry
transfer as provided for herein. By executing the Letter of Transmittal, each Holder will represent
to the Company that, among other things, the Exchange Preferred Stock acquired pursuant to the
Exchange Offer is being obtained in the ordinary course of business of the person receiving such
Exchange Preferred Stock, whether or not such person is the Holder, that neither the Holder nor any
such other person has an arrangement or understanding with any person to participate in the
distribution of such Exchange Preferred Stock and that neither the Holder nor any such person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. Each broker-dealer that
receives Exchange Preferred Stock for its own account in exchange for Initial Preferred Stock, where
such Initial Preferred Stock was acquired by such broker-dealer as a result of market-making
activities or other trading activities and not acquired directly from the Company, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange Preferred Stock. See
"The Exchange Offer--Procedures for Tendering" and "Plan of Distribution."
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Initial Preferred Stock is registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender such Initial Preferred Stock
in the Exchange Offer should contact such registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and
delivering its Initial Preferred Stock, either make appropriate arrangements to register ownership of
the Initial Preferred Stock in such owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date. See "The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures.................. Holders of Initial Preferred Stock who wish to tender their Initial Preferred Stock and whose Initial
Preferred Stock is not immediately available or who cannot deliver their Initial Preferred Stock, the
Letter of Transmittal or any other documents required by the Letter of Transmittal to United States
Trust Company of New York, as Exchange Agent, or cannot complete the procedure for book-entry
transfer, prior to the Expiration Date must tender their Initial Preferred Stock according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights............ Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
Acceptance of Initial Preferred
Stock and Delivery of Exchange
Preferred Stock............. The Company will accept for exchange any and all shares of Initial Preferred Stock which are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Preferred Stock issued pursuant to the Exchange Offer will be delivered promptly following
the Expiration Date. Any Initial Preferred Stock not accepted for exchange will be returned without
expense to the tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer. See "The Exchange Offer--Terms of the Exchange Offer."
Certain Tax Considerations... The exchange pursuant to the Exchange Offer will not constitute a recognition event for federal
income tax purposes, and, thus, no gain or loss will be recognized by a Holder upon the exchange of
Initial Preferred Stock for Exchange Preferred Stock pursuant to the Exchange Offer. See "Certain
U.S. Federal Income Tax Considerations."
Exchange Agent............... United States Trust Company of New York is serving as Exchange Agent in connection with the Exchange
Offer.
</TABLE>
GENERAL
The Company's principal executive offices are located at 9100 Winkler
Drive, Houston, Texas 77017 and its telephone number is (713) 947-6703.
11
<PAGE>
ADDITIONAL INFORMATION
For additional information regarding the Exchange Preferred Stock, see
"Description of the Exchange Preferred Stock" and "Certain U.S. Federal Income
Tax Consequences."
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following summary historical financial data for each of the three years
and the period ended December 31, 1997 are derived from the audited consolidated
financial statements of the Company. The summary financial data for the years
ended December 31, 1993 and 1994 and for the six month periods ended June 30,
1997 and June 30, 1998 are derived from the unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for the fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1998. The summary pro forma financial data for the year
ended December 31, 1997 and the six months ended June 30, 1998 and June 30, 1997
are derived from the pro forma financial statements included elsewhere in this
Prospectus and give effect to the Recapitalization, the Reorganization (as
defined), the Common Control Mergers (as defined), and the Nationwide
Acquisition (as defined) as if they had occurred at the beginning of the period
presented with respect to the operating and other financial data, and as of June
30, 1998 with respect to balance sheet data. The summary pro forma financial
data for the twelve months ended June 30, 1998 have been included because the
Company believes that the effects of the unusual events of the Recapitalization,
Reorganization, Common Control Mergers and the Nationwide Acquisition will be
given most meaningful effect, particularly in light of the seasonality of the
Company's business, when such effects are presented over a full twelve month
period. The summary pro forma financial data does not necessarily represent
what the Company's financial position and results of operations would have been
if these transactions had actually been completed as of the dates indicated, and
is not intended to project the Company's financial position or results of
operations for any future period. The information contained in this table
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Company's audited
consolidated financial statements and notes thereto at December 31, 1996 and
December 31, 1997 and for each of the three years in the period ended December
31, 1997, the unaudited consolidated financial statements at June 30, 1998 and
for the six months ended June 30, 1997 and 1998 and the pro forma consolidated
financial statements and notes thereto, included elsewhere in this Prospectus.
13
<PAGE>
<TABLE>
<CAPTION>
TWELVE
MONTHS
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED JUNE 30, JUNE 30,
----------------------------------------------------------- ------------------------- --------
PRO PRO PRO
FORMA FORMA FORMA
1993 1994 1995 1996 1997 1997(a) 1997 1998 1998(b) 1998(c)
------- ---- ---- ---- ---- ------- ------ ------------- --------
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $39,657 $56,873 $80,115 $103,113 $146,166 $166,011 $58,761 $94,182 $94,182 $183,093
Cost of sales.................. 29,516 42,215 59,201 75,552 105,636 120,300 42,468 68,598 68,598 132,912
------- ------- ------- -------- -------- -------- ------- ------- ------- --------
Gross profit................... 10,141 14,659 20,915 27,561 40,530 45,711 16,293 25,584 25,584 50,181
Operating expenses:
Selling, general and
administrative expenses.... 7,832 11,225 15,256 17,271 22,264 26,041 9,097 14,182 14,182 27,585
Stock based compensation
charges(d)................. -- -- -- -- 6,969 6,969 6,343 -- -- 626
Total operating expenses....... 7,832 11,225 15,256 17,271 29,233 33,010 15,440 14,182 14,182 28,211
------- ------- ------- -------- -------- -------- ------- ------- ------- --------
Operating income............... $ 2,309 $ 3,434 $ 5,659 $ 10,290 $ 11,297 $ 12,701 $ 853 $11,402 $11,402 $ 21,970
======= ======= ======= ======== ======== ======== ======= ======= ======= ========
OTHER FINANCIAL DATA:
EBITDA(e)...................... $ 2,475 $ 3,705 $ 6,031 $ 10,723 $ 12,066 $ 13,685 $ 1,099 $11,878 $ 11,878 $ 22,968
Adj. EBITDA(f)................. $ 2,475 $ 3,705 $ 6,031 $ 10,723 $ 19,035 $ 20,654 $ 7,442 $11,878 $ 11,878 $ 23,594
Adj. EBITDA margin(g).......... 6.2% 6.5% 7.5% 10.4% 13.0% 12.4% 12.7% 12.6% 12.6% 12.9%
Depreciation and amortization.. $ 166 $ 271 $ 372 $ 433 $ 769 $ 984 $ 247 $ 476 $ 476 $ 998
Capital expenditures........... $ 525 $ 524 $ 461 $ 513 $ 1,534 $ 1,686 $ 984 $ 500 $ 500 $ 1,050
Ratio of Adj. EBITDA to
interest expense............. 9.4x 8.0x 7.6x 12.4x 16.6x 2.2x 23.0x 16.5x 2.6x 2.5x
Ratio of total debt to Adj
EBITDA....................... 1.4x 1.9x 1.6x 1.1x 1.0x -- -- -- -- 4.2x
Ratio of earnings to fixed
charges(h)................... 6.5x 5.5x 5.6x 8.7x 7.1x 1.3x 2.0x 11.0x 2.4x 2.3x
Ratio of earnings to fixed
charges and preferred stock
dividends (i)................ -- -- -- -- -- 0.7x -- -- 1.2x 1.2x
OTHER DATA:
Distribution centers........... 9 13 17 20 29 -- 20 30 -- --
Comparable center sales
growth(j).................... 23.0% 26.7% 28.2% 21.0% 20.8% -- -- -- -- --
Active customers(k)............ N/A N/A 13,436 16,659 24,521 -- -- -- -- --
CASH FLOW DATA:
Net cash provided by (used in)
operating activities......... $ (264) $(2,529) $ (589) $ 785 $ 6,304 -- $(4,851) $(2,464) -- --
Net cash provided by (used in)
investing activities......... (520) (436) (458) (493) (9,575) -- (302) (460) -- --
Net cash provided by (used in)
financing activities......... 1,563 4,185 1,088 2,083 4,946 -- 2,498 629 -- --
BALANCE SHEET DATA:
Working capital................ $ 5,222 $ 8,799 $ 9,413 $ 14,456 $ 25,617 -- -- $30,007 $ 37,293 $ 37,293
Operating working capital(l)... 5,128 9,271 13,778 20,065 29,487 -- -- 38,967 37,293 37,293
Total assets................... 12,353 19,630 22,981 32,936 57,254 -- -- 69,512 69,591 69,591
Total debt..................... 3,526 6,993 9,385 12,253 18,997 -- -- 19,976 100,000 100,000
Stockholders' equity (deficit). 3,267 5,053 6,578 11,035 25,568 -- -- 31,606 (86,896) (86,896)
</TABLE>
______________________
(a) Pro forma for the Recapitalization, the Reorganization (as defined) and the
Nationwide Acquisition (as defined) as if they had occurred on January 1,
1997 with respect to the operating and other financial data.
(b) Pro forma for the Recapitalization as if it had occurred on January 1, 1998
with respect to the operating and other financial data, and as of June 30,
1998 with respect to the balance sheet.
(c) Pro forma for the Recapitalization as if it had occurred on July 1, 1997
with respect to the operating and other financial data, and as of June 30,
1998 with respect to the balance sheet.
(d) The stock based compensation charge in 1997 reflects (i) charges of $6.3
million for the difference between the fair market value of stock exchanged
by minority stockholders in connection with the Reorganization and the
recorded basis of minority stockholder interests consisting of amounts paid
by such stockholders for their stock in the Company's subsidiaries and their
allocated earnings reflected as charges to minority interest in earnings of
subsidiaries at June 30, 1997 and (ii) with respect to stock options granted
in July 1997, charges of $0.6 million representing the difference between
the fair market value of Common Stock and the exercise price of the related
options at the respective date of grant.
(e) EBITDA represents net income before depreciation and amortization, interest
expenses and income tax expense. EBITDA is not a measure of performance
under generally accepted accounting principles, and should not be considered
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of
14
<PAGE>
profitability or liquidity. The Company has included a measurement based on
EBITDA because it is one way in which the Company monitors its performance
and because it is commonly used by certain investors and analysts to (i)
analyze and compare companies on the basis of operating performance,
leverage and liquidity and (ii) determine a company's ability to service
debt. EBITDA should not be considered as an alternative to, or more
meaningful than, income from operations or cash flow as an indication of the
Company's operating performance, nor does it represent funds available for
management's discretionary use. EBITDA presented by the Company may not be
comparable to EBITDA defined and presented by other companies.
(f) Adjusted EBITDA represents net income before depreciation and amortization,
interest expense, income tax expense and the stock based compensation
charge. Adjusted EBITDA is not a measure of performance under generally
accepted accounting principles, and should not be considered as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with generally accepted
accounting principles, or as a measure of profitability or liquidity. The
Company has included a measurement based on Adjusted EBITDA because it is
one way in which the Company monitors its performance and because it is
commonly used by certain investors and analysts to (i) analyze and compare
companies on the basis of operating performance, leverage and liquidity and
(ii) determine a company's ability to service debt. In addition, certain
covenants in the Certificate of Designation are based upon a concept similar
to Adjusted EBITDA. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, income from operations or cash flow
as an indication of the Company's operating performance, nor does it
represent funds available for management's discretionary use. Adjusted
EBITDA presented by the Company may not be comparable to Adjusted EBITDA
defined and presented by other companies.
(g) Represents ratio of Adjusted EBITDA to net sales.
(h) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense the Company believes to
be representative of the interest factor.
(i) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issue costs and that portion of operating rental
expense the Company believes to be representative of the interest factor.
Preferred stock dividends consist of amounts to be paid-in-kind and
accretion of the carrying value of the Preferred Stock, which have been
"grossed up" to a pre-income tax basis to provide comparability to other
components of the ratio.
(j) Does not include centers acquired through the Nationwide Acquisition.
(k) Includes customers placing at least two orders over the previous 12 month
period.
(l) Operating working capital represents current assets, excluding cash, less
current liabilities, excluding the current portion of long-term debt and
note payable.
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<PAGE>
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation, certain statements under the sections
"Summary," "Selected Historical and Pro Forma Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and Pro Forma Consolidated Financial
Statements and the notes thereto located elsewhere herein regarding the
Company's financial position, business strategy, prospects and other related
matters, may constitute such forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Actual results could differ materially from the Company's expectations
as a result of a number of factors, including without limitation those set forth
below and those located elsewhere in this Prospectus.
In evaluating the Exchange Offer, Holders of the Initial Preferred Stock
should carefully consider the following factors in addition to the other
information contained in this Prospectus.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT
As of June 30, 1998, after giving effect to the Recapitalization, the
Company would have had $100.0 million of outstanding indebtedness, and a
stockholders' deficit of approximately $86.9 million. See "Capitalization." In
addition, the Company could have incurred additional indebtedness of up to $25.0
million under the Revolving Credit Facility. See "Capitalization." This level
of indebtedness is substantially higher than the Company's historical debt
levels and will reduce the flexibility of the Company to respond to changing
business and economic conditions. In addition, subject to the restrictions in
the New Credit Facility, the Company may incur additional senior or other
indebtedness from time to time to finance acquisitions or capital expenditures
or for other general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The New Credit Facility currently prohibits the payment of any
dividends in cash. See "Description of the Exchange Preferred Stock" and
"Description of New Credit Facility."
The Company's high degree of leverage may have important consequences for
the Company and the holders of Exchange Preferred Stock and Exchange Debentures,
including: (i) the ability of the Company to obtain additional financing for
working capital, capital expenditures, acquisitions or other purposes, if
necessary, may be impaired; (ii) a substantial portion of the Company's cash
flow will be dedicated to the payment of interest and principal on its
indebtedness and to the payment of dividends on the Exchange Preferred Stock
beginning no later than July 1, 2003 and such cash flow will not be available to
the Company for its operations and future business opportunities; (iii) the
covenants contained in the New Credit Facility and Exchange Debentures will
limit the Company's ability to, among other things, borrow additional funds,
dispose of assets or make investments and may affect the Company's flexibility
in planning for, and reacting to, changes in business conditions; (iv)
indebtedness under the New Credit Facility will be at variable rates of
interest, which will cause the Company to be vulnerable to increases in interest
rates; (v) the New Credit Facility and the Exchange Debentures contain financial
and/or restrictive covenants, which the failure to comply with may result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company, including the acceleration of the maturity of such
indebtedness; (vi) the indebtedness outstanding under the New Credit Facility is
secured by substantially all of the assets of the Company and its subsidiaries
and such indebtedness matures prior to the mandatory redemption date or maturity
of the Exchange Preferred Stock and Exchange Debentures; (vii) the Company may
be substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (viii) the Company's high degree
of leverage may make it more vulnerable to a downturn in its business or the
economy generally or limit its ability to withstand competitive pressures. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its indebtedness, and to retire the Exchange Preferred Stock,
or Exchange Debentures, at maturity it may be required to refinance all or a
portion of its existing debt or to obtain additional financing. There can be no
assurance that any such actions could be effected on a timely basis or on
satisfactory terms or that these actions would enable the Company to continue to
satisfy its capital requirements. The Company's ability to meet its debt
service and preferred stock obligations and to reduce its total indebtedness
will be dependent upon the Company's future performance, which will be subject
to general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are
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<PAGE>
beyond its control. The terms of the Company's indebtedness, including the New
Credit Facility and the Exchange Debentures also may prohibit the Company from
taking such financing or refinancing actions. See "Description of New Credit
Facility" and "Description of Exchange Debentures."
ABILITY TO MAKE DISTRIBUTIONS ON EXCHANGE PREFERRED STOCK
The ability of the Company to pay any dividends or make distributions in
respect of its capital stock is subject to applicable provisions of state law
and its ability to pay cash dividends on the Exchange Preferred Stock will be
subject to the terms of the New Credit Facility, which currently prohibits the
Company from paying dividends in cash (provided that payment of cash dividends
is permitted after July 1, 2003 subject to financial performance tests), and/or
any other indebtedness of the Company then outstanding. The ability of the
Company to comply with such conditions may be affected by events that are beyond
the control of the Company. Under Delaware law, the Company is permitted to pay
dividends on its Capital Stock, including the Exchange Preferred Stock, only out
of its surplus, or in the event that it has no surplus out of its net profits
for the year in which a dividend is declared or for the immediately preceding
fiscal year. Surplus is defined as the excess of a company's total assets over
the sum of its total liabilities plus the par value of its outstanding Capital
Stock. In order to pay dividends, the Company must have surplus or net profits
equal to the full amount of the cash dividend at the time such dividend is
declared. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay dividends on the Exchange
Preferred Stock. There can be no assurance that the assets of the Company would
be sufficient to repay all of such outstanding debt and to meet its obligations
under the Exchange Preferred Stock. Future borrowings by the Company can be
expected to contain restrictions or prohibitions on the making of distributions
by the Company on its capital stock. In addition, indebtedness outstanding
under the New Credit Facility will be secured by substantially all of the assets
of the Company (including the capital stock of its subsidiaries). The
Certificate of Designation governing the Preferred Stock permits the Company to
pay dividends in additional shares of Exchange Preferred Stock prior to January
1, 2004. The Company does not expect to pay cash dividends prior to such time
and there can be no assurance that the Company will have the funds necessary to
pay cash dividends on the Exchange Preferred Stock at any time.
SUBORDINATION
The Company's obligations with respect to the Exchange Preferred Stock (and
the Series B Preferred Stock) will be subordinated and junior in right of
payment to all present and future indebtedness and other liabilities of the
Company and its subsidiaries including the New Credit Facility, and to all
present and future Senior Stock of the Company. The Exchange Preferred Stock
will rank pari passu with all future Parity Stock. See "Description of the
Exchange Preferred Stock." As of June 30, 1998, after giving effect to the
Recapitalization, the Company would have had no outstanding Senior Stock or
Parity Stock and the Company and its subsidiaries would have had total
indebtedness and balance sheet liabilities of $118.9 million, excluding $25.0
million available for borrowing under the Revolving Credit Facility. In the
event of bankruptcy, liquidation or reorganization of the Company, the assets of
the Company will be available to pay obligations on the Exchange Preferred Stock
only after all Senior Stock and all indebtedness and other liabilities of the
Company have been paid, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Exchange Preferred Stock then outstanding. See
"Description of the Exchange Preferred Stock--Ranking." While any shares of
Exchange Preferred Stock or Series B Preferred Stock are outstanding, the
Company may not authorize, create or increase the authorized amount of any class
or series of Parity Stock or Senior Stock without the consent of the holders of
66 2/3 of the outstanding shares of Exchange Preferred Stock and Series B
Preferred Stock, provided that for the purposes of calculating such percentage,
any shares of Exchange Preferred Stock or Series B Preferred Stock held by the
Company or any affiliate thereof shall not be counted to determine such consent.
The Exchange Debentures, if issued, will be subordinated in right of
payment to all existing and future Senior Debt of the Company, including the New
Credit Facility, and will be effectively subordinated to all obligations of the
Company's subsidiaries. The Exchange Debentures will also be effectively
subordinated in right of payment to all existing and future secured indebtedness
of the Company to the extent of the value of the assets securing such
indebtedness. The Company's obligations under the New Credit Facility are
secured by a pledge of substantially all of its assets. As of June 30, 1998,
after giving effect to the Recapitalization, the Company would
17
<PAGE>
have had Senior Debt of $100.0 million (plus up to $25.0 million available for
borrowing under the Revolving Credit Facility) and the Company's subsidiaries
would have had total indebtedness and balance sheet liabilities of $118.9
million (excluding guaranties of Senior Debt and intercompany debt) all of which
is senior or effectively senior to the Preferred Stock. The New Credit Facility
and the Exchange Indenture permit the incurrence by the Company and its
subsidiaries of additional indebtedness, all of which may constitute Senior Debt
under certain circumstances. See "Description of Exchange Debentures--
Subordination."
HOLDING COMPANY STRUCTURE
The Company conducts substantially all its operations through subsidiaries.
Substantially all of the assets of the Company are owned by its subsidiaries.
As a holding company, the Company's ability to pay dividends or make
distributions on the Exchange Preferred Stock is dependent upon the receipt of
dividends or other payments from its subsidiaries. The ability of the Company's
subsidiaries to pay dividends or make other distributions to the Company will be
subject to applicable provisions of various states' laws. The Company's
subsidiaries are guarantors of the Company's obligations under the New Credit
Facility. All assets of the Company's subsidiaries will be pledged to secure
their obligations under the New Credit Facility guarantees. The Company's
rights, and the rights of holders of Exchange Preferred Stock and shares issued
pursuant to the Private Placement, to participate in the assets of any
subsidiary of the Company upon such subsidiary's liquidation or recapitalization
will be subject to the prior claims of such subsidiary's creditors, including
trade creditors. As of June 30, 1998, after giving effect to the
Recapitalization, there would have been an aggregate of approximately $18.9
million of indebtedness and other balance sheet liabilities of subsidiaries of
the Company (excluding guarantees under the New Credit Facility and intercompany
debt) to which holders of the Exchange Preferred Stock and shares issued
pursuant to the Private Placement would have been effectively subordinated in
right of payment. The New Credit Facility and the terms of the Exchange
Preferred Stock and Series B Preferred Stock limit, but do not prohibit, the
incurrence of additional indebtedness by the Company's subsidiaries.
POSSIBLE INABILITY TO MAKE REQUIRED PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange
Preferred Stock or, if issued, Exchange Debentures, may require the Company to
purchase all or a portion of such holder's Exchange Preferred Stock or Exchange
Debentures at 101% of the Liquidation Preference thereof or the principal amount
of the Exchange Debentures, as the case may be, together with accrued and unpaid
dividends or interest, if any, to the date of purchase. In the case of the
Exchange Debentures, the Trustee does not have the authority under the Exchange
Indenture to waive the covenant relating to a holder's right to require the
Company to purchase Exchange Debentures upon the occurrence of a Change of
Control. Prior to any such repurchase of the Exchange Preferred Stock or
Exchange Debentures, the Company may be required to (i) repay all or a portion
of indebtedness under the New Credit Facility or other indebtedness of the
Company or (ii) obtain certain consents to permit the repurchase, including
consents under the New Credit Facility. If the Company is unable to repay all
of such indebtedness or is unable to obtain the necessary consents, the Company
would be unable to offer to repurchase the Exchange Preferred Stock, or Exchange
Debentures, which would constitute a breach of the covenants contained in the
Certificate of Designation or the Exchange Indenture. There can be no assurance
that the Company will have sufficient funds available at the time of any Change
of Control to make any debt payment (including repurchases of Exchange Preferred
Stock or, if issued, Exchange Debentures) as described above. See "Description
of the Exchange Preferred Stock--Redemption at the Option of Holders Upon a
Change of Control" and "Description of Exchange Debentures--Repurchase at the
Option of the Holders Upon a Change of Control."
The events that constitute a Change of Control under the Certificate of
Designation or the Exchange Indenture may also be events of default under the
New Credit Facility, or other indebtedness of the Company. Such events may
permit the lenders under such debt instruments to accelerate the debt and, if
the debt is not paid, to enforce security interests in, or to commence
litigation that could ultimately result in a sale of, substantially all the
assets of the Company, thereby limiting the Company's ability to raise cash to
repurchase the Exchange Preferred Stock or, if issued, Exchange Debentures. In
such circumstances, the provisions in the Certificate of Designation, or if
applicable, the subordination provisions of Exchange Indenture would likely
prohibit payments to holders of the Exchange Preferred Stock or, if issued,
Exchange Debentures.
18
<PAGE>
LACK OF A PUBLIC MARKET FOR THE EXCHANGE PREFERRED STOCK
The Exchange Preferred Stock is being offered to Holders of the Initial
Preferred Stock. Prior to this Exchange Offer, there has been no market for the
Exchange Preferred Stock. The Company does not intend to apply for listing of
the Exchange Preferred Stock or, if issued, the Exchange Debentures on any
securities exchange or stock market. Although the Initial Purchaser has informed
the Company that it currently intends to make a market in the Exchange Preferred
Stock and, if issued, the Exchange Debentures, the Initial Purchaser is not
obligated to do so, and any such market making may be subject to certain
limitations and may be discontinued at any time without notice. The liquidity
of any market for the Exchange Preferred Stock will depend upon the number of
holders of the Exchange Preferred Stock, the interest of securities dealers in
making a market in the Exchange Preferred Stock and other factors. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Exchange Preferred Stock and, if issued, the Exchange Debentures. If the
Exchange Preferred Stock and, if issued, the Exchange Debentures, are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the market for similar
securities, general economic conditions and the financial condition of the
Company.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The payments made in connection with the Recapitalization to the Continuing
Stockholders and option holders of the Company, the repayment of the Company's
existing indebtedness and the related incurrence by the Company of indebtedness
(including obligations under the New Credit Facility and, if issued, the
Exchange Debentures) and obligations under the Exchange Preferred Stock and the
Series B Preferred Stock may be subject to review under relevant state and
federal fraudulent conveyance laws, as well as other similar laws regarding
creditors rights generally. Under these laws, if a court were to find that,
after giving effect to the Recapitalization, either (a) the Company incurred
such indebtedness with the intent of hindering, delaying or defrauding creditors
or (b) the Company received less than reasonably equivalent value or
consideration for incurring such obligations and (i) was insolvent or rendered
insolvent by reason of such transaction, (ii) was engaged in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital or (iii) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, such court
may subordinate the Exchange Debentures to presently existing and future
creditors of the Company, avoid the issuance of the Exchange Preferred Stock or
the Exchange Debentures and direct the repayment of any amounts paid thereunder
to the Company's creditors or take other action detrimental to the holders of
the Exchange Preferred Stock or the Exchange Debentures. The issuance of a
Subsidiary Guaranty in connection with the Exchange Debentures by any subsidiary
of the Company would be subject to similar analysis. See "Description of
Exchange Debentures--Subordination." There can be no assurance that a court
would not determine, regardless of whether the Company was solvent on the date
the Exchange Preferred Stock or, if issued the Exchange Debentures, were issued,
that the payments constituted fraudulent transfers on another ground. To the
extent that proceeds from the sale of the Exchange Preferred Stock are used to
repay indebtedness, or to make a distribution to a stockholder on account of the
ownership of capital stock, a court may find the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of the
obligations represented by the New Credit Facility, the Exchange Preferred Stock
and, if issued, the Exchange Debentures.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it,
management of the Company believes that upon consummation of the
Recapitalization the Company was, (i) neither insolvent nor rendered insolvent
thereby, (ii) in possession of sufficient capital to run its business
effectively and (iii) incurring debts within its ability to pay as the same
mature or become due. See "Management's Discussions and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
reaching these conclusions, the Company has relied upon various valuations and
estimates of future cash flow that necessarily involve a number of assumptions
19
<PAGE>
and choices of methodology. No assurance can be given, however, that the
assumptions and methodologies chosen by the Company would be adopted by a court
or that a court would concur with the Company's conclusions.
As of June 30, 1998, after giving effect to the Recapitalization, the
Company would have had $100.0 million of outstanding indebtedness, and the
Company would have had a stockholders' deficit of approximately $86.9 million.
POSSIBLE INABILITY TO EXPAND INTO NEW GEOGRAPHIC MARKETS
The Company intends to grow its business in large part by expanding into
new geographic regions. When entering new markets, the Company will be required
to establish or acquire suitable distribution centers, hire personnel and
establish distribution methods. To manage its expansion, the Company must
continuously evaluate the adequacy of its existing systems and procedures,
including, among others, its data processing, financial and internal control
systems and management structure. There can be no assurance that management
will adequately anticipate all of the changing demands that growth will impose
on the Company's systems, procedures and structure. Any failure to anticipate
and respond adequately to such changing demands is likely to have a materially
adverse effect on the Company. See "Business--Business Strategy."
In addition, when the Company establishes additional distribution centers
in new or existing geographic regions, such centers traditionally generate
negative EBITDA during the twenty-four to thirty-six month period immediately
following such centers' establishment. The Company believes that such negative
earnings occur because new distribution centers do not immediately possess a
revenue-generating customer base sufficient to offset the costs associated with
the establishment and ongoing operations of such centers. There can be no
assurance that, should the Company seek to establish a new distribution center,
such center will ever generate revenues sufficient to offset the cost of its
establishment and ongoing operation.
SUBSTANTIAL COMPETITION
The Company competes primarily on the basis of service, product selection
and availability and pricing, with broad-line suppliers, most of which are local
or regional and many of which employ sales representatives and feature catalogs
similar to the Company's. The Company also competes with mail order catalogs,
retail stores including superstores, specialty suppliers and industrial
suppliers. Some of the Company's competitors have greater financial resources
than the Company. There can be no assurance that additional competitors with
greater resources than the Company will not enter the industry, which could have
a material adverse effect upon the Company's operations and profitability. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success will, to a large extent, depend upon the continued
services of its executive officers. The loss of services of any of these
executive officers could materially and adversely affect the Company. There can
be no assurance that the Company will retain the services of these individuals.
In connection with the Recapitalization, the Company entered into employment
agreements with Dennis C. Bearden, the Chief Executive Officer of the Company,
and Richard E. Penick, the Company's Chief Financial Officer. See "Management--
Employment Agreements with Messrs. Bearden and Penick."
CONTROL OF COMPANY
FS&Co. controls approximately 55.2% of the voting securities of the
Company. As a result, FS&Co. has the ability to control the Company's
management, policies and financing decisions and to elect a majority of the
Company's Board of Directors. There can be no assurance that any decisions
taken by FS&Co. will be in the interests of holders of the Exchange Preferred
Stock. See "Management" and "Security Ownership of Certain Beneficial Owners."
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<PAGE>
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most computers relies on
two-digit date codes to perform computations and decision-making functions.
Commencing on January 1, 2000, these computer programs may fail from an
inability to interpret date codes properly, misinterpreting "00" as the year
1900 rather than 2000. The Company has completed the identification of all
necessary internal software changes to ensure that it does not experience any
loss of critical business functionality due to the Year 2000 issue. The Company
has already completed an assessment of all internal software, hardware and
operating systems. The Company has improved its information system capabilities
by purchasing a new system that is Year 2000 compliant. The Company does not
believe that its systems will encounter any material "Year 2000" problems. The
new system is estimated to be in place by early 1999. The Company believes that
this conversion to a new operating system will minimize the business risk of
Year 2000 issues.
The Company also relies, directly and indirectly, on the external systems
of various independent business enterprises, such as its customers, suppliers,
creditors, financial organizations, and of governments, for the accurate
exchange of data and related information. The Company could be affected as a
result of any disruption in the operation of the various third-party enterprises
with which the Company interacts. The Company is in the process of implementing
a program to assess and monitor the progress of these third parties in resolving
Year 2000 issues, and to determine whether any Year 2000 issues encountered by a
third party would pose a business risk to the Company. The Company cannot
guarantee that Year 2000 related systems issues of third parties will be
corrected in a timely manner or that the failure of these third parties to
correct these issues would not have a material adverse effect on the Company.
The total cost of the new computer system is estimated to be approximately
$1.2 million. Of this amount, $1.0 million has already been expended, $750,000
of which was capitalized. The Company has also determined that if the new
system became inoperable or otherwise encountered a Year 2000 problem, it may
purchase an upgrade to the current system, which upgrade is Year 2000 compliant.
The Company estimates it would have to spend an additional $200,000 to install
and test the upgrade.
The costs and time estimates of the Year 2000 project are based on the
Company's best estimates. There can be no guarantee that these estimates will
be achieved and that planned results will be achieved. Risk factors include,
but are not limited to, the retention of internal and external resources
dedicated to the project, the timely delivery of software corrections from
external vendors, and the successful completion of key business partners' Year
2000 projects.
CERTAIN TAX CONSIDERATIONS
In the case of a distribution on the Preferred Stock that is paid in the
form of additional shares of Preferred Stock ("Additional Preferred Shares,"
each, individually, an "Additional Preferred Share"), the fair market value of
the Additional Preferred Shares on the distribution date will be taxable for
U.S. federal income tax purposes in the same manner as a cash distribution on
the distribution date notwithstanding that the cash attributable to such
distribution will not be received by the holder until a subsequent period. In
addition, if the liquidation preference of an Additional Preferred Share exceeds
the issue price of such share (i.e., the fair market value of such share on the
distribution date) by more than a de minimis amount, then a holder thereof would
be required to treat such excess as a series of constructive distributions over
the term of the Additional Preferred Share taxable for U.S. federal income tax
purposes in the same manner as a cash distribution notwithstanding that the cash
attributable to such excess will not be received by the holder until a
subsequent period.
Actual and constructive distributions on the Exchange Preferred Stock
(which term "Exchange Preferred Stock" shall mean the Exchange Preferred Stock
and any Additional Preferred Shares that shall have been issued with respect
thereto) will be taxable for U.S. federal income tax purposes as ordinary
dividend income (and eligible for the dividends received deduction for certain
U.S. corporate holders) only to the extent paid out of current or accumulated
earnings and profits of the Company as determined for U.S. federal income tax
purposes and otherwise will be treated in the manner described under "Certain
U.S. Federal Income Tax Considerations--Taxation of the Exchange Preferred
Stock--Dividends and Dividends Received Deduction." If the Company does not
have any
21
<PAGE>
current or accumulated earnings and profits, distributions on the
Exchange Preferred Stock will constitute, first, tax-free returns on the capital
(to the extent of the holder's tax basis in the preferred in the Exchange
Preferred Stock) and then capital gain, and will not be eligible for the
dividends received deduction. There can be no assurance regarding the amount of
current and accumulated earnings and profits of the Company at the time of any
distribution on the Exchange Preferred Stock.
The exchange of Preferred Stock for Exchange Debentures will be a taxable
event, as described in "Certain U.S. Federal Income Tax Consequences--Taxation
of the Exchange Preferred Stock--Exchange of Preferred Stock for Exchange
Debentures."
CONSEQUENCES TO NON-TENDERING HOLDERS OF INITIAL PREFERRED STOCK AND
REQUIREMENTS FOR TRANSFER OF INITIAL PREFERRED STOCK
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Initial Preferred Stock. Thereafter, any Holder of
Initial Preferred Stock who does not tender its Initial Preferred Stock in the
Exchange Offer, including any Holder which is an "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company which cannot tender
its Initial Preferred Stock in the Exchange Offer, will continue to hold
restricted securities which may not be offered, sold or otherwise transferred,
pledged or hypothecated except pursuant to Rule 144 and Rule 144A under the
Securities Act or pursuant to any other exemption from registration under the
Securities Act relating to the disposition of securities, provided that an
opinion of counsel is furnished to the Company that such an exemption is
available.
22
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Preferred Stock
offered in the Exchange Offer. In consideration for issuing the Exchange
Preferred Stock as contemplated in this Prospectus, the Company will receive in
exchange Initial Preferred Stock in like principal amount, the form and terms of
which are the same in all material respects as the form and terms of the
Exchange Preferred Stock except that the Exchange Preferred Stock has been
registered under the Securities Act. The Initial Preferred Stock surrendered in
exchange for Exchange Preferred Stock will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Preferred Stock will not result
in any increase in the indebtedness of the Company.
Net proceeds from the sale of the Initial Preferred Stock pursuant to the
Offering and the shares sold pursuant to the Private Placement were $28.0
million and $12.0 million, respectively. Such proceeds, together with the
proceeds of the Common Stock Investment of $68.3 million, the borrowing under
the Term Loan Facility of $100.0 million, and cash of the Company of $6.5
million, were used to (i) make cash payments to Continuing Stockholders and
option holders of $178.3 million and bonus payments for certain employees of
$1.0 million, (ii) pay all outstanding debt under the Company's existing credit
agreement and certain other indebtedness to affiliates of the Company of $20.5
million and (iii) pay related fees and expenses of $15.0 million. Indebtedness
that was repaid from the net proceeds of the sale of Initial Preferred Stock
pursuant to the Offering and the Series B Preferred Stock sold in the Private
Placement consisted of the following as of June 30, 1998: (a) $77,271 of
borrowings and accrued interest outstanding under the Company's credit agreement
with a maturity of September 22, 1999 that included a term loan that bore
interest at a base rate plus 0.75%; (b) approximately $11.5 million of
borrowings and accrued interest outstanding under the Company's credit agreement
that included a revolving line of credit of approximately $11.0 million with
maturity of October 31, 1998 that bore interest at a eurodollar rate plus 1.5%
and a term loan of approximately $500,000 with a maturity of May 31, 2002 that
bore interest at a eurodollar rate plus 1.75%; (c) approximately $3.3 million of
borrowings and accrued interest outstanding pursuant to the Company's
indebtedness to Dennis C. Bearden, the Chief Executive Officer of the Company,
that included term loans, all of which bore interest at a rate of 10%, with
various maturity dates of June 30, 1999, December 31, 1998, October 31, 1999 and
January 31, 2000; and (d) approximately $5.6 million of borrowings and accrued
interest pursuant to the Company's indebtedness to Donald R. Hodina, President
of Nationwide Division (or an entity controlled by or affiliated with Mr.
Hodina) that included two term loans that bore interest at 9% and 10%, with
maturity dates of July 11, 2004 and July 1, 2000, respectively. See "Summary--
The Recapitalization."
DIVIDEND POLICY
The Company does not intend to pay cash dividends with respect to its
capital stock in the foreseeable future. Management anticipates that all
earnings and other cash resources of the Company, if any, will be retained for
the operation and expansion of its business and for general corporate purposes.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, its earnings,
financial condition, results of operations, level of indebtedness, capital
requirements, general business conditions and contractual restrictions on
payment of dividends, if any, as well as such other factors as the Board of
Directors may deem relevant. The Company will be prohibited by the terms of the
New Credit Facility from paying cash dividends on its capital stock and may in
the future enter into loan or other agreements or issue debt securities or
preferred stock that restrict the payment of cash dividends on its capital
stock.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
actual basis and on an as adjusted basis to give effect to the Recapitalization
as if it had occurred on June 30, 1998. This table should be read in conjunction
with "Pro Forma Financial Statements" and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
JUNE 30, 1998 ADJUSTMENTS JUNE 30, 1998
---------------- ----------------- -----------------
(dollars in thousands)
<S> <C> <C> <C>
Debt:
Notes payable, long-term debt and accrued interest $ 20,509 $ (20,509)(a) $ --
New Credit Facility...................................... -- 100,000 (b) 100,000
-------- ---------- ---------
Total debt............................................... 20,509 79,491 100,000
-------- ---------- ---------
Mandatorily redeemable PIK preferred stock,
$0.001 par value, no shares authorized, issued and
outstanding, actual; 2,000,000 shares authorized
Series A, 280,000 shares issued and outstanding,
as adjusted(c)......................................... -- 25,246 25,246(d)
Series B, 120,000 shares issued and outstanding,
as adjusted(c)........................................ -- 11,981 11,981(e)
-------- ---------- ---------
Stockholders' equity (deficit):
Common stock, $0.001 par value, 15,000,000
shares authorized, 10,000,000 shares issued and
outstanding, actual; 15,000,000 shares authorized,
5,324,503 shares issued and outstanding, as
adjusted(f)............................................. 10 (5)(g) 5
Additional paid-in-capital............................... 11,918 59,238 (h) 71,156
Treasury stock, at cost.................................. (500) 500 (i) --
Retained earnings (deficit).............................. 20,178 (178,235)(j) (158,057)
-------- --------- ---------
Total stockholders' equity (deficit).................... 31,606 (118,502) (86,896)
-------- --------- ---------
Total capitalization.................................... $ 52,115 $ (1,784) $ 50,331
======== ========= =========
</TABLE>
_______________
(a) Reflects the repayment of Company debt and accrued interest in connection
with the Recapitalization.
(b) Reflects the proceeds from New Credit Facility.
(c) The mandatorily redeemable PIK preferred stock provides that, on or prior to
July 1, 2003, dividends on such preferred stock may be paid, at the election
of the Company, in additional shares of such preferred stock.
(d) Reflects the net proceeds from the Offering.
(e) Reflects the net proceeds from the Private Placement.
(f) Does not reflect a 2.30068:1 stock split which was effected immediately
following the Recapitalization.
(g) Reflects the par value of the 7,561,355 shares of common stock converted
into the right to receive cash in the Recapitalization and the issuance of
2,969,820 shares of common stock purchased in connection with the Common
Stock Investment.
(h) Reflects the following adjustments (amounts in thousands):
<TABLE>
<S> <C>
Additional paid-in capital related to the conversion of common stock in
the Recapitalization................................................. $ (9,088)
Common Stock Investment................................................. $ 68,326
--------
Total................................................................ $ 59,238
========
</TABLE>
(i) Reflects the elimination of treasury stock.
24
<PAGE>
<TABLE>
<S> <C>
(j) Reflects the following adjustments (amounts in thousands):
Payment upon conversion of certain shares and stock options.... $ (169,236)
Transaction costs.............................................. $ (7,499)
Other costs.................................................... (1,000)
Cancellation of existing treasury stock........................ (500)
----------
Total...................................................... $ (178,235)
==========
</TABLE>
25
<PAGE>
THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The Initial Preferred Stock was issued and sold by the Company on July 8,
1998 to Salomon Brothers Inc (the "Initial Purchaser"), who subsequently resold
the Initial Preferred Stock to "qualified institutional buyers" (in reliance on
Rule 144A under the Securities Act). In connection with the issuance and sale
of the Initial Preferred Stock, the Company and the Initial Purchaser entered
into the Registration Rights Agreement pursuant to which the Company agreed to
use its best efforts to cause a registration statement with respect to the
Exchange Offer to become effective within 180 days of July 8, 1998, the date of
issuance of the Initial Preferred Stock. However, in the event that (i)
applicable interpretations of the staff of the Commission do not permit the
Company to effect such a Registered Statement, (ii) for any other reason the
Exchange Offer Registration Statement is not declared effective within 180 days
after the date of the original issuance of the Initial Preferred Stock or the
Registered Exchange Offer is not consummated within 210 days after the original
issuance of the Initial Preferred Stock, (iii) under certain circumstances, if
the Initial Purchaser so requests with respect to Securities not eligible to be
exchanged for Exchange Securities in the Registered Exchange Offer or (iv) under
certain circumstances, any holder of Securities (other than the Initial
Purchaser) is not eligible to participate in the Registered Exchange Offer or
does not receive freely tradeable Exchange Securities in the Registered Exchange
Offer other than by reason of such holder being an affiliate of the Company (it
being understood that the requirement that a Participating Broker-Dealer deliver
the prospectus contained in the Exchange Offer Registration Statement in
connection with sales of Exchange Securities shall not result in such Exchange
Securities being not "freely tradeable"), the Company will, at its cost, (a) as
promptly as practicable, file a Shelf Registration Statement covering resales of
the Securities or the Exchange Securities, as the case may be, (b) use its best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) use its best efforts to keep the Shelf Registration
Statement effective until two years after the later of (x) the Issue Date (or
until one year after such date if such Shelf Registration Statement is filed at
the request of the Initial Purchaser) or (y) the last date on which any
Affiliate of the Company was a beneficial owner of any Securities.
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. The form and terms of the
Exchange Preferred Stock are the same as the form and terms of the Initial
Preferred Stock in all material respects except that the Exchange Preferred
Stock has been registered under the Securities Act and hence does not include
certain rights to registration thereunder and does not contain transfer
restrictions. Once the Exchange Offer is consummated, the Company will have no
further obligations to register any of the Initial Preferred Stock not tendered
by the Holders for exchange. See "Risk Factors--Consequences to Non-Tendering
Holders of Initial Preferred Stock." A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Based on interpretations by the staff of the Commission set forth in
several no-action letters issued to third parties, the Company believes that
Exchange Preferred Stock issued pursuant to the Exchange Offer in exchange for
Initial Preferred Stock may be offered for resale, resold and otherwise
transferred by holders thereof without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Preferred Stock is acquired in the ordinary course of such holders'
business and such holders have no such arrangement with any person to
participate in the distribution of such Exchange Preferred Stock. However, the
Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in a no-action letter and
there can be no assurance that the Commission would make a similar determination
with respect to the Exchange Offer. However, any Holder who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Preferred Stock (i) cannot rely on the
interpretation by the staff of the Commission set forth in the above referenced
no-action letters, (ii) cannot tender its Initial Preferred Stock in the
Exchange Offer, and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Initial Preferred Stock, unless such sale or transfer is made
pursuant to an exemption from such requirements. See "Risk Factors--
Consequences to Non-Tendering Holders of Initial Preferred Stock."
In addition, each broker-dealer that receives Exchange Preferred Stock for
its own account in exchange for Initial Preferred Stock, where such Initial
Preferred Stock was acquired by such broker-dealer as a result of market-
26
<PAGE>
making activities or other trading activities and not acquired directly from the
Company, must acknowledge that it will deliver a copy of this Prospectus in
connection with any resale of such Exchange Preferred Stock. See "Plan of
Distribution."
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other transfer of Exchange Preferred Stock.
The holders of the Series B Preferred Stock, or, if issued, the Exchange
Debentures issuable in exchange therefor are not entitled to the benefits of the
Registration Rights Agreement. However, in connection with the Private
Placement, the Company entered into the Private Registration Agreement, which
provides, among other things, that the Company will, upon the request of each of
Mr. Bearden and FS&Co., file and use its best efforts to cause to become
effective registration statements for the Series B Preferred Stock, or, if
issued, Exchange Debentures issuable in exchange therefor. The Private
Registration Agreement also provides that (i) the Company will bear all costs
and expenses associated with filing the Private Registration Statements and
causing it to become effective and (ii) the Company will not file the Private
Registration Statements until any exchange offer registration statement or
resale shelf registration statement required by the Registration Rights
Agreement have ceased to be effective and are no longer required to be
effective. See "Certain Transactions--Private Placement and Registration
Rights."
TERMS OF THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all Initial Preferred Stock validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration Date. The Company
will issue one share of Exchange Preferred Stock in exchange for one share of
Initial Preferred Stock accepted in the Exchange Offer. Holders may tender some
or all of their Initial Preferred Stock pursuant to the Exchange Offer.
As of July 8, 1998, there were 280,000 shares of Initial Preferred Stock
outstanding and one registered Holder of Initial Preferred Stock. This
Prospectus, together with the Letter of Transmittal, is being sent to such
registered Holder as of , 1998.
In connection with the issuance of the Initial Preferred Stock, the Company
arranged for the Initial Preferred Stock to be issued and transferable in book-
entry form through the facilities of DTC, acting as depository. The Exchange
Preferred Stock also will be issued and transferable in book-entry form through
DTC. See "Description of Exchange Preferred Stock--Book-Entry System."
The Company shall be deemed to have accepted validly tendered Initial
Preferred Stock 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 Initial Preferred Stock for the purpose of receiving the
Exchange Preferred Stock from the Company.
If any tendered Initial Preferred Stock is not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Initial Preferred
Stock will be returned, without expense, to the tendering Holder thereof as
promptly as practicable after the Expiration Date.
Holders of Initial Preferred Stock who tender in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Initial Preferred Stock pursuant to the Exchange Offer. The Company
will pay the expenses, other than certain applicable taxes, of the Exchange
Offer. See "--Fees and Expenses."
27
<PAGE>
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean , 1998, unless the
Company in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent and the record Holders of Initial Preferred Stock of any
extension by oral or written notice, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
Such notice may state that the Company is extending the Exchange Offer for a
specified period of time or on a daily basis until 5:00 p.m., New York City
time, on the date on which a specified percentage of Initial Preferred Stock is
tendered.
The Company reserves the right to delay accepting any Initial Preferred
Stock, to extend the Exchange Offer, to amend the Exchange Offer or to terminate
the Exchange Offer and not accept Initial Preferred Stock not previously
accepted if any of the conditions set forth herein under "--Conditions" shall
have occurred and shall not have been waived by the Company by giving oral or
written notice of such delay, extension, amendment or termination to the
Exchange Agent. Any such delay in acceptance, extension, amendment or
termination will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment and the Company will extend the Exchange Offer for a period of five to
10 business days, depending upon the significance of the amendment and the
manner of disclosure to Holders of the Initial Preferred Stock, if the Exchange
Offer would otherwise expire during such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED DIVIDENDS ON THE EXCHANGE PREFERRED STOCK AND THE INITIAL PREFERRED
STOCK
Dividends on the Exchange Preferred Stock and the Initial Preferred Stock
will accrue at a rate per share of 13 1/4% per annum of the Liquidation
Preference thereof. Dividends will be payable in cash, except that on each
Dividend Payment Date occurring on or prior to July 1, 2003, dividends may be
paid, at the Company's option, by the issuance of additional shares of Exchange
Preferred Stock (including fractional shares) having an aggregate Liquidation
Preference equal to the amount of such dividends. It is not anticipated that
the Company will pay any dividends in cash for any period ending on or prior to
July 1, 2003. Holders whose Initial Preferred Stock is accepted for exchange
will receive accrued dividends thereon to, but excluding, the date of issuance
of the Exchange Preferred Stock. Such dividends will be paid with the first
dividend payment on the Exchange Preferred Stock. Dividends on the Initial
Preferred Stock accepted for exchange will cease to accrue upon cancellation of
the Initial Preferred Stock and issuance of the Exchange Preferred Stock.
Holders of Initial Preferred Stock whose Initial Preferred Stock is not
exchanged will receive the accrued dividend payable on January 1, 1999.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by Instruction 4 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Initial Preferred Stock and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Initial Preferred
Stock by causing DTC to transfer such Initial Preferred Stock into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Initial Preferred Stock may be effected through book-entry transfer
into the Exchange Agent's account at DTC, the Letter
28
<PAGE>
of Transmittal (or facsimile thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received or confirmed by the Exchange Agent at its address set forth in "--
Exchange Agent" below prior to 5:00 p.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
The method of delivery of Initial Preferred Stock 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 Initial Preferred Stock should be sent to the Company.
Only a Holder of Initial Preferred Stock may tender such Initial Preferred
Stock in the Exchange Offer. The term "Holder" with respect to the Exchange
Offer means any person in whose name Initial Preferred Stock is registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered Holder.
ANY BENEFICIAL HOLDER WHOSE INITIAL PREFERRED STOCK IS REGISTERED IN THE
NAME OF ITS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND
WHO WISHES TO TENDER SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT
SUCH REGISTERED HOLDER TO CONSENT AND/OR TENDER ON ITS BEHALF. IF SUCH
BENEFICIAL HOLDER WISHES TO TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER
MUST, PRIOR TO COMPLETING AND EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING
ITS INITIAL PREFERRED STOCK, EITHER MAKE APPROPRIATE ARRANGEMENTS TO REGISTER
OWNERSHIP OF THE INITIAL PREFERRED STOCK IN SUCH HOLDER'S NAME OR OBTAIN A
PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE TRANSFER OF
RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Initial Preferred Stock tendered pursuant thereto is tendered (i) by
a registered Holder who has not completed the box entitled "Special Payment
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by an "Eligible Guarantor
Institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, which is a member of one of the following recognized
signature guarantee programs: (i) the Securities Transfer Agents Medallion
Program (STAMP), (ii) the New York Stock Exchange Medallion Signature Program
(MSP) or (iii) the Stock Exchange Medallion Program (SEMP) (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Initial Preferred Stock listed therein, such Initial
Preferred Stock must be endorsed or accompanied by appropriate bond powers
signed as the name of the registered Holder or Holders appears on the Initial
Preferred Stock.
If the Letter of Transmittal or any Initial Preferred Stock or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Initial Preferred Stock and withdrawal of
tendered Initial Preferred Stock 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 Initial Preferred Stock not properly
tendered or any Initial Preferred Stock the Company's acceptance
29
<PAGE>
of which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Initial Preferred Stock. 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 Initial Preferred Stock 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 Initial Preferred Stock, nor shall any of them incur any liability
for failure to give such notification. Tenders of Initial Preferred Stock will
not be deemed to have been made until such irregularities have been cured or
waived. Any Initial Preferred Stock received by the Exchange Agent that is not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders
of Initial Preferred Stock, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Initial Preferred Stock that remains outstanding
subsequent to the Expiration Date or, as set forth under "--Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Initial Preferred Stock in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each Holder will represent to the Company that, among other
things, the Exchange Preferred Stock acquired pursuant to the Exchange Offer is
being obtained in the ordinary course of such Holder's business, that such
Holder has no arrangement with any person to participate in the distribution of
such Exchange Preferred Stock, and that such Holder is not an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. If the Holder is
a broker-dealer that will receive Exchange Preferred Stock for its own account
in exchange for Initial Preferred Stock that was acquired as a result of market-
making activities or other trading activities and not acquired directly from the
Company, such Holder by tendering will acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Preferred Stock. See
"Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Preferred Stock and (i) whose
Initial Preferred Stock is not immediately available, or (ii) who cannot deliver
their Initial Preferred Stock, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date, may effect a
tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Initial Preferred Stock, the certificate
number or numbers of such Initial Preferred Stock and the principal amount of
Initial Preferred Stock tendered, stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Initial Preferred Stock to be tendered
in proper form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of Initial Preferred Stock delivered
electronically) and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Initial Preferred Stock in proper form for transfer (or confirmation of a book-
entry transfer into the Exchange Agent's account at DTC of Initial Preferred
Stock delivered electronically) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to Holders who wish to tender their Initial Preferred Stock according to the
guaranteed delivery procedures set forth above.
30
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Preferred Stock may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Initial Preferred Stock in the
Exchange Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Initial Preferred
Stock to be withdrawn (the "Depositor"), (ii) identify the Initial Preferred
Stock to be withdrawn (including the certificate number or numbers and number of
shares of such Initial Preferred Stock), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Initial Preferred Stock was tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Initial Preferred Stock register the transfer of
such Initial Preferred Stock into the name of the person withdrawing the tender,
and (iv) specify the name in which any such Initial Preferred Stock is to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company whose determination shall be final and binding on
all parties. Any Initial Preferred Stock so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no Exchange
Preferred Stock will be issued with respect thereto unless the Initial Preferred
Stock so withdrawn is validly retendered. Any Initial Preferred Stock which has
been tendered but which is not accepted for payment will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Initial Preferred Stock may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Preferred Stock for,
any Initial Preferred Stock not theretofore accepted for exchange, and may
terminate or amend the Exchange Offer as provided herein before the acceptance
of such Initial Preferred Stock, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder, violates
applicable law or any applicable interpretation of the Commission; or
(b) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the sole judgment of the Company, might impair the ability of the Company to
proceed with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer.
If any such conditions exist, the Company may (i) refuse to accept any
Initial Preferred Stock and return all tendered Initial Preferred Stock to
exchanging Holders, (ii) extend the Exchange Offer and retain all Initial
Preferred Stock tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Initial Preferred Stock (see
"--Withdrawal of Tenders") or (iii) waive certain of such conditions with
respect to the Exchange Offer and accept all properly tendered Initial Preferred
Stock which has not been withdrawn or revoked. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver in a manner reasonably calculated to inform Holders of Initial Preferred
Stock of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
31
<PAGE>
In addition to the foregoing conditions, if, because of any change in
applicable law or applicable interpretations thereof by the Commission, the
Company is not permitted to complete the Exchange Offer, then the Company shall
file a Shelf Registration Statement. Thereafter, the Company's obligation to
consummate the Exchange Offer shall be terminated.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand after
4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Initial Preferred Stock, and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, are estimated in the aggregate to be approximately
$200,000, and include fees and expenses of the Exchange Agent and Transfer Agent
and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Preferred Stock pursuant to the Exchange Offer. If, however,
certificates representing Exchange Preferred Stock or Initial Preferred Stock
for shares 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 Initial Preferred Stock tendered, or if tendered Initial Preferred
Stock is registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Initial Preferred Stock 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.
32
<PAGE>
ACCOUNTING TREATMENT
The Exchange Preferred Stock will be recorded at the same carrying value as
the Initial Preferred Stock, which is face value as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss
for accounting purposes should be recognized upon consummation of the Exchange
Offer. The issuance costs incurred in connection with the Exchange Offer will
be offset against original proceeds and accreted to the redemption value of the
Exchange Preferred Stock through retained earnings through the mandatory
redemption date.
33
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected historical financial data for each of the three
years and the period ended December 31, 1997 are derived from the audited
consolidated financial statements of the Company. The selected financial data
for the years ended December 31, 1993 and 1994 and for the six month periods
ended June 30, 1997 and June 30, 1998 are derived from the unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for the fair presentation of the financial position and the results of
operations for these periods. Operating results for the six months ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1998. The selected pro forma financial data
for the year ended December 31, 1997 and the six months ended June 30, 1998 and
June 30, 1997 are derived from the pro forma financial statements included
elsewhere in this Offering Memorandum and give effect to the Recapitalization,
the Reorganization (as defined), the Common Control Mergers (as defined), and
the Nationwide Acquisition (as defined) as if they had occurred at the beginning
of the period presented with respect to the operating and other financial data,
and as of June 30, 1998 with respect to balance sheet data. The selected pro
forma data for the twelve months ended June 30, 1998 have been included because
the Company believes that the effects of the unusual events of the
Recapitalization, Reorganization, Common Control Mergers and the Nationwide
Acquisition will be given most meaningful effect, particularly in light of the
seasonality of the Company's business, when such effects are presented over a
full twelve month period. The selected pro forma financial data does not
necessarily represent what the Company's financial position and results of
operations would have been if these transactions had actually been completed as
of the dates indicated, and is not intended to project the Company's financial
position or results of operations for any future period. The information
contained in this table should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto at December 31, 1996 and
December 31, 1997 and for each of the three years in the period ended December
31, 1997, the unaudited consolidated financial statements at June 30, 1998 and
for the three months ended June 30, 1997 and 1998 and the pro forma consolidated
financial statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997(a)
-------- -------- --------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $39,657 $56,873 $80,115 $103,113 $146,166 $166,011
Cost of sales................... 29,516 42,215 59,201 75,552 105,636 120,300
------- ------- ------- -------- -------- --------
Gross profit.................... 10,141 14,659 20,915 27,561 40,530 45,711
Operating expenses:
Selling, general and
administrative expenses..... 7,832 11,225 15,256 17,271 22,264 26,041
Stock based compensation
charges(d).................. -- -- -- -- 6,969 6,969
------- ------- ------- -------- -------- --------
Total operating expenses........ 7,832 11,225 15,256 17,271 29,233 33,010
------- ------- ------- -------- -------- --------
Operating income................ 2,309 3,434 5,659 10,290 11,297 12,701
Interest expense(e)............. 263 461 790 865 1,147 9,263
------- ------- ------- -------- -------- --------
Income before income taxes
and minority interest.......... 2,046 2,973 4,869 9,425 10,150 3,438
Provision for income taxes...... 602 705 1,359 2,798 6,370 4,056
------- ------- ------- -------- -------- --------
Income before minority
interest....................... 1,444 2,268 3,510 6,627 3,780 (618)
Minority interest in
earnings of subsidiaries....... 321 482 682 1,237 848 --
------- ------- ------- -------- -------- --------
Net income...................... $ 1,123 $ 1,786 $ 2,829 $ 5,390 $ 2,932 $ (618)
======= ======= ======= ======== ======== ========
<CAPTION>
TWELVE
MONTHS
ENDED
SIX MONTHS ENDED JUNE 30, JUNE 30,
----------------------------------------------- ----------
PRO PRO
FORMA FORMA
1997 1998 1998(b) 1998(a)
-------- -------- ------------ ----------
OPERATING DATA:
<S> <C> <C> <C> <C>
Net sales....................... $58,761 $94,182 $ 94,182 $183,093
Cost of sales................... 42,468 68,598 68,598 132,912
------- ------- -------- --------
Gross profit.................... 16,293 25,584 25,584 50,181
Operating expenses:
Selling, general and
administrative expenses.... 9,097 14,182 14,182 27,585
Stock based compensation
charges(d)................. 6,343 -- -- 626
------- ------- -------- --------
Total operating expenses........ 15,440 14,182 14,182 28,211
------- ------- -------- --------
Operating income................ 853 11,402 11,402 21,970
Interest expense(e)............. 323 719 4,631 9,263
------- ------- -------- --------
Income before income taxes
and minority interest.......... 530 10,683 6,771 12,707
Provision for income taxes(f)... 2,139 4,145 2,580 5,344
------- ------- -------- --------
Income before minority
interest....................... (1,609) 6,538 4,191 7,363
Minority interest in
earnings of subsidiaries....... 848 -- -- --
------- ------- -------- --------
Net income...................... $(2,457) $ 6,538 $ 4,191 $ 7,363
======= ======= ======== ========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEAR EDENDE DECEMBER 31,
----------------------------------------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997(a)
-------- ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
OTHER FINANCIAL DATA:
EBITDA(g)....................... $ 2,475 $ 3,705 $ 6,031 $ 10,723 $ 12,066 $ 13,685
Adj. EBITDA(h).................. $ 2,475 $ 3,705 $ 6,031 $ 10,723 $ 19,035 $ 20,654
Adj. EBITDA margin(i)........... 6.2% 6.5% 7.5% 10.4% 13.0% 12.4%
Depreciation &
amortization(j)................ $ 166 $ 271 $ 372 $ 433 $ 769 $ 984
Capital expenditures............ $ 525 $ 524 $ 461 $ 513 $ 1,534 $ 1,686
Ratio of Adj. EBITDA to
interest expense............... 9.4x 8.0x 7.6x 12.4x 16.6x 2.2x
Ratio of total debt to Adj
EBITDA......................... 1.4x 1.9x 1.6x 1.1x 1.0x --
Ratio of earnings to fixed
charges(k)..................... 6.5x 5.5x 5.6x 8.7x 7.1x 1.3x
Ratio of earnings to fixed
charges and preferred stock
dividends(l)................... -- -- -- -- -- 0.7x
OTHER DATA:
Distribution centers............ 9 13 17 20 29 --
Comparable center sales
growth(m)...................... 23.0% 26.7% 28.2% 21.0% 20.8% --
Active customers(n)............. N/A N/A 13,436 16,659 24,521 --
CASH FLOW DATA:
Net cash provided by (used in)
operating activities............ $ (264) $(2,529) $ (589) $ 785 $ 6,304 --
Net cash provided by (used in)
investing activities............ (520) (436) (458) (493) (9,575) --
Net cash provided by (used in)
financing activities............ 1,563 4,185 1,088 2,083 4,946 --
BALANCE SHEET DATA:
Working capital................. $ 5,222 $ 8,799 $ 9,413 $ 14,456 $ 25,617 --
Operating working capital(o).... 5,128 9,271 13,778 20,065 29,487 --
Total assets.................... 12,353 19,630 22,981 32,936 57,254 --
Total debt...................... 3,526 6,993 9,385 12,253 18,997 --
Stockholders' equity............ 3,267 5,053 6,578 11,035 25,568 --
(deficit)
</TABLE>
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
SIX MONTHS ENDED JUNE 30, JUNE 30,
---------------------------------------------------------------
PRO PRO
FORMA FORMA
1997 1998 1998(b) 1998(a)
------ ------ -------- ------------
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(g).................................. $ 1,099 $11,878 $ 11,878 $ 22,968
Adj. EBITDA(h)............................. $ 7,442 $11,878 $ 11,878 $ 23,594
Adj. EBITDA margin(i)...................... 12.7% 12.6% 12.6% 12.9%
Depreciation & amortization(j)............. $ 247 $ 476 $ 476 $ 998
Capital expenditures....................... $ 984 $ 500 $ 500 $ 1,050
Ratio of Adj. EBITDA to
interest expense.......................... 23.0x 16.5x 2.6x 2.5x
Ratio of total debt to Adj
EBITDA.................................... -- -- -- 4.2x
Ratio of earnings to fixed
charges(k)................................ 2.0x 11.0x 2.4x 2.3x
Ratio of earnings to fixed
charges and preferred stock
dividends(l).............................. -- -- 1.2x 1.2x
OTHER DATA:
Distribution centers....................... 20 30 -- --
Comparable center sales growth(m).......... -- -- -- --
Active customers(n)........................ -- -- -- --
CASH FLOW DATA:
Net cash provided by (used in) operating
activities................................. $(4,851) $(2,464) -- --
Net cash provided by (used in) investing
activities................................. (302) (460) -- --
Net cash provided by (used in) financing
activities................................. 2,498 629 -- --
BALANCE SHEET DATA:
Working capital............................ -- $30,007 $ 37,293 $ 37,293
Operating working capital(o)............... -- 38,967 37,293 37,293
Total assets............................... -- 69,512 69,591 69,591
Total debt................................. -- 19,976 100,000 100,000
Stockholders' equity....................... -- 31,606 (86,896) (86,896)
(deficit)
</TABLE>
______________________
(a) Pro forma for the Recapitalization, the Reorganization (as defined) and the
Nationwide Acquisition (as defined) as if they had occurred on January 1,
1997 with respect to the operating and other financial data.
(b) Pro forma for the Recapitalization as if it had occurred on January 1, 1998
with respect to the operating and other financial data, and as of June 30,
1998 with respect to the balance sheet.
(c) Pro forma for the Recapitalization as if it had occurred on July 1, 1997
with respect to the operating and other financial data, and as of June 30,
1998 with respect to the balance sheet.
(d) Reflects (i) charges of $6.3 million for the difference between the fair
market value of stock exchanged by minority stockholders in connection with
the Reorganization and the recorded basis of minority stockholder interests
consisting of amounts paid by such stockholders for their stock in the
Company's subsidiaries and their allocated earnings reflected as charges to
minority interest in earnings of subsidiaries at June 30, 1997 and (ii) with
respect to stock options granted in July 1997, charges of $0.6 million
representing the difference between the fair market value of Common Stock
and the exercise price of the related options at the respective date of
grant.
(e) Interest expense includes amortization of deferred financing fees.
(f) As part of the Common Control Mergers (as defined) the Company acquired
certain operations that were not previously subject to federal income taxes.
Income from these operations subsequent to June 30, 1997 transaction are
subject to federal income taxes.
35
<PAGE>
(g) EBITDA represents net income before depreciation and amortization, interest
expense and income tax expense. EBITDA is not a measure of performance under
generally accepted accounting principles, and should not be considered as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity. The Company has included a measurement based on EBITDA because
it is one way in which the Company monitors its performance and because it
is commonly used by certain investors and analysts to (i) analyze and
compare companies on the basis of operating performance, leverage and
liquidity and (ii) determine a company's ability to service debt. EBITDA
should not be considered as an alternative to, or more meaningful than,
income from operations or cash flow as an indication of the Company's
operating performance, nor does it represent funds available for
management's discretionary use. EBITDA presented by the Company may not be
comparable to EBITDA defined and presented by other companies.
(h) Adjusted EBITDA represents net income before depreciation and amortization,
interest expense, income tax expense and the stock based compensation
charge. Adjusted EBITDA is not a measure of performance under generally
accepted accounting principles, and should not be considered as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with generally accepted
accounting principles, or as a measure of profitability or liquidity. The
Company has included a measurement based on Adjusted EBITDA because it is
one way in which the Company monitors its performance and because it is
commonly used by certain investors and analysts to (i) analyze and compare
companies on the basis of operating performance, leverage and liquidity and
(ii) determine a company's ability to service debt. In addition, certain
covenants in the Certificate of Designation are based upon a concept similar
to Adjusted EBITDA. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, income from operations or cash flow
as an indication of the Company's operating performance, nor does it
represent funds available for management's discretionary use. Adjusted
EBITDA presented by the Company may not be comparable to Adjusted EBITDA
defined and presented by other companies.
(i) Represents ratio of Adjusted EBITDA to net sales.
(j) The pro forma data include amortization of deferred financing fees
associated with the Recapitalization.
(k) For the purposes of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, the amortization of debt issue
costs and that portion of operating rental expense the Company believes to
be representative of the interest factor.
(l) For the purpose of determining the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of earnings before income taxes
and fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issue costs and that portion of operating rental
expense the Company believes to be representative of the interest factor.
Preferred Stock dividends consist of amounts to be paid-in-kind and
accretion of the carrying value of the Preferred Stock, which have been
"grossed up" to a pre-income tax basis to provide comparability to other
components of the ratio.
(m) Does not include centers acquired through the Nationwide Acquisition.
(n) Includes those customers who have placed at least two orders over the
previous 12 month period.
(o) Operating working capital represents current assets, excluding cash, less
current liabilities, excluding the current portion of long-term debt and
note payable.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's consolidated historical results
of operations and financial condition should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Offering Memorandum. The following discussion and analysis
covers periods before completion of the Recapitalization. See "Risk Factors"
and Pro Forma Consolidated Financial Statements for a further discussion
relating to the effect that the transactions described herein may have on the
Company.
RECENT DEVELOPMENTS AND OUTLOOK
The Company is a leading distributor of maintenance, repair and operations
("MRO") supplies to the $2 billion multifamily apartment market. Century offers
a broad selection of high quality maintenance and repair items, with prompt,
free delivery provided through the Company's extensive distribution network.
The Company currently supplies over 4,100 name brand and private label items,
including plumbing, hardware, electrical, HVAC and lighting products, to over
25,000 active customers in the United States.
Century has reported increased annual net sales, operating income and
Adjusted EBITDA in every year since its inception. Over the past five years,
net sales have increased from $39.7 million in 1993 to $146.2 million in 1997,
representing a compound annual growth rate of 38.6%. Century has achieved this
growth through increasing sales at its existing distribution centers, by opening
new distribution centers and through the acquisition of Nationwide Apartment
Supply, Inc. Over the same time period, Century increased operating income from
$2.3 million in 1993 to $11.3 million in 1997. Since 1993, annual comparable
center sales growth has ranged between 20.8% and 28.2%. In addition, net sales
from centers opened prior to 1993 have increased from $36.0 million in 1993 to
$77.7 million in 1997. The Company believes that it has increased sales and
gained market share from local and regional MRO providers, as the Company is
able to provide a broader product line and higher level of service than most of
these competitors. As part of its strategy of expanding into new geographic
markets, the Company has opened 14 new distribution centers over the past five
years. These centers contributed, in total, over $48.4 million to Century's
1997 net sales. In July 1997, the Company acquired Nationwide, which added 11
distribution centers principally in the midwestern United States, three of which
were consolidated into existing Century centers. Since the acquisition in July
1997, Nationwide has contributed $18.9 million in net sales. Net sales and
operating income for 1997, assuming the Nationwide acquisition had occurred on
January 1, 1997, totaled $166.0 million and $12.7 million, respectively,
reflecting annual net sales of $38.9 million and operating income of $3.5
million for Nationwide in 1997. See the Combined Financial Statements of
Nationwide Apartment Supply, Inc. contained elsewhere in this Prospectus and "--
Summary Historical and Pro Forma Financial Information" for certain cash flow
information.
From 1993 to 1997, the Company's Adjusted EBITDA increased from $2.5
million to $19.0 million, reflecting an improvement in Adjusted EBITDA margin
from 6.2% to 13.0% over the same period on an increasing sales base. The
increase in Adjusted EBITDA margin has primarily been driven by operating
efficiencies realized as revenue growth at the Company's distribution centers
has outpaced growth in the centers' operating costs and by the Company's ability
to obtain better pricing from its suppliers as its purchase volume has
increased. Historically, a typical center breaks even within three years of
opening, and operating margins continue to improve as the center's revenue
grows.
For the six months ended June 30, 1998, the Company reported net sales,
operating income and adjusted EBITDA of $94.2 million, $11.4 million and $11.9
million, respectively, representing increases of 22.2%, 1,237% and 34.5%,
respectively, over the six months ended June 30, 1997, pro forma for the
Nationwide Acquisition. During the first six months of 1998, the Company opened
one new distribution center in Fort Worth, Texas. The Company plans on opening
at least two additional centers in the remainder of 1998.
On June 30, 1997, the Company acquired all of the outstanding minority
shareholder interests in each of the Company's subsidiaries in exchange for
common stock of the Company (the "Reorganization"). The exchanges were
completed at fair market value and resulted in the Company issuing 1,681,324
shares of common stock to the minority shareholders and recording compensation
expense of $6.3 million.
37
<PAGE>
On June 30, 1997, the Company purchased all of the assets of the general
maintenance supply operations of Century Airconditioning Supply, Inc. ("CAC"),
which were located in San Antonio and Austin, Texas (such acquired assets to be
called "SA/A"), with 1,702,703 shares of the Company's common stock. The number
of shares was determined based on the fair value of the operations acquired
divided by the fair value per share of common stock of the Company. Also on
June 30, 1997, the Company sold one of its subsidiaries, Air Management, Inc.
("Air Management"), which is in the heating and air conditioning business, to
CAC for $215,000. The sales price was based on the fair value of the subsidiary
sold. The transactions (the "Common Control Mergers") were conducted between
the Company and CAC, which are under common control. Therefore the transactions
were recorded at historical cost in a manner similar to pooling of interests.
As part of the Common Control Mergers, the operations acquired were not
previously subject to federal income taxes. Income from these operations
subsequent to June 30, 1997 transaction are subject to federal income taxes.
On July 8, 1998, the Company consummated the Recapitalization. The
Recapitalization consisted of (i) the merger of Century Acquisition Corporation,
an entity formed by affiliates of Freeman Spogli & Co. LLC ("FS&Co.") with and
into the Company, with the Company as the surviving entity, (ii) a $68.3 million
investment by FS&Co., William C. Johnson, a director of the Company, and The
Parthenon Group, in cash for common stock of the Company (the "Common Stock
Investment") with the Current Stockholders retaining common stock with a value
of $54.2 million, (iii) the $12.0 million Private Placement, (iv) the $28.0
million Offering and (v) the $125.0 million New Credit Facility. The
transactions constituting the Recapitalization resulted in no change in the
basis of the Company's assets and liabilities because less than "substantially
all" of the common stock of the Company was acquired. See "Summary--
Recapitalization."
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain income
and expense items expressed in dollars and as a percentage of the Company's net
sales.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales.......................................... $ 80,115 $ 103,113 $ 146,166 $ 58,761 $ 94,182
Cost of sales...................................... 59,201 75,552 105,636 42,468 68,598
-------- --------- --------- -------- --------
Gross profit..................................... 20,915 27,561 40,530 16,293 25,584
Selling, general and administrative expenses....... 15,256 17,271 22,264 9,097 14,182
Stock compensation charges......................... -- -- 6,969 6,343 --
-------- --------- --------- -------- --------
Total operating expenses......................... 15,256 17,271 29,233 15,440 14,182
-------- --------- --------- -------- --------
Operating income................................... $ 5,659 $ 10,290 $ 11,297 $ 853 $ 11,402
======== ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 73.9 73.3 72.3 72.3 72.8
-------- --------- ---------- ------- --------
Gross profit..................................... 26.1 26.7 27.7 27.7 27.2
Selling, general and administrative expenses....... 19.0 16.7 15.2 15.5 15.1
Stock compensation charges......................... -- -- 4.8 10.8 --
-------- --------- ---------- -------- --------
Total operating expenses........................... 19.0 16.7 20.0 26.3 15.1
-------- --------- --------- -------- --------
Operating income................................... 7.1% 10.0% 7.7% 1.4% 12.1%
======== ========= ========= ======== ========
</TABLE>
38
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales for the first six months of 1998 were $94.2 million, an increase
of $35.4 million or 60.3% over the first six months of 1997. This increase in
net sales was primarily due to comparable center growth, the acquisition of
Nationwide and the opening of a new distribution center. The Nationwide
Acquisition added 11 new centers (three of which were consolidated into existing
centers in November 1997) and contributed $18.2 million to incremental net sales
in the first six months of 1998. Additionally, a new center in Fort Worth,
Texas was opened in the first quarter 1998.
The Company's gross profit for the first six months of 1998 was $25.6
million, an increase of $9.3 million or 57.0% over the first six months of 1997.
As a percentage of net sales, the Company's gross profit decreased to 27.2% in
the first six months of 1998 from 27.7% in the first six months of 1997. This
decrease in gross profit as a percentage of net sales was due to the increase in
sales of HVAC products over the prior period, which have a lower margin that the
Company's other products.
Selling, general and administrative expense, consisting primarily of
payroll, occupancy related and vehicle base expenses totaled $14.2 million in
the first six months of 1998, an increase of $5.1 million or 55.9% over the
first six months of 1997. Of this, $2.8 million was attributable to the
Nationwide Acquisition. As a percentage of net sales, selling, general and
administrative expense decreased to 15.1% in the first six months of 1998 from
15.5% in the first six months of 1997. This decrease was primarily driven by
improved efficiencies realized after the Nationwide purchase and by the
continued leveraging of the Company's infrastructure.
Interest expense for the first six months of 1998 was $0.7 million, an
increase of $0.4 million or 122.6% from the first six months of 1997, primarily
due to the additional debt incurred in the purchase of Nationwide. Following
the Recapitalization, the Company will have substantially higher interest
expense. See "--Liquidity and Capital Resources" and "Pro Forma Consolidated
Financial Statements."
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for 1997 were $146.2 million, an increase of $43.1 million or
41.8% over 1996. This increase in net sales was primarily due to comparable
center growth, the acquisition of Nationwide and the opening of new distribution
centers. Net sales from centers opened before 1996 increased $20.7 million or
20.8% from 1996 to 1997 due to increases in market share. The Nationwide
Acquisition added 11 new centers (three of which were consolidated into existing
centers in November 1997) and contributed $18.9 million to net sales in 1997.
Additionally, a total of four new centers were opened in 1996 and 1997, which
contributed an incremental $3.1 million in net sales in 1997.
The Company's gross profit for 1997 was $40.5 million, an increase of $13.0
million or 47.1% over 1996. As a percentage of net sales, the Company's gross
profit increased to 27.7% in 1997 from 26.7% in 1996. The Company has been able
to improve its gross profit margin through lower material cost and increased
purchase discounts. This improvement was offset to some extent by the
acquisition of Nationwide, which historically has had lower gross margins than
Century.
Selling, general and administrative expense, consisting primarily of
payroll, occupancy related and vehicle base expenses totaled $22.3 million in
1997, an increase of $5.0 million or 28.9% over 1996. Of this amount, $3.0
million was attributable to the Nationwide Acquisition. As a percentage of net
sales, selling, general and administrative expense decreased to 15.2% in 1997
from 16.8% in 1996. This decrease was primarily driven by improved efficiencies
realized after the Nationwide purchase and by the continued leveraging of the
Company's infrastructure.
Stock based compensation charges in 1997 reflected (i) charges of $6.3
million for the difference between the fair market value of stock exchanged by
minority stockholders in connection with the Reorganization and the recorded
basis of minority stockholder interests consisting of amounts paid by such
stockholders for their stock in the Company's subsidiaries and their allocated
earnings reflected as charges to minority interest in earnings of subsidiaries
and (ii) with respect to stock options granted in 1997, charges of $0.6 million
representing the
39
<PAGE>
difference between the fair market value of Common Stock and the exercise
price of the related options at the respective date of grant.
Interest expense for 1997 was $1.1 million, an increase of $0.3 million or
32.7% from 1996, primarily due to the additional debt incurred in the purchase
of Nationwide. Following the Recapitalization, the Company will have
substantially higher interest expense. See "--Liquidity and Capital Resources"
and "Pro Forma Consolidated Financial Statements."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for 1996 were $103.1 million, an increase of $23.0 million or
28.7% over 1995. The increase in net sales was primarily due to continued
market penetration and new center openings. Comparable center sales increased
21.0% from 1995 to 1996, due to increased market share. In addition, new
centers were opened in three markets in 1996.
The Company's gross profit for 1996 was $27.6 million, an increase of $6.6
million or 31.8% over 1995. As a percentage of net sales, gross profit increased
to 26.7% in 1996 from 26.1% in 1995. The increase in the Company's gross profit
margin was primarily attributable to greater purchasing efficiencies.
Selling, general and administrative expense for 1996 was $17.3 million, an
increase of $2.0 million or 13.2% over 1995. This increase was primarily due to
new center openings. As a percentage of net sales, selling, general and
administrative expense decreased to 16.7% in 1996 from 19.0% in 1995, due to the
continued leveraging of the Company's existing infrastructure.
Interest expense for 1996 was $0.9 million, an increase of $0.1 million or
9.5% from 1995. This increase was primarily a result of slightly higher overall
levels of borrowing in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been the funding of its
continued distribution center expansion program, inventory requirements and the
development and implementation of customized information systems. From 1995 to
1997, the Company opened eight new distribution centers. The Company has
financed its growth through a combination of internally generated funds and
borrowings.
In fiscal 1997, net cash provided by operating activities was $6.3 million,
increasing from $0.8 million in fiscal 1996 due primarily to increasing sales
volume. Net cash used for investing activities in fiscal 1997 was $9.6 million
and was comprised of capital expenditures and Nationwide Acquisition expenses,
partially offset by sales of property. The Company currently anticipates that
its capital expenditures for 1998 and 1999 will be $1.5 million and $2.0
million, respectively. Net cash provided by financing activities in fiscal 1997
was $4.9 million and was comprised primarily of net borrowings.
In the first six months of 1998, net cash used in operating activities was
$2.5 million, decreasing from $4.9 million net cash used in the first six months
of 1997 due primarily to increasing sales volume. Net cash used for investing
activities in the first six months of 1998 was $0.5 million and was comprised of
capital expenditures and was partially offset by sales of property. Net cash
provided by financing activities in the first six months of 1998 was $0.6
million.
Inventories were $29.8 million as of June 30, 1998 and $23.9 million at the
end of fiscal 1997. In order to meet the needs of its customers, the Company
must maintain inventories sufficient to permit same day or next day filling of
most orders. The Company anticipates that its inventory levels will continue to
increase primarily as a result of higher sales volumes and new center openings.
Trade accounts receivable, net of allowances were $24.6 million at June 30, 1998
and $15.0 million at the end of fiscal 1997. The Company generally offers 30-
day credit terms to its customers. The Company's working capital requirements
are typically higher in the second and third quarters to meet seasonal demand.
This is due primarily to the fact that more people move during the summer months
when school is out, causing apartment managers to purchase more supplies to make
apartments ready for
40
<PAGE>
new occupants. Also, hot summer months translate into a higher volume of HVAC
sales due to the need for air conditioning parts.
The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings under the Revolving Credit Facility,
will be sufficient to fund its debt service obligations and implement its growth
strategy over the next several years. The Company has outstanding indebtedness
consisting of borrowings of $100.0 million under the Term Loan Facility. In
addition to its operating cash flow, the Company has access to a total of $25.0
million through the Revolving Credit Facility. The Tranche A Term Facility will
mature on the fifth anniversary of initial borrowing, and the Tranche B Term
Facility will mature on the seventh anniversary of initial borrowing. Annual
required principal payments on the Term Loan Facility prior to the third
anniversary of initial borrowing will range from $3.6 million to $7.6 million,
and will be $12.6 million, $14.6 million, $23.0 million and $34.0 million in the
fourth through seventh years, respectively. The Revolving Credit Facility will
mature on the fifth anniversary of initial borrowing. The loans under the New
Credit Facility are secured by a first priority security interest in
substantially all tangible and intangible assets of the Company and its
subsidiaries (including the capital stock of the subsidiaries). See
"Description of New Credit Facility."
In connection with the Recapitalization, the Company issued 280,000 shares
of its Initial Preferred Stock with an aggregate liquidation preference of $28
million, and 120,000 shares of preferred stock issued pursuant to the Private
Placement, with an aggregate liquidation preference of $12.0 million. At the
election of the Company, dividends on the Initial Preferred Stock or the
Exchange Preferred Stock, as the case may be, may be paid in kind until July 1,
2003 and thereafter must be paid in cash. The New Credit Facility currently
prohibits the payment of cash dividends on the Exchange Preferred Stock. The
Exchange Preferred Stock is mandatorily redeemable upon a change of control and
on July 1, 2010. See "Description of the Exchange Preferred Stock."
The Company is a holding company and relies on dividends and other
distributions from its subsidiaries as its primary source of liquidity. The
Company does not have and in the future may not have any assets other than the
capital stock of its subsidiaries. The ability of subsidiaries of the Company
to make payments to the Company when required may be restricted by law and
restricted or prohibited under the terms of the New Credit Facility and future
indebtedness of the Company. No assurance can be made that subsidiaries of the
Company will be able to pay cash dividends or make other distributions to the
Company. See "Risk Factors--Ability to Make Distributions on Exchange Preferred
Stock" and "--Holding Company Structure."
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most computers relies on
two-digit date codes to perform computations and decision-making functions.
Commencing on January 1, 2000, these computer programs may fail from an
inability to interpret date codes properly, misinterpreting "00" as the year
1900 rather than 2000. The Company has completed the identification of all
necessary internal software changes to ensure that it does not experience any
loss of critical business functionality due to the Year 2000 issue. The Company
has already completed an assessment of all internal software, hardware and
operating systems. The Company has improved its information system capabilities
by purchasing a new system that is Year 2000 compliant. The Company does not
believe that its systems will encounter any material "Year 2000" problems. The
new system is estimated to be in place by early 1999. The Company believes that
this conversion to a new operating system will minimize the business risk of
Year 2000 issues.
The Company also relies, directly and indirectly, on the external systems
of various independent business enterprises, such as its customers, suppliers,
creditors, financial organizations, and of governments, for the accurate
exchange of data and related information. The Company could be affected as a
result of any disruption in the operation of the various third-party enterprises
with which the Company interacts. The Company is in the process of implementing
a program to assess and monitor the progress of these third parties in resolving
Year 2000 issues, and to determine whether any Year 2000 issues encountered by a
third party would pose a business risk to the Company. The Company cannot
guarantee that Year 2000 related systems issues of third parties will be
corrected in a timely manner or that the failure of these third parties to
correct these issues would not have a material adverse effect on the Company.
41
<PAGE>
The total cost of the new computer system is estimated to be approximately
$1.2 million. Of this amount, $1.0 million has already been expended, $750,000
of which was capitalized. The Company has also determined that if the new system
became inoperable or otherwise encountered a Year 2000 problem, it may purchase
an upgrade to the current system, which upgrade is Year 2000 compliant. The
Company estimates it would have to spend an additional $200,000 to install and
test the upgrade.
The costs and time estimates of the Year 2000 project are based on the
Company's best estimates. There can be no guarantee that these estimates will
be achieved and that planned results will be achieved. Risk factors include,
but are not limited to, the retention of internal and external resources
dedicated to the project, the timely delivery of software corrections from
external vendors, and the successful completion of key business partners' Year
2000 projects.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 129 Disclosure of
Information about Capital Structure was issued in February 1997 and was adopted
as of December 26, 1997. SFAS No. 130 Reporting Comprehensive Income and SFAS
No. 131 Disclosures about Segments of an Enterprise and Related Information were
issued in June 1997. The Company will adopt SFAS No. 130 and SFAS No. 131 in
fiscal 1998 and anticipates that such adoption will not materially affect the
Company's financial statements.
42
<PAGE>
BUSINESS
GENERAL
Century Maintenance Supply, Inc. ("Century" or the "Company") is a leading
distributor of maintenance, repair, and operations ("MRO") supplies to the $2
billion multifamily apartment market segment of the $10 billion domestic MRO
market. The Company offers a broad selection of high quality MRO items, with
prompt, free delivery provided through the Company's extensive distribution
network. Century currently supplies over 4,100 name brand and private label
stock-keeping units ("SKUs"), including plumbing, hardware, electrical, heating,
ventilation and air conditioning ("HVAC") and lighting products, to over 25,000
active customer accounts. The Company markets its products to individual
apartment maintenance managers as well as to larger property management
companies which own and/or manage multiple apartment complexes. Century
provides free same-day or next-day service on virtually all orders by delivering
its products via Company-operated trucks from 30 distribution centers which are
strategically located in major metropolitan markets throughout the United
States. Since its inception in 1988, the Company has reported increased annual
net sales, operating income and Adjusted EBITDA. From 1993 to 1997 the Company
has realized compound annual sales growth of 38.6%, increased operating income
from $2.3 million in 1993 to $11.3 million in 1997 and improved Adjusted EBITDA
margins from 6.2% in 1993 to 13.0% in 1997. See footnotes (e) and (f) to "--
Summary Historical and Pro Forma Financial Information" for information with
respect to EBITDA and Adjusted EBITDA, and "--Summary Historical and Pro Forma
Financial Information" for certain cash flow information.
In July 1997, the Company acquired Nationwide Apartment Supply, Inc.
("Nationwide"), an operator of 11 distribution centers located primarily in the
midwestern United States. The Nationwide Acquisition has expanded the Company's
geographic reach, generated efficiencies through the consolidation of three
distribution centers and provided the potential for purchasing synergies and
margin improvements, as well as with what it believes is a complementary
management team. For the twelve months ended June 30, 1997, Nationwide
generated $35.0 million of annual sales, operating income of $2.5 million and
$2.8 million of EBITDA. Pro forma for the Nationwide Acquisition, the Company's
1997 net sales, operating income and Adjusted EBITDA were $166.0 million, $12.7
million and $20.7 million, respectively. See the Combined Financial Statements
of Nationwide Apartment Supply, Inc. contained elsewhere in this Prospectus and
"--Summary Historical and Pro Forma Financial Information" for EBITDA and
Adjusted EBITDA information, and for certain cash flow information.
The Company is incorporated in the state of Delaware. Its principal
executive offices are located at 9100 Winkler Drive, Houston, Texas 77017 and
its telephone number is (713) 947-6703.
BUSINESS STRATEGY
The central focus of the Company's business strategy is to provide the
highest level of customer service in the industry. The Company has historically
focused on the multifamily apartment segment of the MRO market, specifically on
two or three story, garden style apartment complexes with 75 or more units
located in major metropolitan markets. The Company believes that such apartment
complexes have more frequent maintenance requirements and generate higher
average invoice amounts than complexes with fewer units. The Company's business
strategy is based upon (i) developing and maintaining strong and enduring
customer relationships through a strong local presence, (ii) controlling the
distribution of its products to provide reliable same-day or next-day delivery,
(iii) maintaining superior fill rates in order to satisfy customer needs, and
(iv) enhancing its ability to service and secure relationships with national
accounts, including large, nationally-focused property owners and management
companies. In addition, the Company continues to realize operating efficiencies
by centralizing key corporate functions and integrating new distribution
centers.
DEVELOP AND MAINTAIN STRONG CUSTOMER RELATIONSHIPS THROUGH STRONG LOCAL
PRESENCE. Century maintains high levels of customer service through its local
outside salesforce which maintains frequent personal customer contact. The
outside salesforce is complemented by an inside salesforce which is primarily
responsible for receiving customer orders and providing technical support. In
addition, Century's products are delivered through its Company-operated fleet of
trucks, by a driver with whom the customer is typically familiar and who can
address the customer's specific needs or requests. The personalized interaction
that results from this strong local presence
43
<PAGE>
helps the Company build and maintain a loyal customer base. Century reinforces
its customer loyalty by providing value-added services, such as educational
classes and training for its customers held at most of the Company's
distribution centers. In addition, the Company participates in over 80 apartment
associations, thereby enhancing its understanding of and presence in local
markets.
CONTROL OF DISTRIBUTION. Through its extensive network of local
distribution centers and Company-operated delivery fleet, Century is able to
control the entire distribution process. In this manner, the Company strives to
distinguish itself from many of its competitors and maintain high levels of
customer satisfaction. The Company limits the number of different parties
handling a product, which minimizes faulty deliveries and damage while reducing
delivery time. The Company guarantees same-day or next-day delivery of its
products in virtually all of its markets. Century's distribution system allows
for quicker and less costly delivery of large and heavy items, for which United
Parcel Service and similar services are not as competitively priced.
MAINTAIN HIGH FILL RATES. By carefully managing levels of inventory at
each distribution center and maintaining up to date information on customer
buying patterns, the Company estimates it is able to achieve a fill rate in
excess of 97%. The Company continually monitors the demand for all products and
adjusts inventory levels accordingly to maintain appropriate stock levels at
each distribution center in order to meet customer needs. In addition, each
distribution center is able to offer an additional 100 SKUs in order to meet
specific local needs. Maintaining high fill rates reduces the risk of losing
customers to competition and reinforces customer loyalty.
SERVICE NATIONAL ACCOUNTS. The consolidation of the apartment market has
created a new class of national customers who demand the high quality service,
broad product line, competitive pricing and national distribution capability
which Century offers. Century's high level of service and extensive network of
distribution centers has enabled the Company to develop supply relationships
with national apartment management companies and group purchasing organizations
("GPOs"). In 1995, the Company established a national salesforce to complement
its local salesforce by focusing on servicing these national customers. Of the
largest 50 property management companies, 46 are active customers of Century.
Furthermore, the Company is a preferred supplier to Buyers Access Group, a major
GPO. Sales to the Company's top five national accounts (including GPOs)
increased from 9.1% of overall sales in 1995 to 15.0% in 1997. With its core
base of national accounts and extensive network of distribution centers, Century
believes that it is better positioned to capitalize on the consolidation trends
in the industry than are smaller local and regional suppliers. The Company
plans to open additional distribution centers to expand its national presence.
See "--Growth Strategy."
MARKET OVERVIEW
The Company operates in the $10 billion MRO industry, which includes such
end-users as apartments, hotels/ motels, nursing homes, prisons, military
installations, and schools and universities. The Company currently markets
substantially all of its products to the $2 billion multifamily apartment
segment of this industry focusing specifically on markets with at least 60,000
units in apartment complexes containing more than 75 units. The Company
estimates that there are 45 such markets in the United States, of which the
Company services 30 such markets.
The MRO market is highly fragmented and has been traditionally served by a
variety of distribution channels including: numerous local or regional broad-
line suppliers, specialty and industrial suppliers, mail order catalog
companies, retail home centers, and traditional hardware stores. The apartment
MRO market is also highly fragmented with approximately 70-80% of the
distributors being local or regional and producing less than $5 million in
sales. Over the past ten years, the apartment MRO market has shifted its
purchasing from broad-line suppliers and retailers serving a broad range of end-
users and specialized suppliers serving a discrete product segment of this
market, such as plumbing, HVAC or electrical products, to distributors focused
on providing a high level of customer service and a product mix tailored to meet
the specific needs of the apartment MRO market.
The property management industry is consolidating. Over the past few
years, the top 50 national apartment management companies have increased their
share of apartment units managed. In addition, property managers are joining
national GPOs, such as Buyers Access Group, to gain the increased buying power
that large volume purchasing offers. As a result of these trends, property
management companies and GPOs are increasingly
44
<PAGE>
purchasing MRO products from national suppliers who provide broad product
selection, convenient ordering, reliable delivery and other value-added
services.
The apartment MRO market is stable and non-cyclical, as maintenance work is
required regardless of economic conditions. Maintenance managers must keep
their apartments in good repair to retain existing tenants and attract new ones
(e.g., a leaky faucet must be repaired and a vacant apartment must be
refurbished). The apartment MRO industry has been growing over the past few
years, primarily due to increased construction of new apartment buildings and
increased standard amenities in the typical apartment unit. These new features
include microwave ovens, washers/dryers, miniblinds and individual water
heaters. These trends provide increased opportunity for incremental sales for
the apartment MRO suppliers.
Labor represents a significantly larger component than supplies of the MRO
budget for a typical apartment complex. Consequently, while competitive pricing
is an important criterion for selecting a distributor, maintenance managers
value convenient ordering, reliable, prompt delivery, extensive product
selection and other value-added services that allow them to use their budgeted
man-hours most efficiently.
GROWTH STRATEGY
The Company's growth strategy is based on the following elements: (i)
continuing comparable-center sales growth; (ii) entering new geographic markets;
and (iii) actively developing strategies to enter new end-user markets.
CONTINUING COMPARABLE-CENTER SALES GROWTH. Century's strategy for
comparable-center sales growth is focused on: (i) expanding the customer base
served by existing distribution centers and (ii) gaining a larger portion of
each existing customer's MRO dollar, primarily through the selective addition of
SKUs. In each year since 1993, the Company has realized comparable center sales
growth rates ranging from 20.8% to 28.2%.
Century's comparable-center growth is primarily driven by the relationship-
building efforts of its outside salesforce, which regularly calls on prospective
customers. Once the outside salesforce makes a successful sales call, Century's
management believes that its combination of service, reliable same day/next day
delivery, high fill rate and competitive pricing allows it to gain market share
and increase its loyal customer base. Moreover, as the consolidation of the
Company's customer base continues, Century expects to supply additional
properties built or acquired by existing customers and capture a larger share
from the many local and regional competitors which currently comprise 70-80% of
the total apartment MRO market. In addition, the Company expects comparable
center sales will grow due to market growth caused by the increase in
construction of new apartment buildings and the higher standard of amenities in
the typical apartment unit.
Century's management believes that by continuing to provide superior
service to its existing customer base, it is capturing a growing portion of each
customer's MRO dollar. Century has been successful in introducing new products
into existing markets. In 1997, the Company introduced approximately 150 new
products, which contributed more than $3 million to net sales.
ENTERING NEW GEOGRAPHIC MARKETS. The Company plans to open new
distribution centers in carefully selected markets. These target markets
typically contain more than 60,000 apartment units in complexes of more than 75
units. From 1993 to 1997, the Company opened 14 new distribution centers,
generating an aggregate of $48.4 million in sales in 1997. The Company's goal
is to add at least 10 new distribution centers by the end of the year 2000. In
addition, the Company plans to extend the range of its distribution centers
through mail-order and line-haul delivery methods to locations that do not meet
the Company's criteria for a local distribution center. Line-haul delivery is a
distribution method in which freight lines deliver aggregated customer orders to
a location beyond the local delivery range, at which point the orders are
subsequently transferred to local third-party delivery services.
NEW END-USER MARKETS. The Company believes substantial growth
opportunities exist by targeting new end-user markets, which it estimates have
$8 billion in yearly sales volume. Potential new markets include high rise
apartment buildings, hotels/motels, nursing homes, prisons, military
installations, and schools and universities. The Company believes that these
new end-user markets have demands similar to those of the apartment MRO market
and can be served by the Company's present distribution channel with the
addition of certain SKUs.
45
<PAGE>
PRODUCT OFFERINGS
Century currently offers over 4,100 cataloged SKUs, providing a full range
of MRO supplies to its customers. Century continually monitors its product
offering to ensure its customers' needs are met. The Company offers high
quality name brand and private label products in the following core categories:
(i) plumbing, (ii) hardware, (iii) HVAC equipment and parts, (iv) lighting, (v)
electrical, (vi) appliances and parts, (vii) janitorial, and (viii) pool items.
Century manages its product offering to maintain turn and fill rates equal to or
higher than its principal competitors.
Century's product offering includes several private branded products which
the Company believes provide it with a distinct competitive advantage in terms
of tailored products and favorable pricing. These products, which include Sun
King(R) pool products, Boss(R) janitorial supplies, Rio(R) ceiling fans, and
DuroGuard(R) air conditioning units, accounted for 7.8% of sales in 1997. Sales
of private branded products have doubled in the past two years. The Company
plans to continue its substantial development of these products over the next
few years. Specifically, in 1999, Century anticipates it will introduce
Aspen(R) brand plumbing fixtures, and Tacoma(R) brand floor tiles.
The Company currently distributes user-friendly catalogs with approximately
4,100 cataloged items. Historically, the Company has added approximately 150
SKUs per year to its catalogs. These products are usually recommended by local
salespeople and then reviewed by a panel at Century's headquarters. Local
distribution center managers have the flexibility to offer selected non-catalog
items at their individual distribution centers. For example, Century's Denver
distribution center stocks snow shovels and ice melt.
The Company believes that its 4,100 catalogued SKUs represent those items
that are most likely to meet the everyday and ongoing needs of the apartment MRO
manager in the Company's target market. The Company's core products represent
the basic continuing requirements of the apartment maintenance person which
change little from year to year. Consequently, the Company attempts to minimize
its exposure to product obsolescence.
For the periods presented, the approximate percentages of the Company's net
sales by product category were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
PRODUCT CATEGORY 1995 1996 1997
- ---------------------------------------- ------ ------ -----
<S> <C> <C> <C>
Plumbing................................ 26.3% 23.4% 23.6%
HVAC Equipment and Parts................ 28.4 25.5 20.9
Hardware................................ 18.6 19.1 20.7
Lighting................................ 10.6 10.2 10.9
Appliances and Parts.................... 4.6 7.5 9.3
Electrical.............................. 5.0 4.6 4.3
Janitorial.............................. 3.5 3.9 3.8
Pool.................................... 2.9 3.2 2.9
Other................................... 0.1 2.6 3.6
----- ----- -----
100% 100% 100%
===== ===== =====
</TABLE>
46
<PAGE>
CUSTOMERS
The Company's customers include local and regional apartment properties as
well as larger property management companies. The Company maintains over 25,000
active accounts, an increase of more than 12,000 over the past three years.
Century defines an active account as a property that generates two or more
orders within a twelve month period.
Century's management believes its customer satisfaction is illustrated by
the recurring revenues generated from its major accounts. In 1997, sales to
four of the Company's top five customers increased by more than 30% over the
prior year.
The consolidation of the large apartment management companies is changing
the way business is conducted in the apartment MRO market. The large apartment
management companies determine overall maintenance budgets and grant preferred
provider status to suppliers with competitive pricing, exceptional quality, and
a national presence. Once a budget has been approved by a national management
company, local maintenance managers are primarily responsible for making the
actual MRO repair decisions and purchases.
Many property management companies have joined GPOs such as Buyers Access
to replicate the purchasing advantages of the larger property managers. Buyers
Access requires vendors to have a national presence in addition to a broad
product selection, competitive pricing, and a sophisticated billing system.
Century is a preferred provider to Buyers Access and eight out of the 10 largest
apartment management companies.
Management believes that the Company's business platform is transferable to
other end-users with similar products and operating efficiencies that are found
in the apartment MRO market, including the lodging, health care, government
institutions and educational facilities segments of the MRO market.
SALES AND MARKETING
Century's marketing and sales strategy is based on providing the best
possible quality service to its customers. The Company's combination of inside
and outside salesforces provides it with what it believes to be a competitive
advantage over competitors that take orders at a centralized location.
Outside Sales Staff. Century employs 116 commission-based local outside
sales personnel, who are based at the Company's distribution centers and are
responsible for maintaining close customer relationships and generating new
business through regular visits. Each local outside salesperson typically makes
15-20 sales visits per day. The outside salesforce generally does not take
customer orders, allowing it to focus on its core function. In addition, the
outside salesforce provides customers with information on products and
promotions, provides value-added services such as assistance with inventory
management and training issues, and serves as the focal point for customer
feedback.
Inside Salesforce. The Company employs 84 inside salespeople who are based
locally or regionally and are primarily responsible for receiving customer
orders and providing technical support. Additionally, the inside salespeople
provide customers information on pricing and promotions as well as installation
procedures and other critical characteristics which help them determine which
products are best suited to their specific needs. The Company encourages
customers to place all orders with the inside sales staff in order to allow the
outside sales staff to focus on building customer relationships. Providing a
local/regional inside salesforce reinforces customer relations as customers
usually place orders with the same group of salespeople, who are familiar with
the customers' needs and order history.
National Sales Force. The Company employs seven salespeople who are
responsible for fostering and maintaining relationships with national property
management companies and GPOs. The national sales force negotiates contract
terms, including pricing and minimum purchase requirements.
The Catalogs. The Century Maintenance Catalog(R) and the Century
Maintenance Supply A/C and Heating Parts Catalog(R) include over 4,100 SKUs and
are annually distributed to approximately 50,000 active and prospective
47
<PAGE>
customers. The catalogs are complete with drawings (of most products),
specifications and pricing which facilitate the ordering process and help the
customer select the appropriate product.
Educational Classes. Century provides educational classes to its customers
at most of its distribution centers. Classes are offered in the areas of basic
electrical systems, A/C and heating, appliance repair, refrigeration control
circuits, pool chemistry and EPA refrigerant recovery. Century has tested and
EPA certified over 20,000 technicians on refrigerant recovery. The Company
charges a nominal fee to cover the cost of the EPA classes, and the other
classes are offered free of charge.
Sales Terms. The Company's sales terms are generally net 30 days for
customers meeting its credit requirements.
COMPETITION
The Company believes that the principal competitive factors in the
distribution of repair and maintenance products to the apartment housing market
and similar markets are customer service, the quality of products offered,
reliability of delivery, product pricing and sales relationships. The Company
believes it competes favorably with respect to these factors.
The Company competes in each of its regional markets with a number of
suppliers, including such national firms as Wilmar Industries ("Wilmar") and
Maintenance Warehouse/America Corp. ("Maintenance Warehouse"). Wilmar is the
Company's most direct competitor in terms of product line and method of
distribution, while Maintenance Warehouse is primarily a mail-order company.
The Company believes that it distinguishes itself from these national
competitors with its local sales focus and direct delivery from its local
distribution centers. Management also believes that the Company's strategies
build a high degree of customer loyalty through its strong local market
presence. In addition, the Company competes with local or regional broad-line
suppliers, specialty and industrial suppliers, other mail order catalog
companies, retail home centers, and traditional hardware stores.
DISTRIBUTION
The Company delivers over 90% of its sales using its own fleet of trucks,
the most of any major competitor. Each truck is driven by an employee who has a
working knowledge of the distribution center's products and customers. The
Company operates its own fleet of trucks in order to maintain complete control
of the delivery process, an approach that the Company's management believes
makes it the most reliable in the industry. Management believes the additional
cost Century spends on operating its trucks is minimal considering the value-
added service it provides its customers. Delivery is free for orders of $50.00
or more. Furthermore, the industry trend toward increased order size will
benefit companies like Century which operate their own fleet of trucks since
each delivery can carry more items at little or no additional cost.
Typically, orders are placed via 1-800 or local telephone calls to one of
the Company's inside salespeople located in the nearest call center. The inside
salespeople confirm the availability of the product ordered and then enter
customer orders into the fully-computerized order processing system. In many
locations, orders placed before 10:00 a.m. are guaranteed to be delivered on the
same day. Orders placed before 5:00 p.m. are virtually always received by the
customer on the following day.
Additionally, Century ships 5% of its sales through mail order and 2% of
its sales through its line-haul delivery method.
OPERATIONS
In managing its inventory, Century seeks to maintain a steady balance
between providing the customer optimal service and limiting costs. Century has
several mechanisms in place to track, measure, replenish and optimize the use of
inventory in all Company locations, including monthly tracking, physical counts,
and cycle counting. In 1997, the Company estimates that it maintained an
average fill rate of over 97% while achieving an inventory turnover of 5.6x.
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Century's distribution centers are monitored monthly by the finance,
operations, and purchasing departments at corporate headquarters. Each center
is measured on deliveries, credits, expenses, customer contact, total sales,
inventory and surplus inventory dollars, and the percentage of non-catalog and
"dead" stock product. In addition, locations are graded on sales/inventory
ratios and inventory turnover. Furthermore, beginning in 1995, Century
instituted a cycle count program. All Century locations are required to
physically count from 50 - 100 items four days per week, or approximately 200
days per year. The Nationwide distribution centers will implement a cycle
counting program upon conversion to the new MIS system. See "--MIS System."
SUPPLIERS AND PURCHASING
Century currently purchases products from approximately 600 vendors. In
1997, no Company vendor accounted for more than 5% of purchases in 1997, and the
top ten vendors accounted for less than 35% of total purchases.
The Company's use of volume purchasing has enabled it to benefit from
favorable pricing and payment terms in the past. The benefit the Company
derives from volume-based terms is expected to increase as a result of increased
sales volume and from the implementation of a new centralized purchasing system,
expected to be completed in early 1999.
The Company's management believes it has good relationships with its
vendors and, to date, has not experienced any difficulty obtaining products in
sufficient quantities at competitive prices.
MIS SYSTEM
Century's management and information system is a comprehensive sales,
order-entry, inventory and reporting system. The current hardware and software
configuration is applied on a regional basis, to accommodate local and regional
market conditions, and to achieve desired processing response times and
ultimately enhance service levels. Presently, each regional reporting area has
its own distinct database and network.
The capabilities of the Century system allow the Company to analyze
historical customer buying patterns, in addition to managing the sales, credit
and collections, order-entry and financial reporting functions. Optimal
inventory levels are calculated real-time on a per SKU basis.
Century is in the midst of installing a new fully integrated and
centralized system, which will provide all of the capabilities of the old
system, as well as integrate the whole Company together on one database and
network. The new system is expected to increase profitability through the
centralization of the purchasing, credit and collections functions. The
Company's system will include a second server, providing backup processing
capability. Together with the new operating software, Century will have the
additional capabilities of a Windows-based environment, more flexible invoicing
and the ability to consolidate multiple purchase orders from each distribution
center and group them by product category and vendor. As of May 1, 1998, the
new system had been installed in four of the centers, with the remaining centers
scheduled to be converted over the next ten months. Full implementation should
be complete in early 1999. The design and implementation of this new system is
a complex project. Unanticipated problems may delay implementation of the
system or cause it to perform below anticipated service levels. Failure to
implement the transition to the new system expeditiously could hamper
administrative efficiencies the Company expects to gain as described above.
FACILITIES
The Company currently operates in 30 different geographic markets, each
with a distribution center ranging in size from 9,798 to 38,000 square feet.
The Company leases all of its distribution centers, with lease expiration dates
ranging from October 1998 to May 2003. Management believes significant
additional capacity can be added at minimal cost to most of the locations
utilizing available contiguous space. Century is in the process of constructing
a new headquarters in Houston, Texas, approximately 20 miles from its existing
headquarters which it expects to complete in late 1998. The new 114,000 square
foot facility will allow the Company to centralize corporate functions such as
purchasing, receivables, accounting, national sales, and catalog production.
The existing
49
<PAGE>
Houston distribution center will move into this new facility when it is
completed. The project began mid-1997 and is expected to be completed in late
1998.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company and its customers and are subject to Federal and state
regulation in the United States, as well as regulation by foreign governments,
and the Company cannot predict the extent to which future legislative and
regulatory developments concerning its practices and products may affect the
Company. The Company is also subject to numerous federal, state and local laws
and regulations relating to such matters as safe working conditions, fire hazard
control and the handling and disposal of hazardous or infectious materials or
substances and emissions of air pollutants. The Company leases properties which
are subject to environmental laws and regulations. There can be no assurance
that the Company will not be required to incur significant costs to comply with
such laws and regulations in the future or that such laws or regulations will
not have a material adverse effect upon the Company's business, financial
condition or results of operations.
LEGAL PROCEEDINGS
The Company is party to lawsuits and other proceedings, including suits
relating to product liability and patent infringement. While the results of
such lawsuits and other proceedings cannot be predicted with certainty,
management does not expect that ultimate liabilities, if any, will have a
material adverse effect on the financial position or results of operations of
the Company.
TRADEMARKS
The Company is not able to register the trademarks "Century Maintenance
Supply" or "Century" with the United States Patent and Trademark Office because
a third party owns a federal registration for the mark "Century." The Company,
at this time, is not prevented from using the Century name; however, it is
possible that this third party could bring an infringement action against the
Company for the use of the name. If an infringement action were successful, it
is possible that the Company would be prohibited from using the Century name on
a regional, or possibly national, basis.
EMPLOYEES
As of June 30, 1998, the Company employed 614 full-time employees and 11
part-time employees. None of the Company's employees are represented by unions
and the Company considers its employee relations to be good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the executive officers and directors of the
Company:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Dennis C. Bearden 48 Chief Executive Officer and Director
Charles L. Littlepage 36 Chief Operating Officer and Director
Richard E. Penick 42 Chief Financial Officer and Director
Don R. Hodina 44 President of Nationwide Division
Mark J. Doran 34 Director
William C. Johnson 58 Director
Jon D. Ralph 34 Director
J. Frederick Simmons 43 Director
Ronald P. Spogli 50 Director
Dennis C. Bearden is Chief Executive Officer and director of the Company.
Mr. Bearden has held these positions since the Company's inception in 1988. Mr.
Bearden entered the multifamily apartment market in 1973 by forming Century
Airconditioning Supply, which sold air conditioning components to apartment
communities in the Houston area.
Charles L. Littlepage is Chief Operating Officer and became a director of
the Company after the Recapitalization. Mr. Littlepage has been with the
Company since February 1988 and was named Chief Operating Officer in September
1997. Mr. Littlepage also served as the national purchasing director from
January 1995 to September 1997 and Austin branch manager from February 1988 to
September 1997. In addition, he was on the Executive Committee for the Austin
Apartment Association and served as a board member for both the Texas and Austin
Apartment Associations. Prior to joining the Company, Mr. Littlepage served as
a manufacturer's representative from 1980 to 1988.
Richard E. Penick is Chief Financial Officer, a position he has held since
joining the Company in September 1992, and became a director of the Company
after the Recapitalization. Prior to joining the Company, Mr. Penick was a
principal for the accounting firm of Penick and Penick. He has provided
accounting and other professional services to Mr. Bearden and the Company since
1977. Mr. Penick is a Certified Public Accountant.
Don R. Hodina is President of Nationwide Division of the Company. Mr.
Hodina has been with the Company since July 1997 following the acquisition of
the Nationwide Apartment Supply. Mr. Hodina served as President of Nationwide
since its inception in 1992. In 1985, Mr. Hodina formed Maintenance
Headquarters in Indianapolis which became Nationwide Apartment Supply in 1992.
Mark J. Doran became a director of the Company in connection with the
Recapitalization. Mr. Doran joined an affiliate of FS&Co. in 1988 and became a
Principal in January 1998. Prior to joining FS&Co., Mr. Doran spent two years
at Kidder, Peabody & Co. Incorporated where he served as a Corporate Finance
Analyst in the High Yield Bond Department. Mr. Doran is also a director of AFC
Enterprises, Inc. and Advance Stores Company, Incorporated.
William C. Johnson became a director of the Company in connection with the
Recapitalization. Mr. Johnson served as Chief Executive Officer of Grolier
Incorporated, a publishing and printing company, from March 1990 to December
1994, and served as Chairman of the Board and Chief Executive Officer of
Fingerhut Corporation, a retail catalog company, from 1982 to 1989. Mr. Johnson
has been a director of Brylane Inc. since 1994 and served as its Vice Chairman
from June 1995 to April 1998.
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<PAGE>
Jon D. Ralph became a director of the Company in connection with the
Recapitalization. Mr. Ralph joined an affiliate of FS&Co. in 1989 and became a
Principal in January 1998. Prior to joining FS&Co., Mr. Ralph spent three years
at Morgan Stanley & Co. Incorporated where he served as an Analyst in the
Investment Banking Division. Mr. Ralph is also a director of EnviroSource, Inc.,
The Pantry, Inc., and Hudson Respiratory Care Inc.
J. Frederick Simmons became a director of the Company in connection with
the Recapitalization. Mr. Simmons joined an affiliate of FS&Co. in 1986 and
became a Principal in 1991. Mr. Simmons is also a director of EnviroSource,
Inc., Buttrey Food and Drug Stores Company, and Advance Stores Company,
Incorporated.
Ronald P. Spogli became a director of the Company in connection with the
Recapitalization. Mr. Spogli is a founding principal of an affiliate of FS&Co.,
which was founded in 1983. Mr. Spogli is the Chairman of the Board and a
director of EnviroSource, Inc. Mr. Spogli also serves on the Boards of
Directors of Calmar Inc., Buttrey Food and Drug Stores Company, AFC Enterprises,
Inc., Hudson Respiratory Care Inc. and Advance Stores Company, Incorporated.
Directors of the Company are elected annually and hold office until the
next annual meeting of stockholders and until their successors are duly elected
and qualified.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the three other most highly compensated executive
officers who earned salary and bonus in excess of $100,000 for services rendered
in all capacities to the Company and its subsidiaries for the fiscal year ended
December 31, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ------------------------------------- -------- --------- -------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Dennis C. Bearden.................... 1997 $ 125,000 $ -- -- $ 12,500
Chief Executive Officer
Charles L. Littlepage................ 1997 $ 93,004 $ -- -- $ 9,320
Chief Operating Officer
Richard E. Penick.................... 1997 $ 95,000 $ -- -- $ 11,050
Chief Financial Officer
Don R. Hodina........................ 1997 $ 111,027 $ -- -- $ 12,132
President of Nationwide Division
</TABLE>
_______________
(1) During 1997, no Named Executive Officer received perquisites and other
personal benefits, securities or property in an aggregate amount in excess
of the lesser of $50,000 or 10% of the total of such Officer's salary and
bonus nor did any such Officer receive any restricted stock award or stock
appreciation right.
(2) Represents the annual lease table value of company car and payments by the
Company under its 401(k) plan.
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<PAGE>
EMPLOYMENT AGREEMENTS WITH MESSRS. BEARDEN AND PENICK
In connection with the Recapitalization, the Company entered into
employment agreements with Dennis C. Bearden and Richard E. Penick, and a
noncompete agreement with Mr. Bearden (which noncompete agreement also binds
Century Airconditioning Supply, Inc. and Air Management Supply, Inc. See
"Certain Transactions--Noncompete Agreement"). Mr. Bearden and Mr. Penick will
receive an annual base salary in the amount of $125,000 and $115,000,
respectively, as well as an annual cash bonus (either pursuant to a bonus or
incentive plan of the Company or otherwise) in an amount to be determined by the
Board (or a committee thereof) in its sole discretion. Pursuant to the
employment agreements, in the event that employment is terminated by the Company
without "cause" (as defined therein), or if the employee resigns for "good
reason" (as defined), the Company will be required to pay such employee's base
salary (and to continue certain benefits) for 24 months, and to pay a portion of
the employee's annual bonus, based on the previous year's bonus, accrued up to
the date of termination. In addition, in the event that employment is
terminated by the Company without "cause" or if the employee resigns for "good
reason," and a Change in Control (as defined) of the Company has occurred within
the two year period preceding such date of termination, then, in addition to the
obligations of the Company to continue such employee's benefits and to pay the
portion of the employee's annual bonus as described above, but in lieu of the
Company's obligation to continue to pay such employee's base salary for the 24-
month period following such date of termination, the Company shall be required
to pay to the employee, in a lump sum in cash within 30 days after the date of
such termination, an amount equal to two times the sum of the employee's base
salary (as in effect on the date of termination or such higher rate as may have
been in effect at any time during the 90 day period preceding the date of
termination) and the annual bonus paid to such employee for the Company's last
full fiscal year. The employment agreements also impose restrictions relating
to the disclosure of confidential information and prohibit the employee from
knowingly becoming involved in a conflict of interest with the Company.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation as directors. Directors
are reimbursed for their reasonable expenses in attending meetings.
RETIREMENT PLAN
Employees of the Company may contribute to a 401(k) plan. Employees must
have 12 months of service and must have attained age 21 to be eligible to
participate in the 401(k) plan and may contribute a minimum of 2.0%, up to a
maximum of 15.0% of their annual compensation. The Company matches
contributions at a rate of 50.0% for contributions by the employee, up to 8.0%
of such employee's compensation. The Company contributed approximately
$170,000, $241,000 and $297,000 in 1995, 1996 and 1997, respectively, as
matching funds to the plan. No discretionary, lump-sum contributions were made
in 1995, 1996 and 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company determines the compensation of the
executive officers.
STOCK OPTION PLAN
Existing Options
In connection with the Recapitalization, the Company entered into
agreements with substantially all of the holders of outstanding options to
purchase common stock of the Company ("Existing Options") previously granted
under the Company's 1997 Stock Incentive Plan. Under these agreements, options
to purchase fewer than 1,500 shares of the Company's common stock (before the
stock split pursuant to the Recapitalization) were canceled for the right to
receive a cash payment per share equal to the difference between the Cash Merger
Consideration and the exercise price per share (the "Cash Option
Consideration"). For options to purchase 1,500 or more shares of the Company's
common stock, 50% were retained by the holders and remain outstanding and were
adjusted for the stock split, and 50% were canceled for the right to receive the
Cash Option Consideration.
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<PAGE>
The following table contains information concerning the stock option grants
made to each of the Named Officers named below for the year ended December 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE PRICE TERM(1)
OPTIONS EMPLOYEES IN PER SHARE ($/ EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR(%) SH) DATE (2) 5%($) 10%($)
- ----------------------- ----------- ------------- -------------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Littlepage... 10,000 2.44% $4.00 7/1/00 6,305 13,240
Richard E. Penick....... 30,000 7.33% $4.00 7/1/00 18,915 39,720
Don R. Hodina........... 140,000 34.19% $7.00 7/11/00 154,473 324,380
</TABLE>
____________
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
three-year option term will be at the assumed 5% or 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officer.
(2) These options became vested and exercisable when granted.
No options were exercised by the Named Officers for the fiscal year ended
December 31, 1997.
New Option Plan
In connection with the Recapitalization, the Company adopted a new stock
option plan (the "Option Plan"), permitting grants of options to purchase
approximately 13% of Century's common stock. The Option Plan and each
outstanding option thereunder are subject to termination in the event of a
change in control of Century, as more particularly described in the Option Plan.
In addition, all options granted pursuant to the Option Plan will terminate 30
days after termination of employment (unless termination was for cause, in which
event an option will terminate immediately) or 180 days in the event of
termination due to death or disability. The sale of shares received upon the
exercise of options are subject to rights of refusal first in favor of the
Company and then in favor of Mr. Bearden and FS&Co. on a pro rata basis. In
addition, any shares received upon exercise of an option are subject to a
repurchase right in favor of the Company at the greater of cost or book value
for a period of six months after termination of the optionee's employment
(provided, that if employment is terminated due to death or disability, such
shares shall be repurchased for fair market value as determined in good faith by
the Board). Shares received upon the exercise of options are subject to certain
obligations to sell at the request of FS&Co. and possess certain co-sale rights
in favor of the optionee. The rights of first refusal, repurchase rights and
co-sale rights will terminate upon the Company's initial public offering.
Options to purchase 5.0% of the initial outstanding shares of Century's
common stock ("Time Vesting Options"), which will be granted in 1.0% annual
increments, will vest over a three-year period from date of grant in equal
annual installments or, alternatively, granted options will vest in full upon a
sale of the Company. Time Vesting Options will terminate on the seven-year
anniversary of the grant date. These options will be granted at an exercise
price equal to the then estimated fair market value of the Company's common
stock (as determined by the Board). In addition, options to purchase 50,000
shares of the Company's common stock were granted to Mr. Johnson, who became a
director of the Company upon consummation of the Recapitalization, which options
were fully vested on the date of grant.
Options to purchase approximately 6.5% of the initial outstanding shares of
the Company's common stock at an exercise price of $10.00 per share
("Performance Options") will be earned in installments based upon
54
<PAGE>
satisfaction of financial performance targets over a four-year period. The
Performance Options will terminate on the seven-year anniversary of the grant
date.
In addition, options to purchase approximately 1.5% of the initial
outstanding shares of the Company's common stock at an exercise price of $10.00
per share ("Bearden Performance Options") have been granted to Mr. Bearden and
will be earned in installments based upon satisfaction of financial performance
targets over a three-year period. However, the Bearden Performance Options will
not become exercisable until one year after the vesting date (except in the
event of a sale of the Company, in which case the one year delay will become
inapplicable), and will terminate on the seven-year anniversary of the grant
date.
The following table sets forth information concerning options granted to
each of the Named Executive Officers under the Option Plan:
INDIVIDUAL GRANTS
-----------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE PRICE TERM(1)
OPTIONS EMPLOYEES IN PER SHARE ($/ EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR(%) SH) DATE (2) 5%($) 10%($)
- ------------------------- ----------- ------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Bearden........ 180,000(2) 19.0% $10.00 7/8/05 732,600 1,708,200
Richard E. Penick........ 48,000(3) 5.1% $10.00 7/9/05 195,360 455,520
Charles L. Littlepage.... 48,000(3) 5.1% $10.00 7/9/05 195,360 455,520
</TABLE>
____________
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
seven-year option term will be at the assumed 5% or 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the option holder.
(2) Represents the Bearden Performance Options.
(3) All of these options are Performance Options.
Options representing the right to purchase an aggregate of 671,000 shares
of the Company's common stock have been granted under the Option Plan to
individuals other than the Named Executive Officers set forth in the table
above. All of these options are Performance Options.
55
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of June 30, 1998,
with respect to the beneficial ownership of capital stock of the Company by (i)
each person who beneficially owns more than 5% of such shares, (ii) each of the
Named Executive Officers, (iii) each director of the Company and (iv) all Named
Executive Officers and directors of the Company as a group based on the
consummation of the Recapitalization.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENT OF SHARES OF PERCENT
NAME OF BENEFICIAL OWNER STOCK(1) CLASS PREFERRED STOCK OF CLASS
- ---------------------------------------- ---------------- ------ --------------- ------------
<S> <C> <C> <C> <C>
Freeman Spogli & Co. LLC(2).............. 6,757,618(4) 55.2% 40,000(6) 10.0%
Ronald P. Spogli(2)
J. Frederick Simmons(2)
Mark J. Doran(2)
Jon D. Ralph(2)
William C. Johnson(3).................... 125,000 1.0% -- --
Dennis C. Bearden(8)..................... 3,917,382(4) 32.0% 80,000(7) 20.0%
Charles L. Littlepage(8)................. 102,137(5) * -- --
Richard E. Penick(8)..................... 65,823(5) * -- --
Don R. Hodina(8)......................... 161,048(5) 1.3% -- --
All Named Executive Officers and......... 11,129,008 90.8% -- --
directors of the Company as a group (9
individuals)
</TABLE>
__________________
* Less than 1%.
(1) Reflects a stock split of 2.30068:1 which was effected concurrently with the
Recapitalization.
(2) Represents shares of common stock that will be held of record by FS Equity
Partners IV, L.P. ("FSEP IV"). As general partner of FSEP IV, FS Capital
Partners LLC ("FS Capital LLC") has the sole power to vote and dispose of
the shares owned by FSEP IV. Messrs. Spogli, Simmons, Doran and Ralph and
Bradford M. Freeman, William M. Wardlaw, John M. Roth, Charles P. Rullman
and Todd W. Halloran are the sole managing members of FS Capital LLC, and as
such may be deemed to be the beneficial owners of the shares of the common
stock and rights to acquire the common stock owned by FSEP IV. The business
address of Freeman Spogli & Co. LLC, FSEP IV, FS Capital LLC, and its sole
managing members is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025.
(3) Includes an option to purchase 50,000 shares that is vested and exercisable.
(4) The shares held by FSEP IV do not include an option from Century
Airconditioning Supply, Inc. ("CAC") (an entity solely owned by Dennis C.
Bearden) to purchase 167,382 shares of common stock at a purchase price of
$10.00 per share. See "Certain Transactions--Payments Relating to the
Recapitalization."
(5) Shares of Common Stock for Charles L. Littlepage, Richard E. Penick and Don
R. Hodina represent shares that will be held of record plus any shares
issuable pursuant to options held by the person in question that may be
exercised within 60 days after the date of this Prospectus. Mr. Littlepage
holds options to purchase 11,503 shares of common stock of the Company
(after the stock split) at a purchase price of $1.74 per share; Mr. Penick
holds options to purchase 34,510 shares of common stock of the Company
(after the stock split) at a purchase price of $1.74 per share; and Mr.
Hodina holds options to purchase 161,048 shares of common stock of the
Company (after the stock split) at a purchase price of $3.04 per share. All
of these options are vested and exercisable.
(6) Represents Series B Preferred Stock purchased by FS&Co. in the Private
Placement.
(7) Represents Series B Preferred Stock purchased by Dennis C. Bearden in the
Private Placement.
(8) The business address of these individuals is Century Maintenance Supply,
Inc., 9100 Winkler Drive, Houston, Texas 77017.
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CERTAIN TRANSACTIONS
SHAREHOLDERS' AGREEMENT
Amended Shareholders' Agreement
The stockholders of the Company's common stock were party to a
shareholders' agreement with the Company and Mr. Bearden which was amended and
restated in connection with the Recapitalization (the "Amended Shareholders'
Agreement"). Under the Amended Shareholders' Agreement, all Continuing
Stockholders (other than Mr. Bearden) were granted "tag along" rights which
provide that if FS&Co. or Mr. Bearden sell all or any part of their shares of
the Company's common stock to a third party, the non-selling stockholders have
the right to sell up to the same percentage of their shares to that third party
on the same terms and conditions. The non-selling stockholders only have tag
along rights on a sale by Mr. Bearden if FS&Co. exercises its own tag along
rights. These rights terminate upon the Company's initial public offering.
Continuing Stockholders (other than Mr. Bearden) are subject to a "drag
along" obligation which provides that if FS&Co. wishes to sell all of its common
stock of the Company to a third party, FS&Co. may cause such Continuing
Stockholders to sell all of their capital stock (common or preferred) to such
third party on the same terms and conditions.
The Amended Shareholders' Agreement provides that no Continuing Stockholder
(other than Mr. Bearden) may sell any of its capital stock in the Company for a
period of two years after the Recapitalization; this limitation terminates upon
the Company's initial public offering. The Amended Shareholders' Agreement also
contains a right of first refusal first in favor of the Company, then in favor
of Mr. Bearden and FS&Co. on a pro rata basis, and then in favor of the
Company's other stockholders on a pro rata basis, as well as certain transfer
restrictions and obligations on termination (including repurchase rights upon
the death, divorce or termination of employment of a Continuing Stockholder that
operate in a manner substantially identical to the right of first refusal).
There are employees of the Company who hold Existing Options who do not
currently own any of the Company's common stock. See "Management--Stock Option
Plan." If these employees exercise their options, the shares received upon
exercise will become subject to the Amended Shareholders' Agreement.
New Shareholders' Agreement
In connection with the Recapitalization, FS&Co., Mr. Bearden and Century
Airconditioning Supply, Inc. ("CAC") entered into a new shareholders' agreement
(the "Shareholders' Agreement"). Under the Shareholders' Agreement, FS&Co. and
Mr. Bearden have the right to purchase their pro rata share of certain new
issuances of capital stock by the Company. These rights will terminate upon the
Company's initial public offering or once such party's percentage ownership in
the Company (calculated on a fully diluted basis) falls below 10%. In addition,
the Shareholders Agreement provides that if FS&Co. or Mr. Bearden sells all or
any part of their shares in the Company to a third party, the non-selling party
has the right to sell up to the same percentage of their shares to that third
party on the same terms and conditions. These rights terminate upon the
Company's initial public offering. If FS&Co. wishes to sell its entire interest
in the Company, it has the right to cause Mr. Bearden to sell all of his shares
of capital stock (common or preferred) to such third party on the same terms and
conditions. These rights terminate once FS&Co.'s percentage ownership in the
Company (calculated on a fully diluted basis) drops below 20% or drops below the
percentage then held by Mr. Bearden (provided that no effect shall be given to
any shares purchased by Mr. Bearden after the closing of the Recapitalization).
In the Shareholders' Agreement, FS&Co. will receive a right of first offer with
respect to proposed sales of capital stock of the Company by Mr. Bearden or CAC,
and CAC will transfer its securities of the Company to Mr. Bearden should Mr.
Bearden ever fail to control 100% of the outstanding capital stock of CAC. These
rights terminate in the same manner as FS&Co.'s drag along obligation described
above. In the Shareholders' Agreement, each of FS&Co. and Mr. Bearden agreed
not to pledge, hypothecate or otherwise encumber any capital stock of the
Company held by them, and also agreed not to transfer shares to a third party,
except for certain transfers to affiliates (or to a family trust established by
Mr. Bearden) or transfers by FS&Co. to its partners after the Company's initial
public offering. In addition, for a period of two years from the closing of the
Recapitalization, unless consented to by Mr. Bearden, FS&Co. will not sell its
capital stock in the Company to certain competitors of the Company; provided,
that in the event that the
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Company's actual operating cash flow during any 12 month period during such two
year period exceeds certain targets projected by management (as defined in the
Shareholders' Agreement), FS&Co. will then be allowed to sell its capital stock
to any potential acquiror, including such competitors. These restrictions upon
transfer terminate on the earlier of two years after consummation of the
Recapitalization or upon the Company's initial public offering; provided, that
FS&Co. and Mr. Bearden will remain subject to the lockup periods described
below.
The Shareholders' Agreement provides that the Board of Directors of the
Company shall initially consist of five members nominated by FS&Co. and three
members nominated by Mr. Bearden. See "Management--Directors and Executive
Officers." The members of the Board will include two independent directors if
necessary in connection with the Company's initial public offering, which
directors will be elected by a majority of the Board and reasonably acceptable
to Mr. Bearden. Notwithstanding the foregoing, the Shareholders' Agreement
provides that no action of the Company, which under Delaware law would have
required the prior approval of a majority of the Company's stockholders, will be
taken unless and until a meeting of the Company's Board of Directors will have
been held upon prior notice duly given in accordance with the bylaws of the
Company. The rights of FS&Co. and Mr. Bearden described in this paragraph will
terminate once such parties' percentage ownership in the Company (calculated on
a fully diluted basis) drops below 20% and 10%, respectively.
The Shareholders' Agreement provides that at any time beginning six months
after the Company's initial public offering, each of FS&Co. and Mr. Bearden
shall have the right to two demand registrations; provided, that to the extent
that either of FS&Co. or Mr. Bearden wishes to join in the other's demand
registration, then the parties shall participate together in such registration
on a pro rata basis. Following the Company's initial public offering, FS&Co.,
Mr. Bearden and the Company's other stockholders shall have customary piggyback
registration rights; provided, that such stockholders (other than Mr. Bearden)
may be excluded from any such offering, at the discretion of the underwriters
participating in such offering, if such underwriters determine that the
inclusion of such stockholders would adversely impact the relevant offering.
Each of the Company's stockholders (including FS&Co. and Mr. Bearden) agreed to
a lockup period of up to six months if imposed by an underwriter in connection
with the Company's initial public offering and for any other period requested by
an underwriter for any other offering. The Company will pay all customary fees
and expenses in connection with such registrations.
PAYMENTS RELATING TO THE RECAPITALIZATION
Executive officers of the Company who are also stockholders received
payments of an aggregate of approximately $155.5 million in connection with the
Recapitalization. FS&Co. received a transaction fee of $4.0 million.
In addition, under the Recapitalization FS&Co. received an option to
purchase 167,382 shares of the Company's common stock from Century
Airconditioning Supply, Inc. ("CAC") at a purchase price of $10.00 per share.
CAC, an entity entirely owned by Mr. Bearden, is currently a shareholder of the
Company. Mr. Johnson received a fully vested option to purchase 50,000 shares
of Common Stock at an exercise price of $10.00 per share in connection with the
Recapitalization. Approximately $3.3 million of borrowings and accrued interest
pursuant to the Company's indebtedness to Mr. Bearden and approximately $5.6
million of borrowings and accrued interest pursuant to the Company's
indebtedness to Mr. Hodina were repaid pursuant to the Recapitalization.
TRANSACTIONS WITH MANAGEMENT
The Company leases facilities in Phoenix, Dallas, San Antonio, Austin,
Tucson, and Newport News from Dennis C. Bearden, the Chief Executive Officer of
the Company, or an entity affiliated with or controlled by Mr. Bearden. Charles
L. Littlepage, the Chief Operating Officer of the Company, has a 10% interest in
a limited partnership that owns the Company's Austin facility. In addition, the
Company's new Houston headquarters is leased from an affiliate of Mr. Bearden.
The Company's Indianapolis facility is leased from an affiliate of Don R.
Hodina, President of Nationwide Division. All of these leases are at market
terms. Lease expense for leases with affiliates has been $0.1 million, $0.1
million and $0.5 million for fiscal 1995, 1996 and 1997, respectively. These
amounts do not include the lease expense for the Company's lease of the
Indianapolis facility or of its Kansas City facility. The Kansas City facility
was leased from an entity affiliated with or controlled by Mr. Bearden until
November 1997, when the Company moved the Kansas City facility to another
location. The Kansas City lease
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expense for fiscal 1995, 1996 and 1997 was $36,000, $51,000 and $40,000,
respectively. Lease expense for the Indianapolis facility for fiscal 1995, 1996
and 1997 was $48,000, $88,200, and $86,175, respectively. See "Business--
Facilities." In addition, the Company was a party to the Common Control Mergers.
See Note 8 to the Consolidated Financial Statements of the Company elsewhere in
this Offering Memorandum.
In connection with the Recapitalization, stock options with a value of
approximately $3.0 million (net of the exercise price) remain outstanding. Such
stock options, together with the common stock being retained by the Continuing
Stockholders, represents approximately 45.9% of the common stock of the Company
on a fully-diluted basis.
TRANSACTIONS WITH CENTURY AIRCONDITIONING SUPPLY
The Company makes convenience sales of inventory, at cost, to CAC and
purchases inventory, at cost, from CAC. In addition, CAC and the Company share
some administrative services, for which CAC pays the Company a management fee
equal to a percentage of CAC's sales. The Company's revenues attributable to
sales of inventory to CAC were $0.8 million, $0.9 million and $1.2 million for
fiscal 1995, 1996 and 1997, respectively. CAC paid management fees to the
Company (with respect to shared administrative services) of $0.1 million, $0.2
million and $0.3 million in 1995, 1996 and 1997, respectively.
NONCOMPETE AGREEMENT
Mr. Bearden is the sole shareholder of CAC, which in turn controls Air
Management Supply, Inc. ("Air Management"). Both CAC and Air Management compete
with the Company in certain sub-markets and with regard to certain products and
customers. In connection with the Recapitalization, Mr. Bearden, CAC and Air
Management entered into a noncompete agreement with the Company whereby they
agreed, for a period continuing until the earlier of ten years or the
termination of Mr. Bearden's employment agreement other than for "cause," and
subject to certain exceptions, not to compete with the Company, to preserve its
confidential information, not to recruit or employ employees of the Company, and
not to solicit customers or suppliers of the Company for competitors. In
particular, and subject to certain exceptions, Mr. Bearden, CAC and Air
Management are prohibited from selling maintenance supplies (which as defined
excludes HVAC, appliance parts and refrigeration parts) not only to apartments
but also to hotels, prisons, nursing homes, hospitals, military installations
and schools and universities. In addition, the Company agreed not to sell HVAC
in southeast Texas (as defined therein) if such sales would cause the aggregate
amount of HVAC sales by the Company for the immediately preceding 12 months to
exceed 12% of the Company's total sales in southeast Texas during the same
period.
PRIVATE PLACEMENT AND REGISTRATION RIGHTS
Mr. Bearden purchased 80,000 shares of the Series B Preferred Stock with a
$8.0 million aggregate liquidation preference and FS&Co. purchased 40,000 shares
of such Series B Preferred Stock with a $4.0 million aggregate liquidation
preference from the Company. In connection with the Private Placement, the
Company entered into an agreement (the "Private Registration Agreement") which
provides that the Company will, upon the request of each of Mr. Bearden (or
transferee of such shares) and FS&Co. (or its transferees), file and use its
best efforts to cause to become effective registration statements for the Series
B Preferred Stock, or, if issued, the Exchange Debentures issuable in exchange
therefor (the "Private Registration Statements"). The Private Registration
Agreement also provides that (i) the Company will bear all costs and expenses
associated with filing the Private Registration Statements and using its best
efforts to cause them to become effective and (ii) the Company will not file the
Private Registration Statements until any exchange offer registration statement
or resale shelf registration statement required by the Registration Rights
Agreement have ceased to be effective and are no longer required to be
effective. See "Summary--The Recapitalization" and "Plan of Distribution."
In addition, in the event that a Voting Rights Triggering Event (as defined
herein) occurs with respect to the Initial Preferred Stock or the Exchange
Preferred Stock issued in exchange therefor, or with respect to the Series B
Preferred Stock, the holders of the Initial Preferred Stock or the Exchange
Preferred Stock and the holders of the Series B Preferred Stock will vote
together as one class to elect the two additional directors provided for in the
Certificate of Designation. Because Mr. Bearden and FS&Co. own securities
representing 30% of such class,
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they may be able to exert significant influence on the results of any such
election. See "Description of Exchange Preferred Stock--Voting Rights."
DESCRIPTION OF NEW CREDIT FACILITY
On July 8, 1998, the Company entered into the New Credit Facility, which
consists of a $125.0 million in senior secured credit facility, consisting of a
$100.0 million term loan facility in two tranches, the $40.0 million Tranche A
Term Facility and the $60.0 million Tranche B Term Facility (the Tranche A Term
Facility and the Tranche B Term Facility collectively defined as the "Term Loan
Facility") and a $25.0 million revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility has a letter of credit sublimit of up
to $7.5 million.
Use of Proceeds. The entire Term Loan Facility was drawn in connection
with the Recapitalization. The Revolving Credit Facility is available to the
Company and its subsidiaries (i) for working capital and general corporate
purposes of the Company, (ii) for certain permitted acquisitions, and (iii) for
issuing commercial and standby letters of credit.
Amortization, Maturity and Prepayment. The Term Loan Facility amortizes in
quarterly installments over five years for the Tranche A Term Facility and seven
years for the Tranche B Term Facility, and the Revolving Credit Facility matures
on the fifth anniversary of the closing of the Recapitalization. In addition,
borrowings under the New Credit Facility are required to be prepaid with (a) 75%
(or 50% upon satisfaction of certain financial tests) of the Company's excess
cash flow, (b) 100% of the net proceeds of issuances of debt obligations of the
Company and its subsidiaries, (c) 100% of the net cash proceeds from asset
dispositions of the Company and its subsidiaries, (d) 50% of the net proceeds of
issuances of equity of the Company and its subsidiaries, subject to limited
exceptions as agreed and (e) 100% of the net proceeds from insurance recoveries
and condemnations, in each case with thresholds and exclusions as agreed.
"Excess Cash Flow," for any period, means EBITDA (as defined) for such period,
less the sum of (a)(i) permitted capital expenditures, (ii) taxes, (iii)
consolidated interest expense, (iv) increases in Adjusted Working Capital (as
defined) for such period, (v) scheduled and mandatory payments of debts, (vi)
voluntary prepayments of the Term Loan Facility, (vii) payments in connection
with purchases of the Company's Capital Stock; (viii) cash consideration paid
for certain permitted acquisitions (but excluding cash consideration funded by a
borrowing under the Revolving Credit Facility), and (ix) cash dividends paid on
the Exchange Preferred Stock to the extent permitted by the New Credit Facility,
plus the sum of: (b)(i) decreases in Adjusted Working Capital for such period,
(ii) refunds of taxes paid in prior periods, and (iii) proceeds of certain
indebtedness.
Voluntary prepayments are permitted in whole or in part, at the option of
the Company, in minimum principal amounts as agreed, without premium or penalty,
subject to reimbursement of the Lenders' redeployment costs in the case of
prepayment of eurodollar borrowings other than on the last day of the relevant
interest period.
Interest and Commitment Fees. The interest rate under the New Credit
Facility is variable and based, at the option of the Company, upon either a
eurodollar rate plus 2.5% (for the Revolving Credit Facility and the Tranche A
Term Facility) and 2.75% (for the Tranche B Term Facility) per annum or a base
rate plus 1.5% (for the Revolving Credit Facility and the Tranche A Term
Facility) and 1.75% (for the Tranche B Term Facility) per annum. If the Company
achieves performance goals as agreed upon, rates under the Tranche A Term
Facility and the Revolving Credit Facility will be reduced in increments as
agreed. The Company also covenanted to enter into specified interest rate
protection arrangements, including interest rate swaps, to reduce the Company's
exposure to fluctuations in the rates of interest payable under the New Credit
Facility. In mid-July, 1998, the Company entered into such interest rate swap
transactions with respect to $50.0 million of borrowings under the Term Loan
Facility. A commitment fee of 0.5% per annum will be charged on the unused
portion of the New Credit Facility.
Collateral and Guarantees. The New Credit Facility is guaranteed by all
existing and subsequently acquired or organized domestic and, to the extent no
adverse tax consequences would result, foreign, subsidiaries of the Company.
The New Credit Facility is secured by a first priority security interest in
substantially all of the properties and assets of the Company and the Subsidiary
Guarantors now owned or acquired later (with customary
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exceptions), including a pledge by the Company of all of the Capital Stock of
the Company's existing and future direct and indirect subsidiaries; provided,
that such pledge shall be limited to 65% of the shares of any foreign subsidiary
to the extent a pledge of a greater percentage would result in adverse tax
consequences to the Company.
Covenants. The New Credit Facility contains covenants restricting the
ability of the Company and the Company's subsidiaries to, among others, (i)
incur additional debt, (ii) declare dividends or redeem or repurchase capital
stock, (iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make loans
and investments, (vi) make capital expenditures, (vii) engage in mergers,
acquisitions and asset sales and (viii) engage in transactions with affiliates.
The Company is also required to comply with financial covenants with respect to
(a) limits on annual aggregate capital expenditures, ranging from $2.0 million
in 1998 to $2.5 million in 2005 (with the right to carry over unspent amounts
for one year), (b) a fixed charge coverage ratio as of the end of any four
fiscal quarters of not less than 1.20 to 1.00 (beginning with the fiscal quarter
ending nearest to March 31, 1999), (c) a maximum leverage ratio decreasing from
4.25 to 1.00 for the third quarter of 1998 to 2.00 to 1.00 for the fourth
quarter of 2001 and thereafter, (d) a minimum EBITDA increasing from $23.0
million in fiscal year 1998 to $55.0 million in fiscal year 2004 and thereafter,
and (e) an interest coverage ratio increasing from 2.25 to 1.00 for the third
quarter of 1998 to 4.50 to 1.00 for the fourth quarter of 2001 and thereafter.
Events of Default. Events of default under the New Credit Facility include
but are not limited to (i) the Company's failure to pay principal when due or
interest after a grace period, (ii) the Company's material breach of any
covenant, representation or warranty contained in the loan documents, (iii)
customary cross-default provisions, (iv) events of bankruptcy, insolvency or
dissolution of the Company or its subsidiaries, (v) the levy of certain
judgments against the Company, its subsidiaries, or their assets, (vi) the
actual or asserted invalidity of security documents or guarantees of the Company
or its subsidiaries, and (vii) a change of control of the Company. If a default
under the New Credit Facility occurs and is neither cured nor waived, the
lenders may elect to accelerate the maturity of the Company's indebtedness
thereunder.
The preceding discussion of certain of the provisions of the New
Credit Facility is not intended to be exhaustive and is qualified in its
entirety by reference to the provisions of the New Credit Facility. Copies of
the New Credit Facility are available upon request from the Company.
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DESCRIPTION OF THE EXCHANGE PREFERRED STOCK
The following is a summary of certain provisions of the Certificate of
Designation and the Exchange Preferred Stock. A copy of the Certificate of
Designation and the form of Exchange Preferred Stock is available upon request
to the Company at the address set forth under "Available Information." The
following summary of certain provisions of the Certificate of Designation does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Certificate of Designation. For
purposes of this Section, references to "the Company" shall mean Century
Maintenance Supply, Inc. excluding its subsidiaries. Other capitalized terms
used but not defined herein are defined in the Certificate of Designation.
GENERAL
The Company will issue up to 280,000 shares of its 13 1/4% Senior
Exchangeable PIK Preferred Stock due 2010, $.001 par value per share, designated
as "13 1/4% Senior Exchangeable PIK Preferred Stock due 2010" pursuant to the
Exchange Offer. Concurrently with the Offering, FS&Co. and Dennis C. Bearden,
Chief Executive Officer of the Company, purchased an aggregate of 120,000 shares
of 13 1/4% Series B Senior Exchangeable Preferred Stock in a private placement
(the "Private Placement"). The Series B Preferred Stock is not eligible for
exchange pursuant to this Exchange Offer. See "Certain Transactions--Private
Placement and Registration Rights." Except as otherwise described herein, the
terms of the Series B Preferred Stock are identical to the terms of the Exchange
Preferred Stock offered hereby, and the Exchange Preferred Stock to be offered
hereby and the Series B Preferred Stock will constitute a single class.
Subject to certain conditions, the Exchange Preferred Stock will be
exchangeable, in whole but not in part, for the Exchange Debentures at the
option of the Company at any time on or after the date of issuance of the
Exchange Preferred Stock. When issued, the Exchange Preferred Stock will be
validly issued, fully paid and nonassessable. The holders of the Exchange
Preferred Stock will have no preemptive or preferential right to purchase or
subscribe to stock, obligations, warrants, or other securities of the Company of
any class. The Exchange Preferred Stock is eligible for trading in the Portal
Market.
RANKING
The Exchange Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of the Company and to each other class of capital stock
or series of preferred stock established hereafter by the Board of Directors the
terms of which do not expressly provide that it ranks senior to, or on a parity
with, the Exchange Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all classes of common stock of the Company, as "Junior Stock")
and (ii) on a parity with each other class of capital stock or series of
preferred stock established hereafter by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with the
Exchange Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock"). As of
June 30, 1998, the Company had issued and outstanding 12,250,000 shares of
Junior Stock and 120,000 shares of Parity Stock. Creditors of the Company will
have priority over the Exchange Preferred Stock with respect to claims on the
assets of the Company. In addition, creditors and stockholders of the Company's
subsidiaries will have priority over the Exchange Preferred Stock with respect
to claims on the assets of such subsidiaries.
While any shares of Exchange Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of capital stock or preferred stock, the terms of which expressly provide
that such class or series will rank senior to the Exchange Preferred Stock as to
dividend rights and rights upon liquidation, winding-up and dissolution of the
Company (collectively referred to as "Senior Stock") or Parity Stock without the
consent of the holders of at least 66 2/3% in the aggregate of the outstanding
shares of Exchange Preferred Stock and Series B Preferred Stock, provided that
for the purposes of calculating such percentage, any shares of Exchange
Preferred Stock or Series B Preferred Stock held by the Company or any Affiliate
thereof shall not be counted to determine such consent. However, without the
consent of any holder of Exchange Preferred Stock, the Company may create
additional classes of stock or issue series of a stock that ranks
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junior to the Exchange Preferred Stock with respect, in each case, to the
payment of dividends and amounts upon liquidation, dissolution and winding up.
See "--Voting Rights."
A substantial portion of the Company's income is generated by its
subsidiaries. As a result, the Company will rely upon distributions or advances
from its subsidiaries to provide the funds necessary to pay cash dividends on
the Exchange Preferred Stock. The subsidiaries may be subject to limitations on
their ability to make distributions and advances to the Company. See "Risk
Factors--Ability to Make Distributions on Exchange Preferred Stock" and "Risk
Factors--Holding Company Structure."
DIVIDENDS
The holders of shares of Exchange Preferred Stock will be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative preferential
dividends from the Issue Date of the Exchange Preferred Stock accruing at the
rate per share of 13 1/4% per annum, payable semi-annually in arrears on each of
January 1 and July 1 or, if any such date is not a Business Day, on the next
succeeding Business Day (each, a "Dividend Payment Date"), to the holders of
record as of the next preceding December 15 and June 15. Dividends will be
payable in cash, except that on each Dividend Payment Date occurring on or prior
to July 1, 2003, dividends may be paid, at the Company's option, by the issuance
of additional shares of Exchange Preferred Stock (including fractional shares)
having an aggregate Liquidation Preference equal to the amount of such
dividends. The issuance of such additional shares of Exchange Preferred Stock
will constitute "payment" of the related dividend for all purposes of the
Certificate of Designation. Dividends payable on the Exchange Preferred Stock
will be computed on the basis of a 360-day year consisting of twelve 30-day
months and will be deemed to accrue on a daily basis. For a discussion of
certain Federal income tax considerations relevant to the payment of dividends
on the Exchange Preferred Stock, see "Certain U.S. Federal Income Tax
Considerations."
Dividends on the Exchange Preferred Stock will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Certificate of
Designation will provide that the Company will take all actions required or
permitted under applicable law to permit the payment of dividends on the
Exchange Preferred Stock, including, without limitation, through the revaluation
of its assets in accordance with the DGCL, to make or keep funds legally
available for the payment of dividends.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Exchange
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Exchange Preferred Stock.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock unless full cumulative dividends have been paid on the
Exchange Preferred Stock for all prior dividend periods. If accrued dividends
on the Exchange Preferred Stock for all prior dividend periods have not been
paid in full then any dividend declared on the Exchange Preferred Stock for any
dividend period and on any Parity Stock will be declared ratably in proportion
to accrued and unpaid dividends on the Exchange Preferred Stock and such Parity
Stock.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Stock for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in full or
declared and, if payable in cash, a sum in cash set apart for such payment on
the Exchange Preferred Stock. If full dividends are not so paid, the Exchange
Preferred Stock will share dividends pro rata with the Parity Stock. No
dividends may be paid or set apart for such payment on Junior Stock (except
dividends on Junior Stock in additional shares of Junior Stock) and no Junior
Stock or Parity Stock may be repurchased, redeemed or otherwise retired nor may
funds be set apart for payment with respect thereto, if full cumulative
dividends have not been paid on the Exchange Preferred Stock.
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The payment of cash dividends on the Exchange Preferred Stock is currently
prohibited by the terms of the New Credit Facility (provided that payment of
cash dividends is permitted after July 1, 2003 subject to financial performance
tests).
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Preferred Stock will not be
redeemable at the option of the Company prior to July 1, 2003. Thereafter, the
Exchange Preferred Stock will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, upon not less than 30 nor more
than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in percentages
of the Liquidation Preference thereof), plus accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for any partial
dividend period), if redeemed during the 12-month period commencing on July 1 of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
-----------
PERIOD PRICE
- ------ -----
<S> <C>
2003...................... 106.625%
2004...................... 105.300%
2005...................... 103.975%
2006...................... 102.650%
2007...................... 101.325%
2008 and thereafter....... 100.000%
</TABLE>
In addition, at any time prior to January 1, 2001, the Company may redeem
at its option (i) up to 50% or (ii) all but not less than all of the outstanding
shares of Exchange Preferred Stock with the net proceeds of any Public Equity
Offering by the Company at a redemption price (expressed as a percentage of the
Liquidation Preference thereof) of 113.25% plus accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for any partial
dividend period). Any such redemption shall be made for a period of 90 days
following consummation of such Public Equity Offering upon not less than 30 nor
more than 60 days' notice.
EXCHANGE FOR EXCHANGE DEBENTURES
The Company may, at its option, subject to certain conditions, exchange the
Exchange Preferred Stock, in whole but not in part (including in conjunction
with a redemption of up to 50% of the outstanding shares of Exchange Preferred
Stock with the proceeds of a Public Equity Offering by the Company pursuant to
the second paragraph under "--Optional Redemption" above), at any time, for
Exchange Debentures; provided, however, that (i) on the date of such exchange
there are no accumulated and unpaid dividends on the Exchange Preferred Stock
(including the dividend payable on such date) that are not paid
contemporaneously with such exchange or other contractual impediments to such
exchange; (ii) such exchange is permitted under applicable law; (iii)
immediately after giving effect to such exchange, no Event of Default (as
defined in the Exchange Indenture) or Voting Rights Triggering Event (as defined
in the Certificate of Designation), as applicable, shall have occurred and be
continuing; and (iv) the Company shall have delivered to the Trustee under the
Exchange Indenture, an Opinion of Counsel with respect to the due authorization
and issuance of the Exchange Debentures. The exchange of the Exchange Preferred
Stock for Exchange Debentures is currently prohibited by the terms of the New
Credit Facility.
Upon any exchange of Exchange Preferred Stock for Exchange Debentures as
described in this section, each holder of Exchange Preferred Stock will be
entitled to receive, subject to the second succeeding sentence, $1.00 principal
amount of Exchange Debentures for each $1.00 Liquidation Preference of Exchange
Preferred Stock so exchanged, and an amount in cash equal to a prorated dividend
for any partial dividend period. The Exchange Debentures will be issued in
registered form, without coupons. Exchange Debentures issued in exchange for
Exchange Preferred Stock will be issued in principal amounts of $1,000 and
integral multiples thereof to the extent possible, and will also be issued in
principal amounts less than $1,000 so that each holder of Exchange Preferred
Stock will receive certificates representing the entire amount of Exchange
Debentures to which such holder's shares of Exchange Preferred Stock entitle
such holder; provided, however, that the Company may pay cash in lieu of issuing
an Exchange Debenture in a principal amount less than $1,000.
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The Company will send a written notice of exchange by mail to each holder
of record of shares of Exchange Preferred Stock not fewer than 30 days nor more
than 60 days before the date fixed for any exchange; provided that, in the event
of any exchange which is intended to occur in conjunction with a Public Equity
Offering by (i) the Company may provide for an Exchange Date which relates to
the consummation of such Public Equity Offering and (ii) the Company shall have
the right to revoke such written notice in the event that such related Public
Equity Offering is terminated by mailing a subsequent written notice to such
holders within two business days following such termination. On and after the
Exchange Date, dividends will cease to accrue on the outstanding shares of
Exchange Preferred Stock, and all rights of the holders of Exchange Preferred
Stock (except the right to receive the Exchange Debentures, an amount in cash,
to the extent applicable, equal to the accumulated and unpaid dividends to the
Exchange Date and, if the Company so elects, cash in lieu of any Exchange
Debenture that is in a principal amount that is not an integral multiple of
$1,000) will terminate. The person entitled to receive the Exchange Debentures
issuable upon such exchange will be treated for all purposes as the registered
holder of such Exchange Debentures. See "Description of Exchange Debentures."
MANDATORY REDEMPTION
On July 1, 2010, the Company will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Exchange
Preferred Stock at a price in cash equal to the Liquidation Preference thereof,
plus accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period), if any, to the date of
redemption. The Company will not be required to make sinking fund payments with
respect to the Exchange Preferred Stock. The Certificate of Designation will
provide that the Company will take all actions required or permitted under
Delaware law to permit such redemption. Future indebtedness of the Company may
prohibit the Company from redeeming the Exchange Preferred Stock on its
mandatory redemption date.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, each holder of Exchange Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution to
stockholders, an amount equal to the Liquidation Preference per share of
Exchange Preferred Stock held by such holder, plus accumulated and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
before any distribution is made on any Junior Stock, including, without
limitation, common stock of the Company. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the Exchange Preferred Stock and all other Parity Stock are not paid
in full, the holders of the Exchange Preferred Stock and the Parity Stock will
share equally and ratably in any distribution of assets of the Company in
proportion to the full liquidation preference and accumulated and unpaid
dividends to which each is entitled. After payment of the full amount of the
Liquidation Preference and accumulated and unpaid dividends to which they are
entitled, the holders of shares of Exchange Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Company.
However, neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with one or more entities shall be deemed to be a liquidation, dissolution or
winding-up of the Company.
The Certificate of Designation will not contain any provision requiring
funds to be set aside to protect the Liquidation Preference of the Exchange
Preferred Stock, although such Liquidation Preference will be substantially in
excess of the par value of such shares of Exchange Preferred Stock. In
addition, the Company is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon the surplus of
the Company solely because the liquidation preference of the Exchange Preferred
Stock will exceed its par value. Consequently, there will be no restriction
upon any surplus of the Company solely because the liquidation preference of the
Exchange Preferred Stock will exceed the par value, and there will be no
remedies available to holders of the Exchange Preferred Stock before or after
the payment of any dividend, other than in connection with the liquidation of
the Company, solely by reason of the fact that such dividend would reduce the
surplus of the Company to an amount less than the difference between the
liquidation preference of the Exchange Preferred Stock and its par value.
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VOTING RIGHTS
The holders of Exchange Preferred Stock, except as otherwise required under
Delaware law or as provided in the Certificate of Designation, shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Company.
The Certificate of Designation will provide that if (i) dividends on the
Exchange Preferred Stock are in arrears and unpaid (and, in the case of
dividends payable after July 1, 2003, are not paid in cash) for six or more
Dividend Periods (whether or not consecutive); (ii) the Company fails to redeem
the Exchange Preferred Stock on July 1, 2010, or fails to otherwise discharge
any redemption obligation with respect to the Exchange Preferred Stock; (iii)
the Company fails to make an offer to redeem all of the outstanding shares of
Exchange Preferred Stock following a Change of Control (whether or not the
Company is permitted to do so by the terms of the Credit Facility or any other
obligation of the Company), (iv) a breach or violation of any of the provisions
described under the caption "--Certain Covenants" occurs and the breach or
violation continues for a period of 30 days or more after the Company receives
notice thereof specifying the default from the holders of at least 25% of the
shares of Exchange Preferred Stock then outstanding; (v) the Company fails to
pay at final maturity (giving effect to any applicable grace period) the
principal amount of any Debt of the Company or any Subsidiary of the Company or
the stated maturity of any such Indebtedness of the Company or any Subsidiary of
the Company is accelerated because of a default and the total amount of such
Debt unpaid or accelerated exceeds $7.5 million, then the holders of the
outstanding shares of Exchange Preferred Stock, voting together as a class with
the holders of any other series of preferred stock upon which like rights have
been conferred and are exercisable, including the Series B Preferred Stock, will
be entitled to elect two additional members to the Board of Directors to serve
on the Board of Directors, and the number of members of the Board of Directors
will be immediately and automatically increased by two. Such voting rights of
the Exchange Preferred Stock will continue until such time as, in the case of a
dividend default, all dividends in arrears on the Exchange Preferred Stock are
paid in full in cash and, in all other cases, any failure, breach or default
giving rise to such voting rights is remedied or waived by the holders of at
least a majority of the shares of Exchange Preferred Stock then outstanding, at
which time the term of office of any directors elected pursuant to the
provisions of this paragraph (subject to the right of holders of any other
Exchange Preferred Stock to elect such directors) shall terminate. Each such
event described in clauses (i) through (v) above is referred to herein as a
"Voting Rights Triggering Event." In the event that a Voting Rights Triggering
Event occurs with respect to the Preferred Stock, the holders of the Exchange
Preferred Stock and the Series B Preferred Stock will vote together as one class
to elect the two additional directors provided for in the Certificate of
Designation. Because Mr. Bearden and FS&Co. own securities representing 30% of
such class, they may be able to exert significant influence on the results of
any such election.
The Certificate of Designation will also provide that the Company will not
authorize any class of Senior Stock or Parity Stock without the affirmative vote
or consent of holders of at least 66 2/3% of the shares of Exchange Preferred
Stock and Series B Preferred Stock then outstanding, voting or consenting, as
the case may be, as one class, provided that for the purposes of calculating
such percentage any shares of Exchange Preferred Stock or Series B Preferred
Stock held by the Company or any Affiliate thereof shall not be counted to
determine such consent. In addition, the Certificate of Designation will provide
that the Company may not authorize the issuance of any additional shares of
Exchange Preferred Stock (other than additional shares of Exchange Preferred
Stock to be issued as dividends on outstanding shares of Exchange Preferred
Stock) without the affirmative vote or consent of the holders of at least a
majority of the then outstanding shares of Exchange Preferred Stock and Series B
Preferred Stock, voting or consenting, as the case may be, as one class,
provided that for the purposes of calculating such percentage any shares of
Exchange Preferred Stock or Series B Preferred Stock held by the Company or any
Affiliate thereof shall not be counted to determine such consent. The
Certificate of Designation will also provide that, except as set forth above,
(a) the creation, authorization or issuance of any shares of Junior Stock,
Parity Stock or Senior Stock, including the designation of a series thereof
within the existing class of Exchange Preferred Stock, or (b) the increase or
decrease in the amount of authorized Capital Stock of any class, including any
preferred stock, shall not require the consent of the holders of Exchange
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of shares of Exchange Preferred Stock.
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REDEMPTION AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange
Preferred Stock shall have the right to require the Company to redeem all or any
part of such holder's Exchange Preferred Stock pursuant to the offer described
below (the "Change of Control Offer") at a redemption price (the "Change of
Control Redemption Price") equal to 101% of the Liquidation Preference thereof,
plus accrued and unpaid dividends thereon, if any, to the redemption date
(including an amount in cash equal to a pro rated dividend for any partial
dividend period). The Certificate of Designation does not provide for waiver of
the covenant relating to the holder's right to require redemption of the
Exchange Preferred Stock upon the occurrence of a Change in Control. Approval
by the Company's Board of Directors will not prevent a transaction from
constituting a Change of Control if it otherwise falls within the definition
thereof.
Within 30 days following any Change of Control, shall (a) cause a notice of
the Change of Control Offer to be sent at least once to the Dow Jones News
Service or similar business news service in the United States and (b) send, by
first-class mail, with a copy to the transfer agent, to each holder of Exchange
Preferred Stock, at such holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled "Redemption at the
Option of Holders Upon a Change of Control" and that all Exchange Preferred
Stock timely tendered will be accepted for payment; (ii) the Change of Control
Redemption Price and the redemption date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed; (iii) the
circumstances and relevant facts regarding the Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to the Change of Control); and (iv) the
procedures that holders of Exchange Preferred Stock must follow in order to
tender their Exchange Preferred Stock (or portions thereof) for payment, and the
procedures that holders of Exchange Preferred Stock must follow in order to
withdraw an election to tender Exchange Preferred Stock (or portions thereof)
for payment.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the redemption of Exchange Preferred Stock pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the covenant described
hereunder, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
covenant described hereunder by virtue of such compliance.
The Change of Control redemption feature is a result of negotiations
between the Company and the Initial Purchaser. The Company has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to
certain covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Certificate of Designation, but that could increase the amount of debt
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" of the Company's assets. Although there is a developing body
of case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of Exchange Preferred Stock to require the Company to redeem
such Exchange Preferred Stock as a result of a sale, transfer, assignment,
lease, conveyance or other disposition of less than all the assets of the
Company may be uncertain.
The Credit Facility prohibits the Company from purchasing or redeeming any
Exchange Preferred Stock tendered pursuant to a Change of Control Offer. The
Credit Facility also provides that the occurrence of certain of the events that
would constitute a Change of Control would constitute a default thereunder.
Other future debt of the Company may require repayment upon a Change of Control
and may prohibit the Company from repurchasing Exchange Preferred Stock.
Moreover, the exercise by holders of Exchange Preferred Stock of their right to
require the Company to redeem such Exchange Preferred Stock could cause a
default under existing or
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future debt of the Company, even if the Change of Control itself does not.
Finally, the Company's ability to pay cash to holders of Exchange Preferred
Stock upon a repurchase may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. The Company's failure to redeem
Exchange Preferred Stock in connection with a Change of Control would result in
a breach of the Certificate of Designation which might constitute a default
under debt of the Company then outstanding and could lead to the acceleration of
the indebtedness thereunder. In any such event, the subordination of the
Exchange Preferred Stock and the security granted in respect of the Credit
Facility would likely result in the Holders of the Exchange Preferred Stock
receiving less ratably than creditors of the Company.
CERTAIN COVENANTS
The sole remedy to Holders of Exchange Preferred Stock in the event of the
Company's failure to comply with any of the covenants described below and the
sole consequence of any such failure will be the voting rights described above.
Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after
giving pro forma effect to the application of the proceeds thereof, either (a)
after giving effect to the Incurrence of such Debt and the application of the
proceeds thereof, the Consolidated Interest Coverage Ratio would be greater than
2.00 to 1.00 or (b) such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt of the Company under the Exchange Debentures;
(b)(i) Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $100.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans or obligations at any one time outstanding shall not
exceed the greater of (x) $25.0 million or (y) the sum of the amounts equal
to (1) 60% of the net book value of the inventory of the Company and the
Restricted Subsidiaries and (2) 85% of the net book value of the accounts
receivable of the Company and the Restricted Subsidiaries, in each case as
of the most recent fiscal quarter ending at least 45 days prior to the date
of determination and (ii) Guarantees of Debt under the Credit Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided that (i) the aggregate principal amount of such Debt does
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased (including costs of
installation, taxes and delivery charges with respect to such acquisition,
construction or lease) and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c) and then outstanding) does not exceed
$10.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Wholly Owned Subsidiary became a
Subsidiary of the Company or was otherwise acquired by the Company);
provided that at the time such Wholly Owned Subsidiary was acquired by the
Company or otherwise became a
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Restricted Subsidiary and after giving pro forma effect to the Incurrence
of such Debt, the Company would have been able to Incur $1.00 of additional
Debt pursuant to clause (a) in the first paragraph of this covenant;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or a Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (b) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of this covenant and clauses
(c), (e) and (i) above, subject, in the case of clause (c) above, to the
limitations set forth in the proviso thereto.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,
(a) a Voting Rights Triggering Event shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described
under "--Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of
the fiscal quarter during which the Issue Date occurs to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
such Restricted Payment (or if the aggregate amount of Consolidated Net
Income for such period shall be a deficit, minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt of the Company Incurred after the Issue
Date is reduced on the Company's balance sheet upon the conversion or
exchange (other than by the Company or a Subsidiary of the Company)
subsequent to the Issue Date of any Debt for Parity Stock or Junior Stock
(other than Disqualified Stock) of the Company (less the amount of any cash
or other Property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange),
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(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances or
other transfers of Property, in each case to the Company or any Restricted
Subsidiary from such Person, to the extent such dividends, repayments or
transfers do not increase the amount of Permitted Investments permitted to
be made pursuant to clause (i) of the definition thereof and (B) the
portion (proportionate to the Company's equity interest in such
Unrestricted Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person, and
(v) $5.0 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this covenant; provided, however, that at the
time of such payment of such dividend, no other Voting Rights Triggering
Event shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of, Parity
Stock or Junior Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees); provided, however,
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above; and
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value shares of, or options to purchase shares of, common stock of the
Company from employees or former employees of the Company or its
Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or termination pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors, under which such individuals
purchase or sell, or are granted the option to purchase or sell, shares of
such common stock; provided, however, that (i) the aggregate amount of such
purchases, repurchases, redemptions, defeasances, acquisitions or
retirements shall not exceed $2.5 million in any year or $5.0 million
during the term of the Exchange Preferred Stock, except that (x) such
amounts shall be increased by the aggregate net amount of cash received by
the Company after the Issue Date from the sale of such shares to, or the
exercise of options to purchase such shares by, employees of the Company or
its Subsidiaries and (y) the Company may forgive or return Employee Notes
without regard to the limitation set forth in clause (c)(i) above and such
forgiveness or return shall not be treated as a Restricted Payment for
purposes of determining compliance with such clause (c)(i) and (ii) such
purchases, repurchases, defeasances, acquisitions or retirements (but not
forgiveness or return of Employee Notes) shall be included in the
calculation of the amount of Restricted Payments.
Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries.
The Company shall not (a) sell, pledge, hypothecate or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary or (b) permit any Restricted
Subsidiary to, directly or indirectly, issue or sell or otherwise dispose of any
shares of its Capital Stock, other than (i) directors' qualifying shares, and
(ii) to the Company or a Wholly Owned Subsidiary. Notwithstanding the
foregoing, the Company may dispose of 100% of the shares of Capital Stock of
another Restricted Subsidiary, provided that (A) the Net Available Cash received
by the Company from any such transaction is applied within twelve months from
the date of the receipt of such Net Available Cash to prepay, repay, legally
defease or purchase Debt of the Company or any Restricted Subsidiary (excluding,
in any such case, Disqualified Stock and Debt owed to the Company or an
Affiliate of the Company) or to reinvest in Additional Assets (including by
means of an
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Investment in Additional Assets by the Company or a Restricted Subsidiary with
Net Available Cash received by the Company); and (B) the Company receives
consideration at the time of such disposition at least equal to the Fair Market
Value of such Restricted Subsidiary and at least 75% of the consideration paid
to the Company in connection with such disposition is in the form of cash or
cash equivalents or the assumption by the purchaser of liabilities of the
Company or any other Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Exchange Preferred Stock) as a result of which
the Company and the other Restricted Subsidiaries are no longer obligated with
respect to such liability.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist any
consensual restriction on the right of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock, or pay any Debt or other obligation owed, to the
Company or any Restricted Subsidiary (except, with respect to restrictions on
dividends of non-cash Property, as permitted pursuant to clause (ii) of the next
sentence), (b) make any loans or advances to the Company or any Restricted
Subsidiary or (c) transfer any of its Property to the Company or any Restricted
Subsidiary. The foregoing limitations will not apply (i) with respect to
clauses (a), (b) and (c), to restrictions (A) in effect on the Issue Date, (B)
pursuant to the Credit Facility, (C) relating to Debt of a Restricted Subsidiary
and existing at the time it became a Restricted Subsidiary if such restriction
was not created in connection with or in anticipation of the transaction or
series of transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company or (D) which result from
the Refinancing of Debt Incurred pursuant to an agreement referred to in clause
(i)(A) or (C) above or in clause (ii)(A) or (B) below, provided such restriction
is no less favorable to the holders of the Exchange Preferred Stock than those
under the agreement evidencing the Debt so Refinanced, and (ii) with respect to
clause (c) only, to restrictions (A) encumbering Property at the time such
Property was acquired by the Company or any Restricted Subsidiary, so long as
such restriction relates solely to the Property so acquired and was not created
in connection with or in anticipation of such acquisition, (B) resulting from
customary provisions restricting subletting or assignment of leases or customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder or (C) customary restrictions contained in asset sale
agreements limiting the transfer of such Property pending the closing of such
sale.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clauses (a) (ii) and (iii) of this paragraph as
evidenced by a Board Resolution promptly delivered to the Trustee and (c) if
such Affiliate Transaction involves aggregate payments or value in excess of
$5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments";
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(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or any
Restricted Subsidiary, as the case may be; provided that such loans and
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided, that
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of any preferred
stock issued in compliance with this covenant;
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company;
(ix) payments under any real or personal property lease with an
Affiliate of the Company existing at the date of the issue of the Initial
Preferred Stock and any other real or personal property lease with an
Affiliate of the Company that is approved by a majority of the
disinterested members of the board of directors of the Company; and
(x) sales of inventory at a price no less than the price the Company
paid to purchase such inventory and in customary volumes to Century
Airconditioning Supply, Inc. ("CAC"), purchases of inventory at cost from
CAC, and the provision of administrative services to CAC.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary, (b) the Subsidiary to be so designated is not
obligated under any Debt, Lien or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Debt of the Company or of any Restricted Subsidiary and (c) either (i) the
Subsidiary to be so designated has total assets of $1,000 or less or (ii) such
designation is effective immediately upon such entity becoming a Subsidiary of
the Company. Unless so designated as an Unrestricted Subsidiary, any Person
that becomes a Subsidiary of the Company will be classified as a Restricted
Subsidiary; provided, however, that such Subsidiary shall not be designated a
Restricted Subsidiary and shall be automatically classified as an Unrestricted
Subsidiary if the requirement set forth in the immediately following paragraph
will not be satisfied after giving pro forma effect to such classification.
Except as provided in the first sentence of this paragraph, no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, the Company could Incur at least $1.00 of additional Debt pursuant
to clause (a) of the first paragraph of the covenant described under "--
Limitation on Debt."
Any such designation or redesignation by the Board of Directors will be
evidenced a Board Resolution giving effect to such designation or redesignation.
Limitation on the Company's Business. The Company shall not, directly or
indirectly, engage in any business or activity other than the business currently
conducted by it and its Restricted Subsidiaries, and Related Businesses.
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MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Company)
expressly assumes all obligations of the Company under the Exchange Preferred
Stock and the Certificate of Designation; (c) in the case of a sale, transfer,
assignment, lease, conveyance or other disposition of all or substantially all
the Property of the Company, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person; (d) immediately before and
after giving effect to such transaction or series of transactions on a pro forma
basis (and treating, for purposes of this clause (d) and clauses (e) and (f)
below, any Debt which becomes, or is anticipated to become, an obligation of the
Surviving Person or any Restricted Subsidiary as a result of such transaction or
series of transactions as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction or series of
transactions), no Voting Rights Triggering Event shall have occurred and be
continuing; (e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as the
case may be, would be able to Incur at least $1.00 of additional Debt under
clause (a) of the first paragraph of the covenant described under "--Certain
Covenants--Limitation on Debt", determining compliance thereunder for this
purpose based upon the Consolidated Interest Expense, Consolidated Net Income
and EBITDA of the Company or the Surviving Person, as the case may be, and its
Restricted Subsidiaries; provided, however, that this clause (e) shall not apply
to a merger between the Company and a Wholly Owned Subsidiary of the Company
solely for the purpose of reincorporating the Company in another state of the
United States so long as the total amount of Indebtedness of the Company and its
Restricted Subsidiaries is not increased as a result thereof; and (f) the Board
of Directors shall adopt a Board Resolution and obtain an opinion of counsel,
each stating that such transaction in respect thereto comply with this covenant
and that all conditions precedent herein provided for relating to such
transaction have been satisfied.
SEC REPORTS
At any time after 60 days after the Issue Date, notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall file with the Commission and provide
registered holders of Preferred Stock and, upon request, security analysts of
prospective holders of Preferred Stock with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
sections, such information, documents and reports to be so filed and provided at
the times specified for the filing of such information, documents and reports
under such sections; provided, however, that the Company shall not be so
obligated to file such information, documents and reports with the Commission if
the Commission does not permit such filings.
BOOK-ENTRY SYSTEM
The Exchange Preferred Stock may be issued in the form of one or more
global securities (collectively, a "Global Security"). A Global Security will
be deposited with, or on behalf of, the DTC and registered in the name of the
DTC or its nominee. Except as set forth below, a Global Security may be
transferred, in whole and not in part, only to the DTC or another nominee of the
DTC. Investors may hold their beneficial interests in a Global Security
directly through the DTC if they have an account with the DTC or indirectly
through organizations which have accounts with the DTC.
Depository Procedures
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective number of shares of
the Exchange Preferred Stock represented by such Global Security purchased by
such Persons in the Offering. Such accounts shall be designated by the Initial
Purchaser. Ownership
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of beneficial interests in a Global Security will be limited to Persons that
have accounts with DTC ("participants") or Persons that may hold interests
through participants. Any Person acquiring an interest in a Global Security
through an offshore transaction in reliance on Regulation S of the Securities
Act may hold such interest through Cedel or Euroclear. Ownership of beneficial
interests in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by DTC
(with respect to participants' interests) and such participants (with respect to
the owners of beneficial interests in such Global Security other than
participants). The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
Payments of dividends on Exchange Preferred Stock represented by a Global
Security will be made in immediately available funds to DTC or its nominee, as
the case may be, as the sole registered owner and the sole holder of the
Exchange Preferred Stock represented thereby for all purposes under the
Certificate of Designation. The Company has been advised by DTC that upon
receipt of any payment of principal of or interest on any Global Security,
DTC will immediately credit, on its book-entry registration and transfer system,
the accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the face amount of such Global Security as
shown on the records of DTC. Payments by participants to owners of beneficial
interests in a Global Security held through such participants will be governed
by standing instructions and customary practices as is now the case with
securities held for customer accounts registered in "street name" and will be
the sole responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Exchange Preferred Stock only if (a) DTC notifies the Company
that it is unwilling or unable to continue as a depositary for such Global
Security or if at any time DTC ceases to be a clearing agency registered under
the Exchange Act, (b) the Company in its discretion at any time determines not
to have all the Exchange Preferred Stock represented by such Global Security or
(c) there shall have occurred and be continuing a Default or an Event of Default
with respect to the Exchange Preferred Stock represented by such Global
Security. Any Global Security that is exchangeable for certificated Exchange
Preferred Stock pursuant to the preceding sentence will be exchanged for
certificated Exchange Preferred Stock in authorized denominations and registered
in such names as DTC or any successor depositary holding such Global Security
may direct. Subject to the foregoing, a Global Security is not exchangeable,
except for a Global Security of like denomination to be registered in the name
of DTC or any successor depositary or its nominee. In the event that a Global
Security becomes exchangeable for certificated Exchange Preferred Stock, (a)
certificated Exchange Preferred Stock will be issued only in fully registered
form, (b) payment in respect of dividends and redemption payments on the
certificated Exchange Preferred Stock will be payable, and the transfer of the
certificated Exchange Preferred Stock will be registerable, at the office or
agency of the Company maintained for such purposes and (c) no service charge
will be made for any registration of transfer or exchange of the certificated
Exchange Preferred Stock, although the Company may require payment of a sum
sufficient to cover any tax or governmental charge imposed in connection
therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Exchange Preferred Stock represented by such Global Security for
all purposes under the Certificate of Designation and the Exchange Preferred
Stock. Except as set forth above, owners of beneficial interests in a Global
Security will not be entitled to have the Exchange Preferred Stock represented
by such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of certificated Exchange Preferred Stock
in definitive form and will not be considered to be the owners or holders of any
Exchange Preferred Stock under such Global Security. Accordingly, each Person
owning a beneficial interest in a Global Security must rely on the procedures of
DTC or any successor depositary, and, if such Person is not a participant, on
the procedures of the participant through which such Person owns its interest,
to exercise any rights of a holder under the Certificate of Designation. The
Company understands that under existing industry practices, in the event that
the Company requests any action of holders or that an owner of a beneficial
interest in a Global Security desires to give or take any action which a holder
is entitled to give or take under the Certificate of Designation, DTC or any
successor depositary would authorize the participants holding the relevant
beneficial interest to give or take such
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action and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations some of whom (or their
representatives) own DTC. Access to DTC's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies, that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Transfer
Agent or the Initial Purchaser will have any responsibility for the performance
by DTC or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation. Reference is made to the Certificate of Designation
for the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (b) any other Person who is a director or
officer of (i) such specified Person, (ii) any Subsidiary of such specified
Person or (iii) any Person described in clause (a) above. For the purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (a) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares) or
(b) any other assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary (other
than, in the case of clauses (a) and (b) above, (i) any disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) any disposition effected in
compliance with the first paragraph of the covenant described under "--Merger,
Consolidation and Sale of Property," (iii) any Sale and Leaseback Transaction
completed within 180 days following the original acquisition of the subject
assets where such Sale and Leaseback Transaction represents the intended
financing of Property acquired after the Issue Date and (iv) any disposition or
series of related dispositions of assets having a Fair Market Value and sale
price of less than $500,000.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with
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GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or preferred stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such preferred stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board of Directors" means the Board of Directors of the Company, or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including preferred stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (other than to a Subsidiary of the Company
or an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees) by the Company of any
class of its Parity Stock and Junior Stock (other than Disqualified Stock) after
the Issue Date, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Change of Control" means the occurrence of any of the following events:
(a) prior to the first Public Equity Offering of common stock of the
Company, the Initial Control Group cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of a majority of
the voting power of the Voting Stock of the Company, whether as a result of
the issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company or the Company, any direct or
indirect transfer of securities by the Initial Control Group or otherwise
(for purposes of this clause (a), the Initial Control Group will be deemed
to beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the Initial Control Group beneficially own, directly or indirectly,
in the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(b) after the first Public Equity Offering of common stock of the
Company, any "Person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 35% or more of the voting
power of the Voting Stock of the Company; provided, however, that the
Permitted Holders are the "beneficial owners" (as defined in
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Rule 13d-3 under the Exchange Act, except that a Person will be deemed to
have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, in the aggregate of a
lesser percentage of the total voting power of all classes of the Voting
Stock of the Company than such other Person or group (for purposes of this
clause (b), such Person or group shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation so
long as such Person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election or appointment by the
applicable board or whose nomination for election by the shareholders of
the Company or the Company was approved by a vote of 66 2/3% of the
applicable directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the members of such board then in office; or
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
Approval by the Company's Board of Directors will not prevent a transaction
from constituting a Change of Control if it otherwise falls within the
definition hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
Subsidiary has Incurred any Debt (other than Debt incurred in the ordinary
course of business pursuant to revolving credit facilities) since the beginning
of such period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated Interest Coverage Ratio is an Incurrence of
Debt, or both, Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Debt as if such discharge had occurred on the first day of such period, (ii)
if since the beginning of such period the Company or any Restricted Subsidiary
shall have repaid, repurchased, legally defeased or otherwise discharged any
Debt with Capital Stock Sale Proceeds, Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
discharge as if such discharge had occurred on the first day of such period,
(iii) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Sale or if the transaction giving rise to
the need to calculate the Consolidated Interest Coverage Ratio is an Asset Sale,
or both, EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable
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to the Property which is the subject of such Asset Sale for such period, or
increased by an amount equal to the EBITDA (if negative) directly attributable
thereto for such period, in either case as if such Asset Sale had occurred on
the first day of such period and Consolidated Interest Expense for such period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Debt of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such Asset
Sale, as if such Asset Sale had occurred on the first day of such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, by an amount equal to
the Consolidated Interest Expense for such period directly attributable to the
Debt of such Restricted Subsidiary to the extent to the Company and its
continuing Restricted Subsidiaries are no longer liable for such Debt after such
sale), (iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Debt) as if
such Investment or acquisition occurred on the first day of such period, (v) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
Investment or acquisition of Property that would have required an adjustment
pursuant to clause (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such period,
and (vi) if since the beginning of such period the Company or any Restricted
Subsidiary shall have permanently reduced or repaid the amount owing under the
Credit Facility or shall have reduced or repaid Debt with a maturity in excess
of one year Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such reduction or repayment as if
such reduction or repayment had occurred on the first day of such period. For
purposes of this definition, pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company and as
further contemplated by the definition of the term "pro forma." If any Debt
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Debt shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Debt if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of debt discount and debt
issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expense (other than interest, if any, that is paid in kind on
the Exchange Debentures, if issued), (e) commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Parity Stock or Junior Stock of the Company which
is not Disqualified Stock, (h) preferred stock dividends in respect of all
preferred stock of Restricted Subsidiaries held by Persons other than the
Company or a Wholly Owned Subsidiary, (i) interest Incurred in connection with
Investments in discontinued operations, (j) interest accruing on any Debt of any
other Person to the extent such Debt is Guaranteed by the Company or any
Restricted Subsidiary and (k) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an
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Unrestricted Subsidiary for such period shall be included in determining such
Consolidated Net Income, (b) for the purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, any net income
(loss) of any Person acquired by the Company or any of its consolidated
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition, (c) any net income (but not loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to consensual restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions, directly or indirectly, to the Company, except that subject to
the exclusion contained in clause (d) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to another Restricted Subsidiary, to the
limitation contained in this clause), (d) any gain (or, for purposes of the
covenants described under "--Certain Covenants--Limitation on Debt" and "--
Merger, Consolidation and Sale of Property" only, loss) realized upon the sale
or other disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business, provided,
that any tax benefit or tax liability resulting therefrom shall be excluded from
such Consolidated Net Income, (e) any extraordinary gain or loss, or any non-
recurring cost or expense relating the Recapitalization provided, that any tax
benefit or tax liability resulting therefrom shall be excluded from such
Consolidated Net Income, (f) the cumulative effect of a change in accounting
principles; and (g) any non-cash compensation expense realized as a result of
the grant, vesting or exercise of performance shares, stock options or other
stock awards to officers, directors and employees of the Company or any
Restricted Subsidiary; and (h) bonuses paid to employees in connection with the
Recapitalization up to $1.0 million in the aggregate. Notwithstanding the
foregoing, for the purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (c)(iv) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory) or trade letters of credit, in each case
together with any amendments, supplements, modifications (including by any
extension of the maturity thereof), refinancings or replacements thereof by a
lender or syndicate of lenders in one or more successive transactions (including
any such transaction that changes the amount available thereunder, replaces such
agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any
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preferred stock (but excluding, in each case, any accrued dividends); (f) all
obligations of the type referred to in clauses (a) through (e) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (g) all obligations
of the type referred to in clauses (a) through (f) of other Persons secured by
any Lien on any Property of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such Property or the amount of the obligation so secured;
and (h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Debt of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date; provided that the amount outstanding at any time of any Debt issued with
original issue discount is the face amount of such Debt less the remaining
unamortized portion of the original issue discount of such Debt at such time as
determined in accordance with GAAP.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable Stock of
such Person (other than the Exchange Preferred Stock) as to which (i) the
maturity, (ii) mandatory redemption or (iii) redemption, repurchase, conversion
or exchange at the option of the holder thereof occurs, or may occur, on or
prior to the first anniversary of the Stated Maturity of the Exchange Preferred
Stock; provided, however, that Redeemable Stock of such Person that would not
otherwise be characterized as Disqualified Stock under this definition shall not
constitute Disqualified Stock (a) if such Redeemable Stock is convertible or
exchangeable into Debt or Disqualified Stock solely at the option of the issuer
thereof or (b) solely as a result of provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Redeemable Stock
upon the occurrence of a "change of control" occurring prior to the first
anniversary of the Stated Maturity of the Exchange Preferred Stock, if (x) such
repurchase obligation may not be triggered in respect of such Redeemable Stock
unless a corresponding obligation also arises with respect to the Exchange
Preferred Stock and (y) no such repurchase or redemption is permitted to be
consummated unless and until such Person shall have satisfied all repurchase or
redemption obligations with respect to any required purchase offer made with
respect to the Exchange Preferred Stock.
"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent reducing Consolidated Net Income
for such period: (i) the provision for taxes based on income or profits or
utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization expense and (v) any other non-cash items (other
than any such non-cash item to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), minus (b) all non-cash
items increasing Consolidated Net Income for such period (other than any such
non-cash item to the extent that it will result in the receipt of cash payments
in any future period). Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would not be prohibited at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
any consensual restriction applicable to such Restricted Subsidiary.
"Employee Notes" means promissory notes of employees of the Company or any
of its Subsidiaries payable to the Company and received in connection with the
substantially concurrent purchase of common stock of the Company by such
employees.
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $2.5 million, by any Officer
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of the Company or (b) if such Property has a Fair Market Value in excess of $2.5
million, by a majority of the Board of Directors and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that solely for
purposes of determining compliance with "--Certain Covenants--Limitation on
Debt," amortization of debt discount shall not be deemed to be the Incurrence of
Debt, provided that in the case of Debt sold at a discount, the amount of such
Debt Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Company.
"Initial Control Group" means Dennis C. Bearden (or his heirs or trusts for
the benefit of his heirs), the members of the Board of Directors of the Company
immediately following the consummation of the Recapitalization and Freeman
Spogli & Co. Incorporated or any successor entity thereof controlled by the
principals of Freeman Spogli & Co. LLC or any entity controlled by, or under
common control with, Freeman Spogli & Co. LLC.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of the covenants described under "--Certain Covenants--Limitation on Restricted
Payments," "--Designation of Restricted and Unrestricted Subsidiaries" and
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the definition of "Restricted Payment" and "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the Fair Market Value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (a) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (b) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation. In determining the amount of any
Investment made by transfer of any Property other than cash, such property shall
be valued at its Fair Market Value at the time of such Investment.
"Issue Date" means the date on which the Exchange Preferred Stock is
initially issued.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale or other transaction subject to
the covenant described under "--Certain Covenants--Limitation on Issuance or
Sale of Capital Stock of Restricted Subsidiaries" means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such transaction or received in any other non-
cash form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such transaction, (b) all payments made on any Debt
which is secured by any Property subject to such transaction, in accordance with
the terms of any Lien upon or other security agreement of any kind with respect
to such Property, or which must by its terms, or in order to obtain a necessary
consent to such transaction, or by applicable law, be repaid out of the proceeds
from such transaction, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such transaction and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such transaction and retained by the Company or
any Restricted Subsidiary after such transaction.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Transfer Agent.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company or the Trustee.
"Permitted Holders" means the Continuing Stockholders, any member of the
senior management of the Company or any of its Subsidiaries (or trusts for the
benefit of his or her immediate family), the directors of the Company
immediately following the consummation of the Recapitalization, and Freeman
Spogli & Co. LLC or any successor entity thereof controlled by the principals of
Freeman Spogli & Co. LLC or any entity controlled by, or under common control
with, Freeman Spogli & Co. LLC.
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"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in (a) any Restricted Subsidiary or any Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided that the
primary business of such Restricted Subsidiary is a Related Business; (b) any
Person if as a result of such Investment such Person is merged or consolidated
with or into, or transfers or conveys all or substantially all its Property to,
the Company or a Restricted Subsidiary; provided that such Person's primary
business is a Related Business; (c) Temporary Cash Investments; (d) receivables
owing to the Company or a Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or such Restricted Subsidiary deems
reasonable under the circumstances; (e) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (f) (i) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and advances
do not exceed $1.0 million at any one time outstanding and (ii) loans and
advances to, or the receipt of Employee Notes from, employees of the Company or
any of its Subsidiaries made or received in connection with the substantially
concurrent purchase of common stock of the Company by such employees; provided
that the aggregate principal amount of such loans, advances and notes payable
shall not exceed $1.0 million at any one time outstanding; (g) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or a Restricted Subsidiary
or in satisfaction of judgments; (h) any Person to the extent such Investment
represents the non-cash portion of the consideration received in connection with
a disposition of assets; and (i) Investments in Persons engaged in a Related
Business not to exceed $20.0 million at any one time outstanding (it being
agreed that an Investment shall cease to be outstanding to the extent of
dividends, repayments of loans or advances or other transfers of Property
received by the Company or any Restricted Subsidiary from such Persons, provided
that such amounts do not increase the amount of Restricted Payments which the
Company and the Restricted Subsidiaries may make pursuant to clause (c)(iv)(A)
of the covenant described under "Certain Covenants--Limitation on Restricted
Payments").
"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"preferred stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
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"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred purchase
price of property, conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and obligations in respect
of industrial revenue bonds, in each case where the maturity of such Debt does
not exceed the anticipated useful life of the asset being financed, or (b)
Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
(other than the Exchange Preferred Stock) that by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable, in
either case at the option of the holder thereof) or otherwise (a) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (b)
is or may become redeemable or repurchaseable at the option of the holder
thereof, in whole or in part, or (c) is convertible or exchangeable, in either
case at the option of the holder thereof, for Debt or Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" means (a) any dividend or distribution (whether made
in cash, securities or other Property) declared or paid on or with respect to
any shares of Parity Stock or Junior Stock of the Company or any Capital Stock
of any Restricted Subsidiary (including any payment in connection with any
merger or consolidation with or into the Company or any Restricted Subsidiary),
except for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividend or distribution payable
solely in shares of Junior Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of
any Parity Stock or Junior Stock of the Company or any Capital Stock of any
Affiliate of the Company (other than from the Company or a Restricted
Subsidiary) or any securities exchangeable for or convertible into any such
Parity Stock, Junior Stock or Capital Stock, including the exercise of any
option to exchange any such Parity Stock, Junior Stock or Capital Stock (other
than for or into Capital Stock that is not Disqualified Stock); or (c) any
Investment (other than Permitted Investments) in any Person. For purposes of the
Exchange Debentures and Exchange Indenture, the definition of "Restricted
Payment" shall include (a) through (c) above and (d) the purchase, repurchase
redemption, acquisition or retirement for value, prior to any scheduled
maturity, scheduled sinking fund or mandatory redemption payment, of any
Subordinated Obligation (other than the purchase, repurchase or other
acquisition of any Subordinated Obligation purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition.)
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under "--Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries" and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to the covenant described under "--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries."
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"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to Property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subsidiary" means, in respect of any Person, any corporation, company,
association, partnership, joint venture or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled directly or indirectly, by (a) such
Person, (b) such Person and one or more Subsidiaries of such Person or (c) one
or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (a) Investments in
U.S. Government Obligations; (b) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 90 days of the
date of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America or any state thereof having
capital, surplus and undivided profits aggregating in excess of $500.0 million
and whose long-term debt is rated "A-3" or "A-" or higher according to Moody's
or S&P (or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); (c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into with a
bank meeting the qualifications described in clause (b) above; (d) Investments
in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of The Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (e)
direct obligations (or certificates representing an ownership interest in such
obligations) of any state of the United States of America (including any agency
or instrumentality thereof) for the payment of which the full faith and credit
of such state is pledged and which are not callable or redeemable at the
issuer's option, provided that (i) the long-term debt of such state is rated "A-
3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)) and (ii) such obligations
mature within 180 days of the date of acquisition thereof; and (f) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (a) through (e) above.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to the covenant described under "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries" and not
thereafter redesignated as a Restricted Subsidiary as permitted pursuant
thereto.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
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"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors' qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under an indenture (the
"Exchange Indenture"), between the Company and a financial institution with a
combined capital and surplus of at least $100.0 million, as Trustee (the
"Trustee"). The following is a summary of certain provisions of the Exchange
Indenture and the Exchange Debentures. A copy of the form of the Exchange
Indenture and the form of the Exchange Debentures are available upon request to
the Company at the Company's address set forth under "Available Information."
The following summary of certain provisions of the Exchange Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Exchange Indenture, including those
terms made a part thereof by the Trust Indenture Act of 1939, as amended. For
purposes of this Section, references to "the Company" shall mean Century
Maintenance Supply, Inc. excluding its subsidiaries. Certain other capitalized
terms used but not defined in the following summary are set forth under "--
Description of the Exchange Preferred Stock--Certain Definitions." Other
capitalized terms used but not defined herein and not otherwise defined under "-
- -Description of the Exchange Preferred Stock--Certain Definitions" are defined
in the Exchange Indenture. The terms of the New Credit Facility limit the
Company's ability to issue the Exchange Debentures. See "Description of New
Credit Facility."
The Exchange Debentures will mature on July 1, 2010 and will be limited in
aggregate principal amount to the liquidation preference of the Preferred Stock,
plus without duplication, accumulated and unpaid dividends on the Exchange Date
of the Preferred Stock for Exchange Debentures (plus any additional Exchange
Debentures issued in lieu of cash interest as described herein). Future
indebtedness of the Company may prohibit the Company from making payments on the
Exchange Debentures at maturity. The Exchange Debentures will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000 other than as described in "Description of the
Exchange Preferred Stock--Exchange for Exchange Debentures" or with respect to
additional Exchange Debentures issued in lieu of cash interest as described
herein.
The Exchange Debentures will bear interest at the rate of 13 1/4% per annum
from the most recent date on which interest has been paid or, if no interest has
been paid from the Exchange Date, payable semiannually in cash (or, on or prior
to July 1, 2003, in additional Exchange Debentures, at the option of Company) in
arrears on each January 1 and July 1, beginning on the first such date after the
Exchange Date, to the Persons who are registered holders of the Exchange
Debentures at the close of business on the preceding December 15 or June 15 as
the case may be. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Exchange Debentures
will be payable and the Exchange Debentures will be exchangeable and
transferable, at an office or agency of the Company, one of which will be
maintained for such purpose in The City of New York (which initially will be the
corporate trust office of the Trustee); provided, however, that payment of
interest may be made at the option of the Company by check mailed to the Person
entitled thereto as shown on the Security Register. No service charge will be
made for any registration of transfer or exchange of Exchange Debentures, except
for any tax or other governmental charge that may be imposed in connection
therewith.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Debentures will not be redeemable
at the option of Company prior to July 1, 2003. Thereafter, the Exchange
Debentures will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each holder's registered address, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
July 1 of the years set forth below:
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<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------------------- -------------
<S> <C> <C>
2003.................. 106.625%
2004.................. 105.300%
2005.................. 103.975%
2006.................. 102.650%
2007.................. 101.325%
2008 and thereafter... 100.000%
</TABLE>
In addition, at any time prior to January 1, 2001, the Company may redeem
at its option (i) up to 50% or (ii) all but not less than all of the outstanding
Exchange Debentures with the net proceeds of any Public Equity Offering by the
Company at a redemption price (expressed as a percentage of principal amount) of
113 1/4% plus accrued interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date). Any such redemption shall be made for a period
of 90 days following consummation of such Public Equity Offering upon not less
than 30 nor more than 60 days' notice.
SUBORDINATION
The Exchange Debentures will be subordinated, unsecured obligations of the
Company. The payment of the principal of, and premium, if any, and interest on,
the Exchange Debentures will be subordinated in right of payment to the payment
when due of all Senior Debt (including senior subordinated indebtedness) of the
Company. The Exchange Debentures will rank pari passu in right of payment with
any future Subordinated Debt of the Company.
As of June 30, 1998, after giving effect to the Recapitalization, the
Company would have had approximately $100.0 million of Senior Debt. The Company
would also have had $25.0 million of undrawn commitments available under the New
Credit Facility, which if drawn would constitute Senior Debt. The Company would
not have had any outstanding Subordinated Debt.
The Exchange Debentures will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of Subsidiaries
of the Company. Since a substantial portion of the operations of the Company
are conducted through Subsidiaries, the Company's ability to service its debt,
including the Exchange Debentures , is partially dependent upon the earnings of
any such Subsidiaries and the distribution of those earnings to, or upon loans
or other payments of funds by those Subsidiaries to, the Company. The payment
of dividends and the making of loans and advances to the Company by such
Subsidiaries are subject to statutory restrictions.
The Company may not pay principal of, or premium, if any, or interest on,
the Exchange Debentures, or make any deposit pursuant to the provisions
described under "--Events of Default--Defeasance," and may not repurchase,
redeem or otherwise retire any Exchange Debentures (collectively, "pay the
Exchange Debentures"), if (a) any principal, premium or interest in respect of
any Senior Debt is not paid within any applicable grace period (including at
maturity) or (b) any other default on Senior Debt occurs and the maturity of
such Senior Debt is accelerated in accordance with its terms unless, in either
case, (i) the default has been cured or waived and any such acceleration has
been rescinded or (ii) such Senior Debt has been paid in full in cash; provided,
however, that the Company may pay the Exchange Debentures without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of each issue of Designated Senior Debt. During
the continuance of any default (other than a default described in clause (a) or
(b) of the preceding sentence) with respect to any Designated Senior Debt
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except notice required to effect the acceleration) or the
expiration of any applicable grace period, the Company may not pay the Exchange
Debentures for a period (a "Payment Blockage Period") commencing upon the
receipt by the Company and the Trustee of written notice of such default from
the Representative of the holders of such Designated Senior Debt specifying an
election to effect a Payment Blockage Period (a "Payment Blockage Notice") and
ending 179 days thereafter (unless such Payment Blockage Period is earlier
terminated (a) by written notice to the Trustee and the Company from the
Representative which gave such
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Payment Blockage Notice, (b) because such default is no longer continuing or (c)
because such Designated Senior Debt has been repaid in full in cash). Unless the
holders of such Designated Senior Debt or the Representative of such holders
have accelerated the maturity of such Designated Senior Debt and not rescinded
such acceleration, the Company may (unless otherwise prohibited as described in
the first sentence of this paragraph) resume payments on the Exchange Debentures
after the end of such Payment Blockage Period. Not more than one Payment
Blockage Notice with respect to all issues of Designated Senior Debt may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to one or more issues of Designated Senior Debt during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its Property, the holders of Senior Debt will be
entitled to receive payment in full in cash before the holders of the Exchange
Debentures are entitled to receive any payment of principal of or interest on
the Exchange Debentures, except that holders of Exchange Debentures may receive
and retain shares of stock and any debt securities that are subordinated to
Senior Debt to at least the same extent as the Exchange Debentures. Until the
Senior Debt is paid in full in cash, any distribution to which holders of the
Exchange Debentures would be entitled will be made to holders of the Senior
Debt. If a payment or distribution is made to holders of Exchange Debentures
that, due to the subordination provisions, should not have been made to them,
such holders are required to hold it in trust for the holders of Senior Debt and
pay it over to them as their interests may appear.
If payment of the Exchange Debentures is accelerated when any Designated
Senior Debt is outstanding, the Company may not pay the Exchange Debentures
until three business days after the Representatives of all issues of Designated
Senior Debt receive notice of such acceleration.
By reason of the subordination provisions contained in the Exchange
Indenture, in the event of bankruptcy or similar proceedings relating to the
Company, holders of Senior Debt and other creditors (including trade creditors)
of the Company may recover more ratably, even if the Exchange Debentures are
pari passu with their claims, than the holders of the Exchange Debentures. In
such event, there may be insufficient assets or no assets remaining to pay the
principal of or interest on the Exchange Debentures.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust pursuant to the provisions described under "--Events of
Default--Defeasance" will not be subject to the subordination provisions
described above.
See "Risk Factors--Subordination," "--Fraudulent Conveyance
Considerations," "--Substantial Leverage; Stockholders' Deficit" and
"Description of New Credit Facility."
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the
Exchange Debentures pursuant to the provisions described under "--Events of
Default--Defeasance."
For the purposes of this section regarding Subordination, the following
definitions apply:
"Designated Senior Debt" means any Senior Debt which has, at the time of
determination, an aggregate principal amount outstanding of at least $10.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of the Exchange Indenture; provided that the Credit Facility shall
be deemed to be Designated Senior Debt under the Exchange Indenture.
"Senior Debt" of the Company means (a) all obligations consisting of the
principal, premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent post-filing interest is
allowed in such proceeding) in respect
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of (i) Debt of the Company for borrowed money, including Debt under the Credit
Facility, and (ii) Debt of the Company evidenced by notes, debentures, bonds or
other similar instruments permitted under the Exchange Indenture for the payment
of which the Company is responsible or liable; (b) all Capital Lease Obligations
of the Company; (c) all obligations of the Company (i) for the reimbursement of
any obligor on any letter of credit, bankers' acceptance or similar credit
transaction, (ii) under Hedging Obligations or (iii) issued or assumed as the
deferred purchase price of Property and all conditional sale obligations of the
Company and all obligations under any title retention agreement permitted under
the Exchange Indenture; and (d) all obligations of other Persons of the type
referred to in clauses (a), (b) and (c) for the payment of which the Company is
responsible or liable as Guarantor; provided, however, that Senior Debt shall
not include (A) Debt of the Company that is by its terms subordinate or pari
passu in right of payment to the Exchange Debentures, including any Subordinated
Debt and Subordinated Obligations; (B) any Debt Incurred in violation of the
provisions of the Exchange Indenture; (C) accounts payable or any other
obligations of the Company to trade creditors created or assumed by the Company
in the ordinary course of business in connection with the obtaining of materials
or services (including Guarantees thereof or instruments evidencing such
liabilities); (D) any liability for Federal, state, local or other taxes owed or
owing by the Company; (E) any obligation of the Company to any Subsidiary; or
(F) any obligations with respect to any Capital Stock.
BOOK-ENTRY SYSTEM
The Exchange Debentures may be issued in the form of one or more global
securities (collectively, a "Global Security"). A Global Security will be
deposited with, or on behalf of, the DTC and registered in the name of the DTC
or its nominee. Except as set forth below, a Global Security may be
transferred, in whole and not in part, only to the DTC or another nominee of the
DTC. Investors may hold their beneficial interests in a Global Security
directly through the DTC if they have an account with the DTC or indirectly
through organizations which have accounts with the DTC.
Depository Procedures
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the Exchange Debentures represented by such Global Security purchased by such
Persons. Such accounts shall be designated by the Initial Purchaser of such
Exchange Debentures. Ownership of beneficial interests in a Global Security will
be limited to Persons that have accounts with DTC ("participants") or Persons
that may hold interests through participants. Any Person acquiring an interest
in a Global Security through an offshore transaction in reliance on Regulation S
of the Securities Act may hold such interest through Cedel or Euroclear.
Ownership of beneficial interests in a Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by DTC (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in such Global
Security other than participants). The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of and interest on Exchange Debentures represented by
a Global Security will be made to DTC or its nominee, as the case may be, as the
sole registered owner and the sole holder of the Exchange Debentures represented
thereby for all purposes under the Exchange Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Security, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Security held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Exchange Debentures only if (a) DTC notifies the Company that
it is unwilling or unable to continue as a depositary for such Global Security
or if at any time DTC ceases to be a clearing agency registered under the
Exchange Act, (b) the Company in its discretion at
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any time determines not to have all the Exchange Debentures represented by such
Global Security or (c) there shall have occurred and be continuing a Default or
an Event of Default with respect to the Exchange Debentures represented by such
Global Security. Any Global Security that is exchangeable for certificated
Exchange Debentures pursuant to the preceding sentence will be exchanged for
certificated Exchange Debentures in authorized denominations and registered in
such names as DTC or any successor depositary holding such Global Security may
direct. Subject to the foregoing, a Global Security is not exchangeable, except
for a Global Security of like denomination to be registered in the name of DTC
or any successor depositary or its nominee. In the event that a Global Security
becomes exchangeable for certificated Exchange Debentures, (a) certificated
Exchange Debentures will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (b) payment of principal
of, and premium, if any, and interest on, the certificated Exchange Debentures
will be payable, and the transfer of the certificated Exchange Debentures will
be registerable, at the office or agency of the Company maintained for such
purposes and (c) no service charge will be made for any registration of transfer
or exchange of the certificated Exchange Debentures, although the Company may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Exchange Debentures represented by such Global Security for all
purposes under the Exchange Indenture and the Exchange Debentures. Except as
set forth above, owners of beneficial interests in a Global Security will not be
entitled to have the Exchange Debentures represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Exchange Debentures in definitive form and will not be
considered to be the owners or holders of any Exchange Debentures under such
Global Security. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its interest, to exercise any rights of a holder
under the Exchange Indenture. The Company understands that under existing
industry practices, in the event that the Company requests any action of holders
or that an owner of a beneficial interest in a Global Security desires to give
or take any action which a holder is entitled to give or take under the Exchange
Indenture, DTC or any successor depositary would authorize the participants
holding the relevant beneficial interest to give or take such action and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations some of whom (or their
representatives) own DTC. Access to DTC's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies, that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee or
the Initial Purchaser will have any responsibility for the performance by DTC or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
REPURCHASE AT THE OPTION OF THE HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange
Debentures shall have the right to require the Company to repurchase all or any
part of such holder's Exchange Debentures pursuant to the offer described below
(the "Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date
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(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date). The Trustee does
not have the authority under the Exchange Indenture to waive the covenant
relating to the holder's right to require redemption of the Exchange Debentures
upon the occurrence of a Change of Control.
Within 30 days following any Change of Control, the Company shall (a) cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States and (b)
send, by first-class mail, with a copy to the Trustee, to each holder of
Exchange Debentures, at such holder's address appearing in the Security
Register, a notice stating: (i) that a Change of Control has occurred and a
Change of Control Offer is being made pursuant to the covenant entitled
"Repurchase at the Option of Holders Upon a Change of Control" and that all
Exchange Debentures timely tendered will be accepted for payment; (ii) the
Change of Control Purchase Price and the purchase date, which shall be, subject
to any contrary requirements of applicable law, a business day no earlier than
30 days nor later than 60 days from the date such notice is mailed; (iii) the
circumstances and relevant facts regarding the Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to the Change of Control); and (iv) the
procedures that holders of Exchange Debentures must follow in order to tender
their Exchange Debentures (or portions thereof) for payment, and the procedures
that holders of Exchange Debentures must follow in order to withdraw an election
to tender Exchange Debentures (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Exchange Debentures pursuant to a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
hereunder by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations
between the Company and the Initial Purchaser. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to
certain covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Exchange Indenture, but that could increase the amount of debt outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" the Company's assets. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of Exchange Debentures to require the Company to repurchase
such Exchange Debentures as a result of a sale, transfer, assignment, lease,
conveyance or other disposition of less than all the assets of the Company may
be uncertain.
The Credit Facility prohibits the repurchase by the Company of any Exchange
Debentures. In addition, the occurrence of certain of the events that would
constitute a Change of Control would constitute a default under the Credit
Facility. Other future debt of the Company may require repayment upon a Change
of Control and may prohibit the Company from repurchasing Exchange Debentures.
Moreover, the exercise by holders of Exchange Debentures of their right to
require the Company to repurchase such Exchange Debentures could cause a default
under existing or future debt of the Company, even if the Change of Control
itself does not. Finally, the Company's ability to pay cash to holders of
Exchange Debentures upon a repurchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The Company's
failure to purchase Exchange Debentures in connection with a Change of Control
would result in a default under the Exchange Indenture which would, in turn,
constitute a default under existing (and may constitute a default under future)
debt of the Company. If such debt constitutes Designated Senior Debt, the
subordination provisions in the Exchange Indenture would likely restrict payment
to holders of Exchange Debentures. The provisions under the Exchange Indenture
relative to the Company's obligation to make an offer to repurchase the Exchange
Debentures as a result of a Change of Control
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may be waived or modified (at any time prior to the occurrence of such Change of
Control) with the written consent of the holders of a majority in principal
amount of the Exchange Debentures.
CERTAIN COVENANTS
The Exchange Indenture contains covenants including, among others, the
following:
Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after
giving pro forma effect to the application of the proceeds thereof, no Default
or Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either (a) after giving effect to the
Incurrence of such Debt and the application of the proceeds thereof, the
Consolidated Interest Coverage Ratio would be greater than 2.00 to 1.00 or (b)
such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt evidenced by the Exchange Debentures;
(b)(i) Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $100.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans and obligations at any one time outstanding shall
not exceed the greater of (x) $25.0 million or (y) the sum of the amounts
equal to (1) 60% of the net book value of the inventory of the Company and
the Restricted Subsidiaries and (2) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recent fiscal quarter ending at least 45 days prior to
the date of determination and (ii) Guarantees of Debt under the New Credit
Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided that (i) the aggregate principal amount of such Debt does
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased (including costs of
installation, taxes and delivery charges with respect to such acquisition,
construction or lease) and (ii) the aggregate principal amount of all Debt
Incurred and then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (c) and then outstanding) does not exceed
$10.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Wholly Owned Subsidiary became a
Subsidiary of the Company or was otherwise acquired by the Company);
provided that at the time such Wholly Owned Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary and after giving pro
forma effect to the Incurrence of such Debt, the Company would have been
able to Incur $1.00 of additional Debt pursuant to clause (a) in the first
paragraph of this covenant;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations
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under such agreements are directly related to payment obligations on Debt
otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of this covenant and clauses
(a), (c), (e) and (i) above, subject, in the case of clause (c) above, to
the limitations set forth in the proviso thereto.
Notwithstanding the immediately foregoing two paragraphs, (a) the Company
shall not, and shall not permit any Restricted Subsidiary to, Incur any Debt
pursuant to such paragraphs if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Debt shall be
subordinated to the Exchange Debentures to at least the same extent as such
Subordinated Obligations.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described
under "--Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to the
end of the most recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or if the aggregate amount of Consolidated
Net Income for such period shall be a deficit, minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the conversion or
exchange (other than by the Company or a Subsidiary of the Company)
subsequent to the Issue Date of any Debt (other than Subordinated
Obligations) of the Company for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange), and
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(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted Subsidiary
resulting from dividends, repayments of loans or advances or other
transfers of Property, in each case to the Company or any Restricted
Subsidiary from such Person, to the extent such dividends, repayments or
transfers do not increase the amount of Permitted Investments permitted to
be made pursuant to clause (i) of the definition thereof and (B) the
portion (proportionate to the Company's equity interest in such
Unrestricted Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person, and
(v) $5.0 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Exchange Indenture; provided, however,
that at the time of such payment of such dividend, no other Default or
Event of Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or in an amount not in excess of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (i) such purchase, repurchase,
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (ii) the
Capital Stock Sale Proceeds from such exchange or sale shall be excluded
from the calculation pursuant to clause (c)(ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of,
Permitted Refinancing Debt; provided, however, that such purchase,
repurchase, redemption, legal defeasance, acquisition or retirement shall
be excluded in the calculation of the amount of Restricted Payments;
(d) purchase, repurchase, redeem, legally defease, acquire or retire
for value shares of, or options to purchase shares of, common stock of the
Company, from employees or former employees of the Company or its
Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or termination pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors, under which such individuals
purchase or sell, or are granted the option to purchase or sell, shares of
such common stock, provided, however, that (i) the aggregate amount of such
purchases, repurchases, redemptions, defeasances, acquisitions or
retirements shall not exceed $2.5 million in any year or $5.0 million
during the term of the Exchange Debentures, except that (x) such amounts
shall be increased by the aggregate net amount of cash received by the
Company after the Issue Date from the sale of such shares to, or the
exercise of options to purchase such shares by, employees of the Company or
its Subsidiaries and (y) the Company may forgive or return Employee Notes
without regard to the limitation set forth in clause (d)(i) above and such
forgiveness or return shall not be treated as a Restricted Payment for
purposes of determining compliance with such clause (d)(i) and (ii) such
purchases, repurchases, defeasances, acquisitions or retirements (but not
forgiveness or return of Employee Notes) shall be included in the
calculation of the amount of Restricted Payments; and
(e) purchase or redeem Subordinated Obligations pursuant to asset sale
or change of control provisions contained in the governing instrument
relating thereto; provided, however, that (i) no offer or
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purchase obligation may be triggered in respect of any such Subordinated
Obligation unless a corresponding obligation also arises with respect to
the Exchange Debentures and (ii) in any event, no repurchase or redemption
of any such Subordinated Obligation may be consummated unless and until the
Company shall have satisfied all repurchase obligations with respect to any
required purchase offer made with respect to the Exchange Debentures;
provided, however, that such purchases or redemptions shall be included in
the calculation of the amount of Restricted Payments.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless (i)
if such Lien secures Subordinated Debt, the Exchange Debentures are secured on
an equal and ratable basis with such Debt and (ii) if such Lien secures
Subordinated Obligations, such Lien shall be subordinated to a Lien securing the
Exchange Debentures in the same Property as that securing such Lien to the same
extent as such Subordinated Obligations are subordinated to the Exchange
Debentures.
Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries.
The Company shall not (a) sell, pledge, hypothecate or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary or (b) permit any Restricted
Subsidiary to, directly or indirectly, issue or sell or otherwise dispose of any
shares of its Capital Stock, other than (i) directors' qualifying shares, (ii)
to the Company or a Wholly Owned Subsidiary or (iii) a disposition of 100% of
the shares of Capital Stock of a Restricted Subsidiary that complies with the
covenant described under "--Limitation on Asset Sales."
Limitation on Asset Sales. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
Property subject to such Asset Sale; (b) at least 75% of the consideration
received by the Company or such Restricted Subsidiary in connection with such
Asset Sale is in the form of cash, cash equivalents or Additional Assets or the
assumption by the purchaser of liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Exchange Debentures) as a result of which the Company and the Restricted
Subsidiaries are no longer obligated with respect to such liabilities; and (c)
the Company delivers an Officers' Certificate to the Trustee certifying that
such Asset Sale complies with the foregoing clauses (a) and (b).
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Debt): (a)
to prepay, repay, legally defease or purchase Senior Debt of the Company or any
Restricted Subsidiary (excluding, in any such case, Disqualified Stock and Debt
owed to the Company or an Affiliate of the Company); or (b) to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary); provided, however, that in connection with any
prepayment, repayment, legal defeasance or purchase of Debt pursuant to clause
(a) above, the Company or such Restricted Subsidiary shall retire such Debt and
shall cause the related loan commitment (if any) to be permanently reduced by an
amount equal to the principal amount so prepaid, repaid, legally defeased or
purchased.
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within twelve months from the date of the receipt of
such Net Available Cash shall constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10.0 million (taking into account income
earned on such Excess Proceeds, if any), the Company will be required to make an
offer to purchase (the "Prepayment Offer") the Exchange Debentures which offer
shall be in the amount of the Excess Proceeds, on a pro rata basis according to
principal amount, at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the purchase date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in the Exchange Indenture. To the extent that any portion of the amount of Net
Available Cash remains after compliance with the preceding sentence and provided
that all holders of Exchange Debentures have been given the opportunity to
tender their Exchange Debentures for purchase in accordance with
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the Exchange Indenture, the Company or such Restricted Subsidiary may use such
remaining amount for any purpose permitted by the Exchange Indenture and the
amount of Excess Proceeds will be reset to zero.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall send
a written notice, by first-class mail, to the holders of Exchange Debentures,
accompanied by such information regarding the Company and its Subsidiaries as
the Company in good faith believes will enable such holders to make an informed
decision with respect to such Prepayment Offer. Such notice shall state, among
other things, the purchase price and the purchase date, which shall be, subject
to any contrary requirements of applicable law, a business day no earlier than
30 days nor later than 60 days from the date such notice is mailed.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Exchange Debentures pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the covenant
described hereunder, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the covenant described hereunder by virtue thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist any
consensual restriction on the right of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock, or pay any Debt or other obligation owed, to the
Company or any other Restricted Subsidiary (except, with respect to restrictions
on dividends of non-cash Property, as permitted pursuant to clause (ii) of the
next sentence), (b) make any loans or advances to the Company or any other
Restricted Subsidiary or (c) transfer any of its Property to the Company or any
other Restricted Subsidiary. The foregoing limitations will not apply (i) with
respect to clauses (a), (b) and (c), to restrictions (A) in effect on the Issue
Date, (B) pursuant to the New Credit Facility, (C) relating to Debt of a
Restricted Subsidiary and existing at the time it became a Restricted Subsidiary
if such restriction was not created in connection with or in anticipation of the
transaction or series of transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company or (D)
which result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B) below,
provided such restriction is no less favorable to the holders of Exchange
Debentures than those under the agreement evidencing the Debt so Refinanced, and
(ii) with respect to clause (c) only, to restrictions (A) relating to Debt that
is permitted to be Incurred and secured without also securing the Exchange
Debentures equal and ratable treatment pursuant to the covenants described under
"--Limitation on Debt" and "--Limitation on Liens" that limit the right of the
debtor to dispose of the Property securing such Debt, (B) encumbering Property
at the time such Property was acquired by the Company or any Restricted
Subsidiary, so long as such restriction relates solely to the Property so
acquired and was not created in connection with or in anticipation of such
acquisition, (C) resulting from customary provisions restricting subletting or
assignment of leases or customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder or (D) customary restrictions
contained in asset sale agreements limiting the transfer of such Property
pending the closing of such sale.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clauses (a) (ii) and (iii) of this paragraph as
evidenced by a Board Resolution promptly delivered to the Trustee and (c) if
such Affiliate Transaction involves aggregate payments or value in excess of
$5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the
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consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments";
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided that such loans and
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided, that
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of (i) the Exchange
Preferred Stock or (ii) any other preferred stock issued in compliance with
this covenant;
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company;
(ix) payments under any real or personal property lease with an
Affiliate of the Company existing at the date of the Exchange Indenture and
any other real or personal property lease with an Affiliate of the Company
that is approved by a majority of the disinterested members of the board of
directors of the Company; and
(x) sales of inventory at a price no less than the price the Company
paid to purchase such inventory and in customary volumes to Century
Airconditioning Supply, Inc. ("CAC"), purchases of inventory at cost from
CAC, and the provision of administrative services to CAC.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary, (b) the Subsidiary to be so designated is not
obligated under any Debt, Lien or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Debt of the Company or of any Restricted Subsidiary and (c) either (i) the
Subsidiary to be so designated has total assets of $1,000 or less or (ii) such
designation is effective immediately upon such entity becoming a Subsidiary of
the Company. Unless so designated as an Unrestricted Subsidiary, any Person
that becomes a Subsidiary of the Company will be classified as a Restricted
Subsidiary; provided, however, that such Subsidiary shall not be designated a
Restricted Subsidiary
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and shall be automatically classified as an Unrestricted Subsidiary if either of
the requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under "-
- -Limitation on Debt" and (y) no Default or Event of Default shall have occurred
and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
Limitation on Company's Business. The Company shall not, directly or
indirectly, engage in any business or activity other than the business currently
conducted by it and its Restricted Subsidiaries, and Related Businesses.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such Surviving Person, the due
and punctual payment of the principal of, and premium, if any, and interest on,
all the Exchange Debentures, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of the Exchange
Indenture to be performed by the Company; (c) in the case of a sale, transfer,
assignment, lease, conveyance or other disposition of all or substantially all
the Property of the Company, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person; (d) immediately before and
after giving effect to such transaction or series of transactions on a pro forma
basis (and treating, for purposes of this clause (d) and clauses (e) and (f)
below, any Debt which becomes, or is anticipated to become, an obligation of the
Surviving Person or any Restricted Subsidiary as a result of such transaction or
series of transactions as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing; (e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as the
case may be, would be able to Incur at least $1.00 of additional Debt under
clause (a) of the first paragraph of the covenant described under "--Certain
Covenants--Limitation on Debt"; provided, however, that this clause (e) shall
not apply to a merger between the Company and a Wholly Owned Subsidiary of the
Company incorporated in another state of the United States solely for the
purpose of reincorporating the Company as long as the total amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased as
a result thereof; and (f) the Company shall deliver, or cause to be delivered,
to the Trustee, in form and substance reasonably satisfactory to the Trustee an
Opinion of Counsel and an Officers' Certificate stating that such transaction
and the supplemental indenture, if any, in respect thereto comply with this
covenant and that all conditions precedent herein provided for relating to such
transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Exchange Indenture, but
the predecessor Company in the case of a sale, transfer,
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assignment, lease, conveyance or other disposition shall not be released from
the obligation to pay the principal of, and premium, if any, and interest on,
the Exchange Debentures.
SEC REPORTS
At any time after 60 days after the Issue Date, notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall file with the Commission and provide the
Trustee, registered holders of Exchange Debentures and, upon request, security
analysts of prospective holders of Exchange Debentures with such annual reports
and such information, documents and other reports as are specified in Sections
13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject
to such sections, such information, documents and reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such sections; provided, however, that the Company shall not
be so obligated to file such information, documents and reports with the
Commission if the Commission does not permit such filings.
EVENTS OF DEFAULT
Events of Default in respect of the Exchange Debentures as set forth in the
Exchange Indenture include: (a) failure to make the payment of any interest on
the Exchange Debentures when the same becomes due and payable, and such failure
continues for a period of 30 days; (b) failure to make the payment of any
principal of, or premium, if any, on, any of the Exchange Debentures when the
same becomes due and payable at its Stated Maturity, upon acceleration,
redemption, optional redemption, required repurchase or otherwise; (c) failure
to comply with the covenant described above under "--Merger, Consolidation and
Sale of Property"; (d) failure to comply with any other covenant or agreement in
the Exchange Debentures or in the Exchange Indenture (other than a failure which
is the subject of the foregoing clause (a), (b) or (c)) and such failure
continues for 30 days after written notice is given to the Company as provided
below; (e) a default under any Debt by the Company or any Restricted Subsidiary
which results in acceleration of the stated maturity of such Debt, or failure to
pay any such Debt at final maturity, in an aggregate amount greater than $7.5
million (or its foreign currency equivalent at the time) (the "cross
acceleration provisions"); (f) any judgment or judgments for the payment of
money in an aggregate amount in excess of $7.5 million (or its foreign currency
equivalent at the time) shall be rendered against the Company or any Restricted
Subsidiary and shall not be waived, satisfied or discharged for any period of 30
consecutive days during which a stay of enforcement shall not be in effect (the
"judgment default provisions"); and (g) certain events involving bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary (the
"bankruptcy provisions").
A Default under clause (d) is not an Event of Default until the Trustee or
the holders of not less than 25% in aggregate principal amount of the Exchange
Debentures then outstanding notify the Company of the Default and the Company
does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default." Under the terms of the
Exchange Indenture, for purposes of calculation of such percentage, the
aggregate principal amount of the Exchange Debentures held by the Company or an
Affiliate thereof is not counted to determine such percentage.
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
The Exchange Indenture provides that if an Event of Default with respect to
the Exchange Debentures (other than an Event of Default resulting from certain
events involving bankruptcy, insolvency or reorganization with respect to the
Company or any Significant Subsidiary) shall have occurred and be continuing,
the Trustee or the registered holders of not less than 25% in aggregate
principal amount of the Exchange Debentures then outstanding may declare to be
immediately due and payable the principal amount of all the Exchange Debentures
then outstanding, plus accrued but unpaid interest to the date of acceleration.
In case an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization with respect to the Company or any Significant
Subsidiary shall occur, such amount with respect to all the Exchange Debentures
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Exchange
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Debentures. After any such acceleration, but before a judgment or decree based
on acceleration is obtained by the Trustee, the registered holders of a majority
in aggregate principal amount of the Exchange Debentures then outstanding may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal, premium or
interest, have been cured or waived as provided in the Exchange Indenture.
Subject to the provisions of the Exchange Indenture relating to the duties
of the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Exchange Indenture at the request or direction of any of the holders
of the Exchange Debentures, unless such holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the holders of a majority in aggregate principal
amount of the Exchange Debentures then outstanding will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee with
respect to the Exchange Debentures.
No holder of Exchange Debentures will have any right to institute any
proceeding with respect to the Exchange Indenture, or for the appointment of a
receiver or trustee, or for any remedy thereunder, unless (a) such holder has
previously given to the Trustee written notice of a continuing Event of Default,
(b) the registered holders of at least 25% in aggregate principal amount of the
Exchange Debentures then outstanding have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as trustee and
(c) the Trustee shall not have received from the registered holders of a
majority in aggregate principal amount of the Exchange Debentures then
outstanding a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of any Exchange Debenture for enforcement
of payment of the principal of, and premium, if any, or interest on, such
Exchange Debenture on or after the respective due dates expressed in such
Exchange Debenture.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Exchange Indenture may be amended with
the consent of the registered holders of a majority in aggregate principal
amount of the Exchange Debentures then outstanding (including consents obtained
in connection with a tender offer or exchange offer for the Exchange Debentures)
and any past default or compliance with any provisions may also be waived
(except a default in the payment of principal, premium or interest and certain
covenants and provisions of the Exchange Indenture which cannot be amended
without the consent of each holder of an outstanding Exchange Debenture) with
the consent of the registered holders of at least a majority in aggregate
principal amount of the Exchange Debentures then outstanding. However, without
the consent of each holder of an outstanding Exchange Debenture, no amendment
may, among other things, (a) reduce the amount of Exchange Debentures whose
holders must consent to an amendment or waiver, (b) reduce the rate of or extend
the time for payment of interest on any Exchange Debenture, (c) reduce the
principal of or extend the Stated Maturity of any Exchange Debenture, (d) make
any Exchange Debenture payable in money other than that stated in the Exchange
Debenture, (e) impair the right of any holder of the Exchange Debentures to
receive payment of principal of and interest on such holder's Exchange
Debentures on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Exchange
Debentures, (f) release any security interest that may have been granted in
favor of the holders of the Exchange Debentures, (g) reduce the premium payable
upon the redemption or repurchase of any Exchange Debenture, or change the time
at which any Exchange Debenture may be redeemed, as described under "--Optional
Redemption," (h) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control or Asset Sale has occurred, change the time at
which the Change of Control Offer or Prepayment Offer relating thereto must be
made or at which the Exchange Debentures must be repurchased pursuant to such
Change of Control Offer or (i) make any change to the subordination provisions
of the Exchange Indenture that would adversely affect the holders of the
Exchange Debentures. Under the terms of the Exchange Indenture, the aggregate
principal amount of Exchange Debentures held by the Company or an Affiliate
thereof is not counted to determine the principal amount of the Exchange
Debentures that have consented.
Without the consent of any holder of the Exchange Debentures, the Company
and the Trustee may amend the Exchange Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by
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a successor corporation of the obligations of the Company under the Exchange
Indenture, to provide for uncertificated Exchange Debentures in addition to or
in place of certificated Exchange Debentures (provided that the uncertificated
Exchange Debentures are issued in registered form for purposes of Section 163(f)
of the Code, or in a manner such that the uncertificated Exchange Debentures are
described in Section 163(f)(2)(B) of the Code), to secure the Exchange
Debentures, to add to the covenants of the Company for the benefit of the
holders of the Exchange Debentures or to surrender any right or power conferred
upon the Company, to make any change that does not adversely affect the rights
of any holder of the Exchange Debentures in any material respect, to make any
change to the subordination provisions of the Exchange Indenture that would
limit or terminate the benefits available to any holder of Senior Debt under
such provisions or to comply with any requirement of the Commission in
connection with the qualification of the Exchange Indenture under the Trust
Indenture Act.
No amendment may be made to the subordination provisions of the Exchange
Indenture that adversely affects the rights of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or their Representative)
consent to such change. The consent of the holders of the Exchange Debentures
is not necessary under the Exchange Indenture to approve the particular form of
any proposed amendment. It is sufficient if such consent approves the substance
of the proposed amendment. After an amendment under the Exchange Indenture
becomes effective, the Company is required to mail to each registered holder of
the Exchange Debentures at such holder's address appearing in the Security
Register a notice briefly describing such amendment. However, the failure to
give such notice to all holders of the Exchange Debentures, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the
Exchange Debentures and the Exchange Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the Exchange Debentures, to
replace mutilated, destroyed, lost or stolen Exchange Debentures and to maintain
a registrar and paying agent in respect of the Exchange Debentures. The Company
at any time may terminate its obligations under the covenants described under
"--Repurchase at the Option of Holders Upon a Change of Control" and "--Certain
Covenants," the operation of the cross acceleration provisions, the judgment
default provisions, the bankruptcy provisions with respect to Significant
Subsidiaries and the limitations contained in clauses (e) and (f) under the
first paragraph of "--Merger, Consolidation and Sale of Property" above
("covenant defeasance"). The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Exchange Debentures may not be accelerated because of an Event of Default with
respect thereto. If the Company exercises its covenant defeasance option,
payment of the Exchange Debentures may not be accelerated because of an Event of
Default specified in clause (d) (with respect to the covenants described under
"--Certain Covenants"), (e), (f), (g) (with respect only to Significant
Subsidiaries) or (h) under "--Events of Default" above or because of the failure
of the Company to comply with clauses (e) and (f) under the first paragraph of
"--Merger, Consolidation and Sale of Property" above.
In order to exercise either defeasance option, the Company must, among
other things, irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the Exchange Debentures to maturity or redemption, as the case may
be, and must comply with certain other conditions, including delivery to the
Trustee of an Opinion of Counsel to the effect that holders of the Exchange
Debentures will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
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GOVERNING LAW
The Exchange Indenture and the Exchange Debentures are governed by the
internal laws of the State of New York without reference to principles of
conflicts of law.
THE TRUSTEE
Prior to entering into the Exchange Indenture, the Company will appoint a
trustee which will satisfy the requirements of Sections 310(a)(1) and 310(a)(5)
of the Trust Indenture Act of 1939, as amended, which will have a combined
capital and surplus of at least $100.0 million as set forth on its most recently
published report of condition and will have a corporate trust office located in
the City of New York.
The Exchange Indenture provides that, except during the continuance of an
Event of Default, the Trustee will perform only such duties as are specifically
set forth in the Exchange Indenture. During the existence of an Event of
Default, the Trustee will exercise such of the rights and powers vested in it
under the Exchange Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences expected to result to Holders whose Initial Preferred Stock is
exchanged for Exchange Preferred Stock. This discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), regulations of the
Treasury Department, administrative rulings and pronouncements of the Internal
Revenue Service ("IRS") and judicial decisions, all of which are subject to
change, possibly with retroactive effect. This discussion does not purport to
address all the U.S. federal income tax consequences that may be applicable to
particular Holders, including dealers in securities, financial institutions,
insurance companies and tax-exempt organizations. In addition, the discussion
does not consider the effect of any foreign, state, local, gift, estate or other
tax laws that may be applicable to a particular Holder. Except as provided
below with respect to Non-U.S. Holders (as such term is defined below), this
discussion is limited to U.S. Holders who hold their Initial Preferred Stock and
will hold the Exchange Preferred Stock and the Exchange Debentures as a "capital
asset" within the meaning of Section 1221 of the Code. For purposes of this
discussion, a "U.S. Holder" means any person or entity which is (i) a citizen or
resident of the United States, (ii) a corporation or other entity taxable as a
corporation created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate or trust that is described in
Section 7701(a)(30) of the Code or (iv) a person whose worldwide income or gain
is otherwise subject to U.S. federal income tax on a net income basis, and a
"Non-U.S. Holder" means any holder of the Exchange Preferred Stock and the
Exchange Debentures that is not a U.S. Holder. HOLDERS CONSIDERING THE EXCHANGE
OF INITIAL PREFERRED STOCK FOR EXCHANGE PREFERRED STOCK SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES
TO THEM OF RECEIVING, OWNING AND DISPOSING OF THE EXCHANGE PREFERRED STOCK AND
OF RECEIVING, OWNING AND DISPOSING OF THE EXCHANGE DEBENTURES.
TAXATION OF THE EXCHANGE PREFERRED STOCK
Unless otherwise stated, for purposes of the following discussion, the term
"Exchange Preferred Stock" shall mean the Exchange Preferred Stock and any
Additional Preferred Shares that shall have been issued with respect thereto.
Exchange Offer
The exchange of Initial Preferred Stock for Exchange Preferred Stock will
not constitute a recognition event for federal income tax purposes.
Consequently, no gain or loss will be recognized by a Holder on the exchange.
Immediately after the exchange, a Holder's adjusted tax basis in the Exchange
Preferred Stock will be the same as
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the holder's adjusted tax basis in the Initial Preferred Stock. A Holder will be
considered to have held the Exchange Preferred Stock from the time the Holder
originally acquired the Initial Preferred Stock.
Upon failure to comply with certain of their obligations under the
Registration Rights Agreement, the Company would be required to pay additional
amounts on the Exchange Preferred Stock. Although the matter is not free from
doubt, if such additional amounts become payable, such amounts should be treated
in the same manner as dividends described below in "Dividends and Dividends
Received Deduction."
Dividends and Dividends Received Deduction
Distributions with respect to the Exchange Preferred Stock will be treated
as dividends (taxable as ordinary income) to the extent of the current and
accumulated earnings and profits of the Company. To the extent that the amount
of a distribution with respect to the Exchange Preferred Stock exceeds the
current and accumulated earnings and profits of the Company, it will be treated,
first, as a tax-free return of capital to the extent of the holder's basis in
the Exchange Preferred Stock and then as capital gain from the sale or exchange
of the Exchange Preferred Stock. The Company cannot predict whether it will
have current or accumulated earnings and profits at the time of any distribution
on the Exchange Preferred Stock.
If a distribution with respect to the Exchange Preferred Stock is paid in
the form of Additional Preferred Shares (i) the amount of the distribution will
be the fair market value of the Additional Preferred Shares as of the date of
the distribution, and (ii) the distribution will be treated as described above.
Such holder's holding period will begin on the day following the distribution
date.
A holder that is a corporation otherwise entitled to the dividends received
deduction as provided in Section 243 of the Code will be entitled to such
deduction (generally at a 70% rate) with respect to amounts treated as dividends
on the Exchange Preferred Stock, but will not be entitled to such deduction with
respect to amounts treated as a return of capital or capital gain, as described
above. In addition, the benefit of a dividends received deduction may be
reduced by the corporate alternative minimum tax.
In determining entitlement to the dividends received deduction, corporate
holders should also consider the provisions of Sections 246(c), 246A and 1059 of
the Code and Treasury Regulations promulgated thereunder, and IRS rulings and
administrative pronouncements relating to such Code provisions. Section 246(c)
of the Code disallows the dividends received deduction in its entirety if (i)
the holder does not satisfy the applicable holding period requirement for the
dividend-paying stock for a period immediately before or immediately after such
holder becomes entitled to receive each dividend on the stock or (ii) the holder
is under an obligation to make related payments with respect to positions in
substantially similar or related property. Code Section 246(c)(4) provides that
a holder may not count toward the minimum holding period any period in which the
holder (i) has, among other things, an option to sell, (ii) is under a
contractual obligation to sell, (iii) has made (and not closed) a short sale of
substantially identical stock or securities or (iv) has diminished its risk of
loss by holding one or more positions with respect to substantially similar or
related property. Section 246A of the Code provides the "debt-financed portfolio
stock" rules, under which the dividends received deduction could be reduced to
the extent that the holder incurs indebtedness directly attributable to its
investment in the Exchange Preferred Stock. With respect to stock that a
corporate holder has held for two years or less before the dividend announcement
date, Section 1059 of the Code (i) reduces the tax basis of such stock by a
portion of any "extraordinary dividends" that are eligible for the dividends
received deduction and (ii), to the extent that the basis reduction would
otherwise reduce the tax basis of the Exchange Preferred Stock below zero,
requires immediate recognition of gain, which is treated as gain from the sale
or exchange of the stock. In the case of preferred stock, an "extraordinary
dividend" is a dividend that (i) equals or exceeds five percent of either (A)
the holder's adjusted tax basis in the stock (taking into account any prior
reduction in basis under Section 1059 as a result of any prior dividend) or (B),
at the holder's election, the fair market value of the stock as of the day
before the ex-dividend date if such value can be established to the satisfaction
of the IRS, in each case treating all dividends having ex- dividend dates within
an 85-day period as one dividend or (ii) exceeds 20 percent of either (A) the
holder's adjusted tax basis in the stock or (B), at the holder's election, the
fair market value of the stock as of the day before the ex-dividend date if such
value can be established to the satisfaction of the IRS, in each case treating
all dividends having ex-dividend dates within a 365- day period as one dividend.
An extraordinary dividend would also include any amount treated as a dividend
with respect to
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a redemption that is not pro rata to all holders (or meets certain other
requirements), without regard to either the relative amount of the dividend or
the holder's holding period for the Exchange Preferred Stock. However, with
respect to "qualified preferred dividends" with respect to any share of stock,
(i) Section 1059 of the Code will not apply to such dividends if the holder
holds such stock for more than five years and (ii) if the holder disposes of
such stock before it has been held for more than five years, the aggregate
reduction in the holder's tax basis in such stock with respect to such dividends
will not be greater than the excess of the qualified preferred dividends paid
with respect to such stock during the period the holder held such stock over the
qualified preferred dividends which would have been paid during such period
based on the annual rate of the qualified preferred dividends payable with
respect to such stock. "Qualified preferred dividends" means any fixed dividend
payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable at least annually and (ii) is not in arrears as to
dividends at the time the holder acquires such stock.
If the Company does not have any current or accumulated earnings and
profits, distributions on the Exchange Preferred Stock will constitute, first,
tax-free returns of capital (to the extent of the holder's tax basis in the
Exchange Preferred Stock) and then capital gain, and will not be eligible for
the dividends received deduction.
Redemption of Exchange Preferred Stock
Gain or loss recognized by a holder on a redemption of the Exchange
Preferred Stock for cash will be treated as gain or loss from the sale or
exchange of the Exchange Preferred Stock if, taking into account stock that is
actually or constructively owned under the constructive ownership rules of Code
Section 318 by such holder, either (i) the holder's stock interest in the
Company is completely terminated as a result of the redemption or (ii) the
redemption is "not essentially equivalent to a dividend." Under Section 318 of
the Code, a person will generally be treated as the owner of stock of the
Company owned by certain related parties or certain entities in which the person
owns an interest and stock of the Company that a holder could acquire through
exercise of an option. Whether a redemption is not essentially equivalent to a
dividend depends on each holder's facts and circumstances, but, in any event,
requires a "meaningful reduction" in such holder's equity interest in the
Company. A holder of the Exchange Preferred Stock who sells some or all of the
stock of the Company owned by it may be able to take such sales into account, if
necessary, to satisfy one of the foregoing conditions, but such a holder should
consult with his, her or its own tax advisor. Conversely, a holder who purchases
additional shares of stock of the Company may be required to take such shares
into account in determining whether any of the foregoing conditions are
satisfied.
If none of the above conditions is satisfied, the entire amount of the cash
payment received on a redemption will be treated as a distribution (without
offset by the holder's tax basis in the redeemed shares), which will be taxable
as a dividend to the extent of the Company's current and accumulated earnings
and profits. In such case, the holder's tax basis in the redeemed Exchange
Preferred Stock would be transferred to the shares of Company stock, if any. If
the holder does not retain any shares of Company stock, such basis may be
entirely lost.
Redemption Premium
Under Section 305 of the Code and the applicable Treasury Regulations, if
the redemption price of the Exchange Preferred Stock exceeds its issue price
(i.e., its fair market value at its date of original issue) by more than a de
minimis amount, then such excess will be treated as a series of constructive
distributions over the life of the Exchange Preferred Stock under a constant
interest (economic yield) method that takes into account the compounding of the
yield. The amount of each such constructive distribution will be treated in the
same manner as actual dividends as described above under "Dividends and
Dividends Received Deduction."
If the liquidation preference of an Additional Preferred Share exceeds the
issue price of such share by more than a de minimis amount, then a holder
thereof would be required to treat such excess as a series of constructive
distributions over the term of the Additional Preferred Share (as described
above), which distributions would be treated in the same manner as distributions
described above under "Dividends and Dividends Received Deduction." Because
Additional Preferred Shares may be issued at different times prior to July 1,
2003 (and possibly thereafter), it is possible that a holder would own
Additional Preferred Shares with different issue prices. Consequently, if the
Company had current or accumulated earnings and profits in such a case, a holder
would be treated as having
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received constructive dividends on its Additional Preferred Shares in differing
amounts depending on the issue price of each Additional Preferred Share and
those shares would not be fungible with each other or with Exchange Preferred
Stock purchased pursuant to the Exchange Offer due to their differing U.S.
federal income tax characteristics. As a result, the Company might not be able
to determine the proper amount of income to be accrued for any particular share
of Exchange Preferred Stock.
Exchange of Exchange Preferred Stock for Exchange Debentures
An exchange of the Exchange Preferred Stock for Exchange Debentures
pursuant to the terms of the Exchange Preferred Stock exchange right will be
subject to the same general rules as a redemption for cash (as described above,
see "Redemption of Exchange Preferred Stock"), except that the amount of the
redemption proceeds will be determined based upon the issue price of the
Exchange Debentures. The issue price of such Exchange Debentures will generally
be the fair market value of such Exchange Debentures on their issue date,
provided that such Exchange Debentures are traded on an established securities
market within thirty days either prior to or following such issue date. If the
Exchange Preferred Stock, but not the Exchange Debentures issued therefor, is
traded on an established securities market within either thirty days prior to or
following the issue date of the Exchange Debentures, then the issue price of
such Exchange Debentures will be the fair market value of the Exchange Preferred
Stock exchanged therefor. In the event that neither the Exchange Preferred
Stock nor the Exchange Debentures is traded on an established securities market
within the applicable period, the issue price of the Exchange Debentures will be
their stated principal amount--generally their face value--unless the Exchange
Debentures do not bear "adequate stated interest" within the meaning of Section
1274 of the Code, in which case, the issue price of such Exchange Debentures
generally will be an amount equal to the sum of the present values of all
payments due under the Exchange Debentures, determined using a discount rate
equal to the applicable federal rate ("AFR") (as discussed below under
"Applicable High-Yield Discount Obligations").
Sale, Exchange or Other Disposition of Exchange Preferred Stock
Upon a sale, exchange or other disposition of the Exchange Preferred Stock
(other than an exchange of the Exchange Preferred Stock for Exchange Debentures,
and subject to the discussion of redemption above), a holder will generally
recognize capital gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between (i) the sum of the amount of cash and the fair
market value of any property received upon such sale or other taxable
disposition and (ii) the holder's adjusted tax basis in the Exchange Preferred
Stock.
A holder's initial tax basis in the Exchange Preferred Stock (other than an
Additional Preferred Share) will generally be the price such holder paid for
such Exchange Preferred Stock. A holder's initial tax basis in an Additional
Preferred Share will be the fair market value of such Additional Preferred Share
on the distribution date. Thereafter, the initial tax basis in the Exchange
Preferred Stock or an Additional Preferred Share will be (i) increased by the
amount (if any) of any constructive distributions the holder is treated as
having received pursuant to the rules described above under "Redemption Premium"
and (ii) decreased by the portion of any distribution (actual or constructive)
that is treated as a tax-free recovery of basis as described above under
"Dividends and Dividends Received Deduction."
TAXATION OF THE EXCHANGE DEBENTURES
Unless otherwise stated, for purposes of the following discussion, the term
"Exchange Debentures" shall mean the Exchange Debentures and any additional
Exchange Debentures ("Additional Exchange Debentures," each, individually, an
"Additional Exchange Debenture") that shall have been issued with respect
thereto.
Interest on the Exchange Debentures
With respect to any Exchange Debenture issued after July 1, 2003, a holder
of an Exchange Debenture will be required to report stated interest earned on
the Exchange Debenture as ordinary interest income for U.S. federal income tax
purposes in accordance with such holder's method of tax accounting.
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Original Issue Discount
Some or all of the Exchange Debentures may be considered issued with
original issue discount for U.S. federal income tax purposes. In general,
original issue discount on the Exchange Debentures, defined as the excess of
"stated redemption price at maturity" over "issue price," must be included in a
holder's gross income in advance of the receipt of cash representing that income
(regardless of whether the holder is a cash or accrual method taxpayer).
The "issue price" of an Exchange Debenture (other than an Additional
Exchange Debenture) will depend on whether the Exchange Debenture or the
Exchange Preferred Stock is traded on an established securities market as
discussed above under "Exchange of Exchange Preferred Stock for Exchange
Debentures." The "stated redemption price at maturity" of the Exchange
Debentures will equal their principal amount at maturity plus, in the case of an
Exchange Debenture issued on or prior to July 1, 2003, the aggregate amount of
the stated interest payable on such Exchange Debentures. For this purpose (and
for purposes of determining the yield to maturity of an Exchange Debenture as
discussed below), it will be assumed that the Company will elect to pay interest
in the form of Additional Exchange Debentures if such election will reduce the
yield to maturity of the underlying Exchange Debenture (determined as if the
cash interest and principal payable with respect to the Additional Exchange
Debentures was payable with regard to the underlying Exchange Debenture).
Thus, Additional Exchange Debentures issued with respect to an Exchange
Debenture will not be considered as a payment of interest and instead will be
aggregated with the Exchange Debenture for purposes of computing and accruing
original issue discount on, and determining a holder's tax basis in, the
Exchange Debenture and the related Additional Exchange Debentures. At the time
an Additional Exchange Debenture is issued, the adjusted issue price of the
underlying Exchange Debenture will be allocated between the Exchange Debenture
and the Additional Exchange Debenture proportionately to their respective
principal amounts, such that the Exchange Debenture and the related Additional
Exchange Debenture are treated as having the same adjusted issue price and
inherent amount of original issue discount per dollar of principal amount. The
Exchange Debenture and the related Additional Exchange Debenture would also be
treated as having the same yield to maturity. Corresponding rules apply to the
payment of Additional Exchange Debentures with respect to Additional Exchange
Debentures.
If it is assumed (under the rules described above) that the Company will
instead elect to pay interest on the underlying Exchange Debenture in the form
of cash, and the Company instead actually issues Additional Exchange Debentures
in payment of interest thereon, then the underlying Exchange Debenture will be
deemed to be reissued on the date such Additional Exchange Debenture is issued
at a price equal to the adjusted issue price of the Exchange Debenture on such
date.
Conversely, if it is assumed (under the rules described above) that the
Company will elect to issue Additional Exchange Debentures in payment of
interest with respect to the underlying Exchange Debenture and the Company
instead elects to pay interest on such underlying Exchange Debenture in the form
of cash rather than Additional Exchange Debentures, such a cash payment will
result in a pro rata prepayment of the underlying Exchange Debenture (or, as
applicable, underlying Additional Exchange Debentures), and may result in gain
or loss to the holder.
The Company will report annually to the IRS and to record holders of the
Exchange Debentures information with respect to original issue discount accruing
during the calendar year.
A holder of an Exchange Debenture will be required to include in gross
income for U.S. federal income tax purposes the sum of the "daily portions" of
original issue discount with respect to the Exchange Debenture for each day of
the taxable year during which such holder holds the Exchange Debenture. The
daily portions of original issue discount with respect to an Exchange Debenture
are determined by allocating to each day in any "accrual period" a ratable
portion of the original issue discount allocable to such accrual period.
Accrual periods with respect to an Exchange Debenture may be any set of periods
(which may be of varying lengths) selected by a holder provided that (i) no
accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Exchange Debenture occurs on either the first or
final day of an accrual period.
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<PAGE>
The amount of original issue discount allocable to each accrual period
equals the amount determined by multiplying the "adjusted issue price" of the
Exchange Debenture at the beginning of the accrual period by the yield to
maturity of the Exchange Debenture (i.e., the discount rate that, when applied
to all payments under the Exchange Debenture, including payments of stated
interest or principal, results in a present value equal to the issue price).
The "adjusted issue price" at the beginning of any accrual period is the issue
price of the Exchange Debenture, plus the amount of original issue discount
taken into account for all prior accrual periods, minus the amount of all cash
payments previously made on the Exchange Debenture (other than payments of
stated interest on Exchange Debentures issued after July 1, 2003). This
constant yield method of determining the amount of original issue discount
included in income for any period will require a holder of an Exchange Debenture
to include increasing amounts of original issue discount in income in successive
accrual periods. The holder will not be required to recognize as additional
income payments of interest with respect to Exchange Debentures issued on or
prior to July 1, 2003.
Bond Premium
If the holder's tax basis in Exchange Debentures exceeds the remaining
stated redemption premium at maturity, such excess will be deductible by the
holder of the Exchange Debentures as amortizable bond premium over the term of
the Exchange Debentures under a yield-to-maturity formula if the holder makes or
has already made an election under Section 171 of the Code. An election under
Section 171 of the Code (i) is available only if the Exchange Debentures are
held as capital assets, (ii) is revocable only with the consent of the IRS and
(iii) applies to all obligations owned or subsequently acquired by the holder on
or after the first day of the taxable year in which such election applies. To
the extent that the excess is deducted as amortizable bond premium, the holder's
adjusted tax basis in the Exchange Debentures will be reduced. Current Treasury
Regulations under Section 171 of the Code provide that any such deduction will
offset interest income on the Exchange Debentures and will not be treated as a
separate deduction item. Moreover, such regulations generally conform the
treatment of amortizable bond premium to the treatment of original issue
discount as discussed above.
Sale or Redemption
A holder generally will recognize taxable gain or loss upon the sale,
exchange, retirement or other taxable disposition of an Exchange Debenture equal
to the difference between the amount realized upon such disposition (other than
amounts attributable to stated interest on Exchange Debentures issued after July
1, 2003) and its adjusted tax basis in the Exchange Debenture. A holder's
adjusted tax basis in an Exchange Debenture and any related Additional Exchange
Debentures will equal the issue price of such Exchange Debentures, increased by
accrued original issue discount previously included in the holder's gross income
with respect to the Exchange Debenture, and decreased by any cash payments
(other than payments of stated interest on Exchange Debentures issued after
July 1, 2003) made with respect thereto. Such adjusted tax basis will be
allocated among the Exchange Debentures and the related Additional Exchange
Debentures in proportion to their respective principal amounts.
Applicable High-Yield Discount Obligations
The original issue discount on any obligation that constitutes an
"applicable high yield discount obligation" is not deductible until paid. An
"applicable high yield discount obligation" is any debt instrument that (i) has
a maturity date which is more than five years from the date of issue, (ii) has a
yield to maturity which equals or exceeds the AFR (as set forth in Section
1274(d) of the Code) for the calendar month in which the obligation is issued
plus five percentage points and (iii) has "significant original issue discount."
The AFR is an interest rate, announced monthly by the IRS, that is based on the
yield of debt obligations issued by the U.S. Treasury. A debt instrument
generally has "significant original issue discount" if the aggregate amount
(including original issue discount) that would be includable in gross income
with respect to the debt instrument for periods before the close of any accrual
period that ends more than five years after the date of issue exceeds the sum of
(i) the aggregate amount of interest to be paid on the instrument before the
close of such accrual period and (ii) the product of the issue price of the
instrument and its yield to maturity. Because, for this purpose, any payment
under the Exchange Debentures will be assumed to be made on the last day
permitted under the Exchange Debentures, the Company believes that the Exchange
Debentures issued on or prior to July 1, 2003 will have significant original
issue discount. Moreover, if the debt instrument's yield to maturity exceeds
the AFR plus six percentage points, a ratable
108
<PAGE>
portion of the issuing corporation's deduction for original issue discount (the
"Disqualified Original Issue Discount") (based on the portion of the yield to
maturity that exceeds the AFR plus six percentage points) will be permanently
disallowed. In the case of corporate holders, the Disqualified Original Issue
Discount will be treated as a dividend, eligible for the dividends received
deduction, to the extent it would have been so treated had such amount been
distributed by the Company with respect to its stock. Whether the Exchange
Debentures will constitute applicable high yield debt obligations will depend
upon the facts and circumstances existing at the time of their issuance.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury Regulations, a
noncorporate U.S. Holder of the Exchange Preferred Stock or the Exchange
Debentures who is not otherwise exempt from backup withholding may be subject to
backup withholding at the rate of 31% with respect to, in the case of Exchange
Preferred Stock, actual or constructive dividends paid with respect thereto, or,
in the case of Exchange Debentures, interest paid thereon, or the proceeds of a
sale, exchange or redemption of the Exchange Preferred Stock or the Exchange
Debentures. Generally, backup withholding applies only when the taxpayer (i)
fails to furnish or certify his correct taxpayer identification number to the
payor in the manner required, (ii) is notified by the IRS that he has failed to
report payments of interest or dividends properly or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments. Holders of Exchange Preferred Stock or Exchange Debentures should
consult their own tax advisors regarding their qualification for exemption from
backup withholding and the procedures for obtaining any applicable exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder of Exchange Preferred Stock or Exchange Debentures will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability,
provided that the required information is furnished to the IRS.
SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS
Dividends and Interest Distributions in General
Dividends on the Exchange Preferred Stock (including dividends in the form
of additional shares and constructive dividends) actually or deemed paid to a
Non-U.S. Holder that are not effectively connected with a trade or business
carried on by such Non-U.S. Holder in the United States are generally subject to
a 30% United States withholding tax. The rate of withholding may be reduced to
the extent provided by a tax treaty to which the United States is a party if the
recipient of the dividends is entitled to the benefits of the treaty. A Non-
U.S. Holder seeking a reduction in the rate of withholding under an income tax
treaty and a Non-U.S. Holder seeking an exemption from withholding tax on
dividends effectively connected with a trade or business carried on by such Non-
U.S. Holder in the United States (as described below) will be required to comply
with certain certification and other requirements. A Non-U.S. Holder that is
eligible for a reduced rate of United States withholding tax pursuant to a tax
treaty but who does not comply with the certification and other requirements of
the time such dividends are paid may obtain a refund of any excess amounts
withheld by filing a tax return with the IRS that establishes such holder's
eligibility for treaty benefits.
Subject to the discussion below under "--United States Information
Reporting Requirements and Backup Withholding for Non-U.S. Holders," payments of
principal (and premium, if any) and interest (including original issue discount)
by the Company or any agent of the Company (acting in capacity as such) to a
Non-U.S. Holder of an Exchange Debenture will not be subject to U.S. federal
withholding tax, provided, in the case of interest (including original issue
discount) that (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 entitled to vote, (ii) the Non-U.S. Holder is not a controlled foreign
corporation for U.S. tax purposes that is related to the Company (directly or
indirectly) through stock ownership and (iii) either (A) the Non-U.S. Holder
certifies to the Company or its agent under penalties of perjury that it is not
a U.S. person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Exchange Debentures certifies to the Company or its
agent under penalties of perjury that such statement has been received from the
Non-U.S. Holder by it or by another financial institution and furnishes the
payor with a copy thereof. Subject to the discussion of effectively connected
income below, a Non-U.S. Holder that does not qualify for exemption from
withholding under the preceding sentence
109
<PAGE>
generally will be subject to withholding of U.S. federal income tax at the rate
of 30% (or lower applicable treaty rate) on payments of interest (including
original issue discount) on the Exchange Debentures.
If the dividends on the Exchange Preferred Stock or the interest (including
original issue discount) on the Exchange Debentures are effectively connected
with a trade or business carried on in the United States by a Non-U.S. Holder,
or, alternatively, if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder, such dividends or
interest will be subject to tax at the rates and in the manner applicable to
U.S. Holders. Effectively connected dividends or interest, or dividends or
interest attributable to a United States permanent establishment, as the case
may be, received by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by law or an applicable income tax treaty.
Non-U.S. Holders seeking a reduced rate of tax pursuant to an income tax treaty
must comply with certain certification and other requirements.
Gain on Disposition of Exchange Preferred Stock or Exchange Debentures
Subject to the discussion below under "--United States Information
Reporting Requirements and Backup Withholding Tax for Non-U.S. Holders," Non-
U.S. Holders generally will not be subject to U.S. federal income tax in respect
of gain recognized on a sale, exchange or other disposition (including a
redemption that is not treated as a dividend) of the Exchange Preferred Stock or
the Exchange Debentures unless (i) the gain is effectively connected with a
trade or business conducted by the Non-U.S. Holder within the United States or,
alternatively, if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder (in which cases such
gain will be subject to tax at the rates and in the manner applicable to U.S.
persons and, if the holder is a foreign corporation, the branch profits tax
described above may also apply), (ii) in the case of an individual Non-U.S.
Holder, such holder is present in the United States for 183 or more days in the
taxable year of the disposition and meets certain other requirements, (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of the United
States federal income tax laws applicable to certain United States expatriates,
or (iv) in the case of the disposition of Exchange Preferred Stock, the Company
is or has been during certain periods preceding the disposition a "U.S. real
property holding corporation" for U.S. federal income tax purposes (which the
Company does not believe it is or is likely to become).
United States Information Reporting Requirements and Backup Withholding Tax
for Non-U.S. Holders
Under current law, backup withholding will not apply to actual or
constructive dividends paid or deemed paid before January 1, 2000, with respect
to the Exchange Preferred Stock to a Non-U.S. Holder, that are either (i)
subject to withholding at the 30% rate (or at a reduced rate under an applicable
treaty) or (ii) paid at an address outside the United States. However,
dividends paid or deemed paid after December 31, 1999, will generally be subject
to information reporting and backup withholding unless the Non-U.S. Holder
provides a valid Form W-8 (or substitute form) and meets other applicable
certification requirements establishing such holder's foreign status or the Non-
U.S. Holder is a corporation or other exempt recipient and certain conditions
are met. Similarly, a Non-U.S. Holder of an Exchange Debenture generally will
be exempt from backup withholding and information reporting requirements with
respect to payments of principal or interest (including original issue
discount), but will be required to comply with certain certification and
identification procedures (as described above in the second paragraph of
"Distributions in General") in order to obtain such exemption. The Company must
report annually to the IRS and to each Non-U.S. Holder any interest (including
original issue discount) that is subject to U.S. withholding tax or that is
exempt from withholding pursuant to a treaty or other exemption.
The payment of the proceeds of a sale of Exchange Preferred Stock
(including a redemption that is not treated as a dividend) or Exchange
Debentures to or through the United States office of a broker is subject to
information reporting and backup withholding at a rate of 31% unless either (i)
the Non-U.S. Holder is a corporation or other exempt recipient that meets
certain requirements or (ii) the Non-U.S. Holder provides a valid Form W-8 (or
substitute form). The payment of the proceeds of a sale of Exchange Preferred
Stock (including a redemption that is not
110
<PAGE>
treated as a dividend) or Exchange Debentures before January 1, 2000, to or
through the foreign office of a broker generally will not be subject to backup
withholding tax. After December 31, 1999, backup withholding will apply if
information reporting is required. Information reporting requirements will apply
to a payment of proceeds from the disposition of Exchange Preferred Stock
(including a redemption that is not treated as a dividend) or Exchange
Debentures through a foreign office of a broker that is a U.S. person or a "U.S.
related person," unless the broker has documentary evidence in its files that
the owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S. related person" is (i) a "controlled foreign
corporation" for U.S. federal income tax purposes, (ii) a foreign person 50% or
more of whose gross income from all sources for certain periods is effectively
connected with the conduct of a United States trade or business or (iii) after
December 31, 1999, a foreign partnership of which either (A) more than 50% of
the income or capital interest is owned by U.S. Holders or (B) with certain
connections to the United States. After December 31, 1999, payment made through
a foreign intermediary satisfying certain requirements will not be subject to
either backup withholding or information reporting. Holders should consult with
their own tax advisors regarding these rules.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES TO THEM OF RECEIVING, OWNING AND
DISPOSING OF THE EXCHANGE PREFERRED STOCK AND OF RECEIVING, OWNING AND DISPOSING
OF THE EXCHANGE DEBENTURES.
111
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
common stock, $.001 par value, and 2,000,000 shares of preferred stock, $.001
par value.
COMMON STOCK
Holders of common stock of the Company are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. There
is no cumulative voting for the election of directors, which means that the
holders of a majority of the shares of common stock voted in the election of
directors will be able to elect all of the directors they nominate for election.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of common stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of common stock are entitled to share ratably in all assets
remaining after payment to all creditors and payments required to be made in
respect of any outstanding preferred stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance in
series of up to 2,000,000 shares of preferred stock and permits the Company's
Board of Directors to establish the voting rights, designations, powers,
preferences and relative and other special rights and the qualifications,
limitations and restrictions of each of such series. The Board has established
such designations and preferences for the Exchange Preferred Stock. See
"Description of the Exchange Preferred Stock" for a description of the terms of
the Exchange Preferred Stock.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. The Company's Certificate of
Incorporation further provides that if the Delaware General Corporation Law is
amended to authorize further elimination or limitation of the liability of
directors, then the liability of a director of the Company shall be limited to
the fullest extent permitted by the amended Delaware law. The Company's
Certificate of Incorporation requires the Company to indemnify its directors and
officers against liabilities that may arise by reason of their status or service
as directors, officers, employees or agents of the Company to the full extent
permitted by Delaware law or any other applicable law as may from time to time
be in effect.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company where indemnification will be required or
permitted, and the Company is not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
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<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Preferred Stock for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Preferred Stock. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Preferred Stock
received in exchange for Initial Preferred Stock where such Initial Preferred
Stock was acquired as a result of market-making activities or other trading
activities and not acquired directly from the Company. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1998,
all dealers effecting transactions in the Exchange Preferred Stock may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Preferred Stock by broker-dealers. Exchange Preferred Stock received by broker-
dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Preferred Stock or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or purchasers of any
such Exchange Preferred Stock. Any broker-dealer that resells Exchange Preferred
Stock that was received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of such Exchange
Preferred Stock may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Exchange Preferred Stock
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days following the consummation of the Exchange Offer,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay the
expenses incident to the Exchange Offer and to the Company's performance of, or
compliance with, the Registration Rights Agreement (other than commissions or
concessions of any brokers or dealers) and will indemnify the Holders of the
Initial Preferred Stock against certain liabilities, including liabilities under
the Securities Act, in connection with the Exchange Offer. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and persons controlling the Company pursuant to
the foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
EXPERTS
The consolidated financial statements of Century Maintenance Supply, Inc.
at December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, and the combined financial statements of Nationwide
Apartment Supply, Inc., and Fairview Wholesale Supply, Inc. (collectively,
"Nationwide") at June 30, 1997 and 1996, and for each of the two years in the
period ended June 30, 1997, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange
Preferred Stock offered hereby will be passed upon for the Company by Riordan &
McKinzie, a Professional Corporation, Los Angeles, California. Certain
principals and employees of Riordan & McKinzie are limited partners in a
partnership which is a limited partner of an FS&Co. investment fund that owns a
majority of the Company's equity interests. See "Security Ownership of Certain
Beneficial Owners."
113
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Auditors for Century Maintenance Supply, Inc. ...... F-2
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1997. F-3
Consolidated Statements of Income for the Years Ended December 31, 1995,
December 31, 1996 and December 31, 1997.................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1994, December 31, 1995, December 31, 1996 and
December 31, 1997........................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, December 31, 1996 and December 31, 1997............................ F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited).............................................................. F-17
Consolidated Statements of Income for the Six Months Ended June 30,
1997 and June 30, 1998 (unaudited)....................................... F-19
Consolidated Statement of Changes in Stockholders' Equity for the Six
Months Ended June 30, 1998 (unaudited)................................... F-20
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and June 30, 1998 (unaudited)....................................... F-21
Notes to Consolidated Financial Statements (unaudited).................... F-22
Report of Independent Auditors for Nationwide Apartment Supply, Inc. and
Fairview Wholesale Supply, Inc. ......................................... F-26
Combined Balance Sheets as of June 30, 1996 and June 30, 1997............. F-27
Combined Statements of Income and Retained Earnings for the Years Ended
June 30, 1996 and June 30, 1997.......................................... F-28
Combined Statements of Cash Flows for the Years Ended June 30, 1996 and
June 30, 1997............................................................ F-29
Notes to Combined Financial Statements.................................... F-30
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations for the Year Ended December
31, 1997................................................................. P-1
Notes to Pro Forma Consolidated Financial Statements...................... P-2
Pro Forma Consolidated Statement of Operations for the Six Months Ended
June 30, 1998 (unaudited)................................................ P-5
Pro Forma Consolidated Balance Sheet as of June 30, 1998 (unaudited)...... P-6
Notes to Pro Forma Consolidated Financial Statements (unaudited).......... P-7
Pro Forma Consolidated Statement of Operations for the Six Months Ended
June 30, 1997 (unaudited)................................................ P-10
Notes to Pro Forma Consolidated Financial Statements (unaudited).......... P-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Century Maintenance Supply, Inc.
We have audited the accompanying consolidated balance sheets of Century
Maintenance Supply, Inc. (formerly Century Air Supply, Inc.), and subsidiaries
as of December 31, 1996 and 1997, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Century
Maintenance Supply, Inc., and subsidiaries at December 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
March 31, 1998
F-2
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................. $ 4,923,622 $ 6,598,687
Accounts receivable:
Trade, net......................................... 8,851,184 14,954,665
Related parties.................................... 2,177,589 1,495,585
Inventory, net....................................... 14,023,470 23,900,128
Deferred income taxes................................ 616,068 857,229
Prepaid expenses and other current assets............ 482,042 636,159
----------- -----------
Total current assets................................... 31,073,975 48,442,453
Goodwill, net.......................................... -- 5,687,353
Other assets........................................... 950 550,600
Property and equipment:
Land................................................. 200,000 20,000
Buildings and improvements........................... 642,549 232,030
Furniture and fixtures............................... 855,989 1,025,720
Machinery and equipment.............................. 1,534,956 3,826,088
----------- -----------
3,233,494 5,103,838
Less accumulated depreciation........................ 1,372,561 2,530,519
----------- -----------
Total property and equipment........................... 1,860,933 2,573,319
----------- -----------
Total assets....................................... $32,935,858 $57,253,725
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Trade accounts payable............................... $ 2,859,789 $ 7,361,452
Note payable......................................... 8,300,814 8,800,000
Income taxes payable................................. 920,157 1,993,801
Accrued expenses..................................... 2,305,475 3,001,314
Current portion of long-term debt.................... 105,868 159,174
Current portion of long-term debt--related parties... 2,125,468 1,509,509
----------- -----------
Total current liabilities.......................... 16,617,571 22,825,250
----------- -----------
Long-term debt, less current portion................... 397,256 474,765
Long-term debt--related parties, less current portion.. 1,323,541 8,054,023
Deferred income taxes.................................. 124,798 331,500
Minority interest...................................... 3,437,771 --
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares--15,000,000 at December 31, 1996
and 1997
Issued and outstanding shares--8,318,676 and
10,000,000 at December 31, 1996 and 1997.......... 8,319 10,000
Additional paid-in capital......................... 665,381 11,918,428
Retained earnings.................................. 10,361,221 13,639,759
----------- -----------
Total stockholders' equity............................. 11,034,921 25,568,187
----------- -----------
Total liabilities and stockholders' equity............. $32,935,858 $57,253,725
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $80,115,457 $103,113,217 $146,165,709
Cost of goods sold..................... 59,200,549 75,552,397 105,635,895
----------- ------------ ------------
Gross profit........................... 20,914,908 27,560,820 40,529,814
Selling, general, and administrative
expenses.............................. 15,255,941 17,270,989 22,264,267
Stock based compensation charges....... -- -- 6,968,776
----------- ------------ ------------
Operating income....................... 5,658,967 10,289,831 11,296,771
Interest expense....................... 789,909 864,700 1,147,058
----------- ------------ ------------
Income before income taxes and minority
interest.............................. 4,869,058 9,425,131 10,149,713
Provision (benefit) for income taxes:
Current.............................. 1,235,110 3,007,040 6,456,647
Deferred............................. 123,461 (208,905) (87,189)
----------- ------------ ------------
1,358,571 2,798,135 6,369,458
----------- ------------ ------------
Income before minority interest........ 3,510,487 6,626,996 3,780,255
Minority interest in earnings of
subsidiaries.......................... 681,911 1,237,266 848,181
----------- ------------ ------------
Net income............................. $ 2,828,576 $ 5,389,730 $ 2,932,074
=========== ============ ============
Pro forma information (unaudited):
Historical income before income taxes
and minority interest............... $ 4,869,058 $ 9,425,131 $ 10,149,713
Pro forma provision for income taxes
(unaudited)......................... 1,898,932 3,675,801 6,663,920
----------- ------------ ------------
Pro forma income before minority
interest (unaudited)................ 2,970,126 5,749,330 3,485,793
Minority interest in earnings of
subsidiaries........................ 681,911 1,237,266 848,181
----------- ------------ ------------
Pro forma net income (unaudited)..... $ 2,288,215 $ 4,512,064 $ 2,637,612
=========== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL TOTAL
SHARES COMMON PAID-IN RETAINED STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL EARNINGS EQUITY
----------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1994................... 8,318,676 $ 8,319 $ 665,381 $ 4,379,301 $ 5,053,001
Distributions......... -- -- -- (1,303,550) (1,303,550)
Net income............ -- -- -- 2,828,576 2,828,576
---------- ------- ----------- ----------- -----------
Balances at December 31,
1995................... 8,318,676 8,319 665,381 5,904,327 6,578,027
Distributions......... -- -- -- (932,836) (932,836)
Net income............ -- -- -- 5,389,730 5,389,730
---------- ------- ----------- ----------- -----------
Balances at December 31,
1996................... 8,318,676 8,319 665,381 10,361,221 11,034,921
Issuance of common
shares for minority
shares at June 30,
1997................. 1,681,324 1,681 10,627,807 -- 10,629,488
Stock options granted. -- -- 625,240 -- 625,240
Contribution.......... -- -- -- 346,464 346,464
Net income............ -- -- -- 2,932,074 2,932,074
---------- ------- ----------- ----------- -----------
Balances at December 31,
1997................... 10,000,000 $10,000 $11,918,428 $13,639,759 $25,568,187
========== ======= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 2,828,576 $ 5,389,730 $ 2,932,074
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Compensation expense related to
stock transactions................. -- -- 6,968,776
Deferred income tax benefit......... 123,461 (208,905) (87,189)
Depreciation and amortization....... 371,639 432,849 769,308
Bad debt expense.................... 104,972 247,782 237,911
(Gain) loss on sale of property and
equipment.......................... -- (10,553) 11,319
Minority interest in earnings....... 681,911 1,237,266 848,181
Changes in operating assets and
liabilities net of effects of
acquisitions:
Accounts receivable................. (2,018,384) (3,754,553) (1,034,355)
Inventory........................... (1,263,250) (3,750,301) (5,557,705)
Prepaid expenses and other assets... (145,016) (24,348) (254,986)
Accounts payable.................... (1,534,061) (348,110) 1,269,782
Accrued expenses.................... 526,153 795,305 (88,901)
Income taxes payable................ (265,384) 778,788 290,021
----------- ----------- -----------
Net cash provided by (used in)
operating activities............. (589,383) 784,950 6,304,236
INVESTING ACTIVITIES:
Purchases of property and equipment... (460,675) (513,131) (1,534,341)
Cash paid for acquisition, net........ -- -- (8,740,102)
Proceeds from sale of property and
equipment............................ 2,427 19,911 699,274
----------- ----------- -----------
Net cash used in investing activities. (458,248) (493,220) (9,575,169)
FINANCING ACTIVITIES:
Net borrowings under revolving line of
credit............................... 2,775,000 3,125,814 299,186
Proceeds from long-term debt.......... 592,000 270,297 6,650,000
Repayments of long-term debt.......... (974,804) (527,946) (2,349,652)
Sale of minority interest in
subsidiaries......................... -- 147,948 --
Capital contributions (distributions). (1,303,550) (932,836) 346,464
----------- ----------- -----------
Net cash provided by financing
activities....................... 1,088,646 2,083,277 4,945,998
----------- ----------- -----------
Net increase in cash.................... 41,015 2,375,007 1,675,065
Cash at beginning of year............... 2,507,600 2,548,615 4,923,622
----------- ----------- -----------
Cash at end of year..................... $ 2,548,615 $ 4,923,622 $ 6,598,687
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Century Maintenance Supply, Inc. (the "Company" or "CMS"), distributes
general maintenance supplies and air conditioning and heating equipment and
parts to apartment complexes throughout the United States.
Principles of Consolidation
On June 30, 1997, CMS was incorporated under the laws of the State of
Delaware. Century Air Supply, Inc. ("CAS"), was incorporated on January 21,
1976 under the laws of the State of Texas. At the same time as the
incorporation of CMS, all of the outstanding shareholders of CAS exchanged all
of their shares of common stock for CMS common stock at a ratio of 6,616 for
1. Share amounts in the consolidated financial statements and accompanying
notes have been restated to reflect the reorganization.
On June 30, 1997, the Company purchased all assets of the general
maintenance supply operations of an affiliated company, Century
Airconditioning Supply, Inc. ("CAC"), with 1,702,703 shares of the Company's
common stock. Also, on June 30, 1997, the Company sold one of its subsidiaries
in the heating and air conditioning business to CAC for $215,000. These
transactions were conducted between the Company and CAC, which were under
common control, and, as such, the transactions were recorded at historical
cost in a manner similar to a pooling of interests. All periods presented have
been restated to reflect these transactions (see Note 8).
The accompanying consolidated financial statements include the accounts of
the Company. All significant intercompany balances and transactions have been
eliminated.
Inventories
Inventories consist wholly of finished goods and are stated at cost, applied
on the first-in, first-out method of pricing, which is not in excess of
market. The Company continuously evaluates its reserve for obsolescence and
the reserve was $129,000 and $354,000 at December 31, 1996 and 1997,
respectively.
Allowance for Doubtful Accounts
The Company continuously evaluates the creditworthiness of its customers.
The Company's allowance for doubtful accounts is based on current market
conditions and losses on uncollectible accounts have consistently been within
management's expectations. The allowance for doubtful accounts was $131,513,
$452,079, and $755,940 at December 31, 1995, 1996, and 1997, respectively. In
1997, the Company recorded an allowance for doubtful accounts of $100,974 due
to acquisitions (see Note 8) which is reflected in the amount set forth above.
Net writeoffs (recoveries) of uncollectible accounts were $156,486, $(72,784),
and $35,024 for the years ended December 31, 1995, 1996, and 1997,
respectively.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred, and renewals and improvements are capitalized.
The cost of property and equipment sold or otherwise retired and the
accumulated depreciation applicable thereto are eliminated from the accounts,
and the resulting profit or loss is reflected in operations.
F-7
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed using the straight-line
method for financial reporting purposes and on the ACRS and MACRS methods for
income tax purposes. The estimated useful lives of property and equipment for
purposes of computing depreciation for financial reporting are as follows:
<TABLE>
<S> <C>
Buildings...................................................... 30 years
Leasehold improvements......................................... 3-10 years
Furniture and fixtures......................................... 5-7 years
Machinery and equipment........................................ 3-8 years
</TABLE>
Depreciation expense was approximately $372,000, $433,000, and $669,000 for
1995, 1996, and 1997, respectively.
Intangible Assets
Intangible assets consist primarily of goodwill associated with businesses
acquired in 1997. Goodwill is amortized on a straight-line basis over 30
years. Amortization expense was $100,000 for 1997, and accumulated
amortization was $100,000 at December 31, 1997.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement basis and income tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Statement of Cash Flows
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental information
Interest paid.......................... $ 718,000 $ 740,000 $1,338,000
========== ========== ==========
Taxes paid............................. $1,613,000 $2,228,000 $4,334,500
========== ========== ==========
</TABLE>
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising expense
was approximately $397,000, $192,000, and $416,000 for the years ended
December 31, 1995, 1996, and 1997, respectively.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term maturities of these
instruments.
The carrying amounts of borrowings pursuant to the Company's revolving line
of credit approximate fair value because the rates on such agreements are
variable, based on current market rates. At December 31, 1997, the carrying
amount of the Company's other long-term debt approximates fair value.
F-8
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2. RELATED PARTIES
The Company purchases/sells various inventory items at cost from/to CAC,
which is wholly owned by the majority stockholder of the Company, extends
credit under standard terms in connection with these sales, and collects
management and administrative fees from CAC. The Company also has certain
notes payable to the majority stockholder of the Company. Account balances and
transactions with related parties are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accounts receivable................................ $2,685,608 $1,963,984
Accounts payable................................... 508,019 468,399
---------- ----------
Net accounts receivable............................ $2,177,589 $1,495,585
========== ==========
Long-term debt-stockholder......................... $3,449,009 $3,078,114
========== ==========
Long term debt-related party....................... $ -- $6,485,418
========== ==========
</TABLE>
Sales to and purchases from CAC amounted to $818,828 and $1,427,376 for
1995, $882,233 and $833,609 for 1996, and $1,178,546 and $908,862 for 1997,
respectively. Management and administrative fee income charged to CAC amounted
to $117,103, $198,330, and $284,746 for 1995, 1996, and 1997, respectively.
The Company had lease expense to related parties amounting to $521,190 for
1997.
During 1997, Century Air Services, Inc. ("Services"), a subsidiary of CMS,
entered into a limited partnership agreement with the majority stockholder and
one other stockholder of the Company, in which Services is the general partner
and has an investment of $500. The partnership purchased the land and building
for fair value of $660,000, which also approximates cost, from a subsidiary of
the Company and leases the land and building to the subsidiary.
During 1996, Services entered into three limited partnership agreements with
the majority stockholder of the Company and, in two of those partnerships,
with other stockholders of CMS. Services is the general partner in each
limited partnership and has a total investment in the partnerships of $2,700.
These partnerships lease the land and buildings to subsidiaries of the
Company.
In 1995, the Company purchased land in Phoenix and Tucson, Arizona, for
$177,955 and $117,117, respectively. The Company sold the land and a building
in 1996 at cost plus construction expenses to a limited partnership consisting
of the stockholders of Century Maintenance Supply (AZ) Inc., and the Company.
The limited partnership leases the land and buildings to Century Maintenance
Supply (AZ) Inc.
The Company paid interest on long-term debt of approximately $280,000,
$280,000, and $210,000 to the majority stockholder in 1995, 1996, and 1997,
respectively, and has approximately $416,000 and $484,000 in accrued interest
due to stockholders at December 31, 1996 and 1997, respectively.
The Company paid interest on long-term debt of approximately $253,000 to an
employee and former owner of Nationwide Apartment Supply, Inc., and Fairview
Wholesale Supply, Inc. (collectively, "Nationwide"), in 1997 and has
approximately $37,000 in accrued interest due to the employee and former owner
at December 31, 1997.
F-9
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Century Air Supply, Inc., has a revolving line of credit
agreement with a bank which allows borrowings up to
$17,500,000, is due October 31, 1998, and bears
interest at the bank's prime or LIBOR contract plus 150
basis points. Century Air Supply, Inc., has pledged
accounts receivable, inventory, and property as
collateral for the note. The note agreement contains
customary financial covenants.......................... $8,300,814 $8,800,000
========== ==========
</TABLE>
NOTE 4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Long-term debt:
Note payable to a bank with interest at LIBOR contract plus
175 basis points. Monthly payments of $10,000, plus
interest, until maturity at May 31, 2002................... $ -- $530,000
Note payable to an investment company with interest at 8.5%.
Monthly payments of $7,191, which includes principal and
interest until maturity on April 1, 2002, secured by land
and building of Century Maintenance Supply--Dal, Inc. This
mortgage was assumed by the purchaser of the land and
building in 1997........................................... 359,824 --
Note payable to a bank with interest at prime plus .75%.
Monthly payments of $2,976, which includes principal and
interest, with a balloon payment at maturity on September
22, 1999, secured by real property of a stockholder........ 111,636 84,437
Note payable to a bank with interest at prime. Monthly
payments of $1,722 in principal plus interest until
maturity at March 30, 1998, secured by computer equipment
of Century Maintenance Supply--KS, Inc. ................... 21,578 3,445
Note payable to a bank with interest at prime. Monthly
payments of $1,861 in principal and interest until maturity
at October 7, 1997, secured by computer equipment of
Century Maintenance Supply (N CA) Inc. The remaining
principal was paid during 1997............................. 7,445 --
Note payable to a bank with interest at prime plus .75%.
Monthly payments of $879 in principal plus interest until
maturity at March 7, 1997, secured by computer equipment of
Century Air Services, Inc. The remaining principal was paid
during 1997................................................ 2,641 --
Other notes payable......................................... -- 16,057
-------- --------
503,124 633,939
Less current portion........................................ 105,868 159,174
-------- --------
$397,256 $474,765
======== ========
</TABLE>
F-10
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Long-term debt--related parties:
Promissory notes payable to the majority stockholder
with interest at 10%. Various monthly payments of
principal plus interest. Maturities are through 2000.. $3,449,009 $3,078,114
Promissory notes payable to a related party with
interest at 9%. Various monthly payments of principal
plus interest. Maturities are through 2004............ -- 6,485,418
---------- ----------
3,449,009 9,563,532
Less current portion................................... 2,125,468 1,509,509
---------- ----------
$1,323,541 $8,054,023
========== ==========
</TABLE>
Maturities of long-term debt at December 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 1,668,683
1999.......................................................... 2,926,073
2000.......................................................... 2,361,285
2001.......................................................... 977,143
2002.......................................................... 907,143
Thereafter.................................................... 1,357,144
-----------
$10,197,471
===========
</TABLE>
NOTE 5. COMMITMENTS
Lease Commitments
The Company leases store facilities in 30 locations under operating leases
that expire over the next six years. The Company also leases vehicles under
operating leases.
Future minimum payments under these operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1998.......................................................... $1,859,966
1999.......................................................... 1,647,816
2000.......................................................... 1,279,716
2001.......................................................... 1,027,479
2002.......................................................... 255,803
Thereafter.................................................... 35,890
----------
$6,106,670
==========
</TABLE>
Rental expenses for 1995, 1996, and 1997 were $1,310,591, $1,804,881, and
$2,556,757, respectively.
F-11
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996, and 1997, consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal............................ $1,059,465 $2,698,928 $5,729,375
State.............................. 175,645 308,112 727,272
---------- ---------- ----------
1,235,110 3,007,040 6,456,647
Deferred:
Federal............................ 186,265 (171,985) (121,725)
State.............................. (62,804) (36,920) 34,536
---------- ---------- ----------
123,461 (208,905) (87,189)
---------- ---------- ----------
$1,358,571 $2,798,135 $6,369,458
========== ========== ==========
</TABLE>
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes for the years ended
December 31, 1995, 1996, and 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income tax computed at federal statutory
income tax rate........................... $1,655,480 $3,204,545 $3,552,400
State income taxes, net of federal benefit. 68,788 180,092 514,950
Nontaxable income due to S-corporation
status.................................... (397,479) (584,703) (356,270)
Nondeductible compensation expense......... -- -- 2,439,262
Amortization of nondeductible goodwill..... -- -- 35,000
Nondeductible portion of business meals and
entertainment............................. 21,620 15,361 29,341
Other...................................... 10,162 (17,160) 154,775
---------- ---------- ----------
Provision for income taxes................. $1,358,571 $2,798,135 $6,369,458
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities as of December 31, 1996 and 1997
comprised the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Bad debt allowances................................ $ 137,074 $ 288,920
Accrued bonuses.................................... 60,550 46,666
Related party accrued interest..................... 146,495 199,350
Accrued franchise taxes............................ 58,630 125,443
Inventory reserves................................. 51,000 135,299
Net operating loss carryforwards................... 113,459 58,740
Other.............................................. 48,860 2,811
--------- ---------
Total deferred tax assets............................ 616,068 857,229
Deferred tax liabilities:
Depreciation expense............................... (107,354) (140,978)
Inventory basis.................................... -- (190,000)
Other.............................................. (17,444) (522)
--------- ---------
Total deferred tax liabilities....................... (124,798) (331,500)
--------- ---------
Net deferred tax assets.............................. $ 491,270 $ 525,729
========= =========
</TABLE>
All net operating losses will expire by 2010.
F-12
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PRO FORMA PROVISION FOR INCOME TAXES (UNAUDITED)
As mentioned in Note 8, the Company acquired all of the assets of the
general maintenance supply operations of CAC and has restated the financial
statements for the periods presented to reflect the transaction in a manner
similar to a pooling of interests. The operations that the Company acquired
were part of an S corporation and were not subject to federal income taxes. To
reflect the earnings of the restated financial statements of the Company on an
after-tax basis since the operations are now all part of a C corporation, an
unaudited pro forma provision for income tax has been included in the
accompanying statements of income. The provision was computed as if the
Company were a C corporation and responsible for its federal and state income
taxes.
8. ACQUISITIONS AND TRANSACTIONS AMONG ENTITIES UNDER COMMON CONTROL
On June 30, 1997, the Company acquired all of the outstanding minority
shareholder interests in each of the Company's subsidiaries with common stock
of the Company. The exchanges were completed at fair value and resulted in the
Company distributing 1,681,324 shares of common stock to the minority
shareholders. The acquisition resulted in compensation expense of $6,343,536
for the difference between the fair value of the stock exchanged and the
recorded basis of minority shareholder interests consisting of amounts paid by
the minority shareholders for their stock in the subsidiaries and their
allocated earnings reflected as charges to minority interest in earnings of
subsidiaries.
On June 30, 1997, the Company purchased all of the assets of the general
maintenance supply operations of CAC, which were located in San Antonio and
Austin, Texas (acquired assets to be called "SA/A"), with 1,702,703 shares of
the Company's common stock. The number of shares was determined based on the
fair value of the operations acquired divided by the fair value per share of
common stock of the Company.
Also, on June 30, 1997, the Company sold one of its subsidiaries, Air
Management, Inc. ("Air"), which is in the heating and air conditioning
business, to CAC for $215,000. The sales price was based on the fair value of
the subsidiary sold.
F-13
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Both transactions described in the previous two paragraphs were conducted
between the Company and CAC which were under common control; therefore, the
transactions were recorded at historical cost in a manner similar to a pooling
of interests. All periods presented have been restated to reflect the
transactions. Separate results of operations of each of the entities under
common control throughout the periods are depicted below.
<TABLE>
<CAPTION>
ADJUSTMENTS
CMS ADD: SA/A LESS: AIR (1) COMBINED
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Sales................... $ 71,842,124 $13,372,461 $4,011,652 $(1,087,476) $ 80,115,457
Income (loss) before
taxes and minority
interest............... 3,549,658 1,169,056 (150,344) -- 4,869,058
Net income (loss)....... 1,589,662 1,169,056 (69,858) -- 2,828,576
YEAR ENDED DECEMBER 31,
1996
Sales................... 94,430,210 15,234,321 5,086,734 (1,464,580) 103,113,217
Income (loss) before
taxes and minority
interest............... 7,706,670 1,719,715 1,254 -- 9,425,131
Net income (loss)....... 3,662,051 1,719,715 (7,964) -- 5,389,730
YEAR ENDED DECEMBER 31,
1997(2)
Sales................... 144,640,182 7,703,681 5,488,875 (689,279) 146,165,709
Income (loss) before
taxes and minority
interest............... 8,732,486 1,017,915 (399,312) -- 10,149,713
Net Income (loss)....... 1,676,640 1,017,915 (237,519) -- 2,932,074
</TABLE>
- --------
(1) The adjustments reflect sales transactions between the entities that need
to be eliminated upon combination.
(2) SA/A and Air financial information for 1997 is for the period from January
1, 1997 through June 30, 1997.
In regard to the purchase of the assets of the general maintenance supply
operations of CAC, any net cash provided by or used in the operations before
the acquisition have been reflected in the restated statement of stockholders'
equity as either distributions or contributions. Also, a net deferred tax
asset of $36,300 was recorded on July 1, 1997 as part of the acquisition.
On July 11, 1997, the Company acquired all of the issued and outstanding
common stock of Nationwide for approximately $9,160,000. The seller also
received 140,000 options to purchase common stock of the Company at $7.00 per
share. The acquisition was accounted for using the purchase method of
accounting and resulted in goodwill of approximately $5,787,000. The following
unaudited pro forma results of operations have been prepared assuming the
acquisition had occurred as of the beginning of the periods presented. Those
results are not necessarily indicative of results of the future operations nor
of results that would have occurred had the acquisition been consummated as of
the beginning of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net sales...................................... $133,795,000 $166,011,000
Net income..................................... $ 7,499,000 $ 4,028,000
</TABLE>
F-14
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE STOCK OPTION PLAN
In July 1997, the Company established the 1997 Incentive Stock Plan (the
"Stock Option Plan"), pursuant to which options may be granted to eligible
employees of the Company or its subsidiaries for the purchase of an aggregate
of 1,000,000 shares of common stock of the Company (the "Company Stock"). The
Stock Option Plan is administered by the Board of Directors (the "Board"). The
Board has the power to determine which eligible employees will receive stock
option rights, the timing and manner of the grant of such rights, the exercise
price, the number of shares to be covered by the option, and the type and
terms of the options. The Board may, at any time, terminate or amend the Stock
Option Plan, provided that no such amendment may adversely affect the rights
of optionees with regard to outstanding options.
On July 1, 1997, the Company granted 269,500 non-qualified, fully vested
stock options to purchase Common Stock with an exercise price of $4.00 per
common share with an expiration date of three years after the date of grant.
The grant of options resulted in compensation expense of $625,240 for the
excess of the fair value of the Common Stock over the exercise price at the
date of the grant. The weighted average remaining contractual life of all
outstanding options at December 31, 1997 was 2.5 years. Changes in the
outstanding options granted pursuant to the Stock Option Plan are summarized
in the table below:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF PRICE PER
SHARES SHARE
------- -----------
<S> <C> <C>
Outstanding at December 31, 1996..................... -- --
Granted.............................................. 409,500 $4.00-$7.00
------- -----------
Outstanding at December 31, 1997..................... 409,500 $4.00-$7.00
======= ===========
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for stock-based compensation arrangements.
Pro forma information regarding net income per share is required by FASB
Statement No. 123, Accounting for Stock-Based Compensation ("FAS 123"), which
also requires that the information be determined as if the Company had
accounted for its employee stock options granted under the fair value method
of FAS 123. The fair value for these options was estimated at the date of
grant using the minimum value option pricing model. The minimum value method
option calculated a fair value that is approximately the same as recorded by
the Company according to APB 25; therefore, pro forma presentation has not
been included.
10. PROFIT SHARING PLAN AND DEFINED CONTRIBUTION PLAN
CAC sponsors a noncontributory, defined contribution profit sharing plan for
the benefit of all eligible employees (as defined in the plan agreement), in
which Century Maintenance Supply--Dal, Inc., and Services participate. The
annual contribution to the plan is determined at the discretion of the Board.
For the years ended December 31, 1995, 1996, and 1997, the Company made no
contribution to the plan.
The Company sponsors a 401(k) savings and retirement plan which is open to
all employees who have attained age 21 and who have completed one full year of
service. Each employee may contribute a minimum of 2%, up to a maximum of 15%,
of basic compensation. The Company matches contributions at a rate of 50% for
contributions by the employee up to 8% of an employee's compensation. The
Company contributed approximately $170,000, $241,000, and $297,000 in 1995,
1996, and 1997, respectively, as matching funds to the plan. No discretionary,
lump-sum contributions were made in 1995, 1996, and 1997.
F-15
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS (UNAUDITED)
Effective July 8, 1998, the Company completed a recapitalization of the
Company pursuant to an agreement and plan of merger (the "Recapitalization").
Key components of the Recapitalization include:
(1) Common equity investments in consideration for approximately 56%
ownership in the Company's common stock.
(2) Issuance of $40 million senior exchangeable payment-in-kind (PIK)
preferred stock.
(3) Execution of a new bank credit facility consisting of $100 million of
term loans and a $25 million revolving loan facility.
(4) Repayment of existing indebtedness.
(5) Merger consideration payments to the existing shareholders (the
existing stockholders will retain approximately 44% interest of the
outstanding common shares).
The Company will recognize a charge of approximately $10.9 million, net of
taxes, at the date of the transaction, related to transaction costs, bonuses,
and the cancellation of stock options.
F-16
<PAGE>
Century Maintenance Supply, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,598,687 $ 4,303,903
Accounts receivable:
Trade, net 14,954,665 24,597,239
Related parties 1,495,585 297,489
Inventory, net 23,900,128 29,795,851
Deferred income taxes 857,229 857,229
Prepaid expenses and other current assets 636,159 1,018,733
----------- -----------
Total current assets 48,442,453 60,870,444
Goodwill, net 5,687,353 5,458,638
Other assets 550,600 547,400
Property and equipment:
Land 20,000 20,000
Buildings and improvements 232,030 249,419
Furniture and fixtures 1,025,720 1,115,223
Machinery and equipment 3,826,088 4,070,355
----------- -----------
5,103,838 5,454,997
Less accumulated depreciation 2,530,519 2,819,514
----------- -----------
Total property and equipment 2,573,319 2,635,483
----------- -----------
Total assets $57,253,725 $69,511,965
=========== ===========
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1998
----------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 7,361,452 $ 13,133,856
Note payable 8,800,000 11,025,000
Income taxes payable 1,993,801 1,551,403
Accrued expenses 3,001,314 2,912,814
Current portion of long-term debt 159,174 205,297
Current portion of long-term debt--related parties 1,509,509 2,034,193
----------- ------------
Total current liabilities 22,825,250 30,862,563
Long-term debt, less current portion 474,765 360,000
Long-term debt--related parties, less current 8,054,023 6,351,692
portion
Deferred income taxes 331,500 331,500
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares--15,000,000
Issued and outstanding shares--10,000,000 10,000 10,000
Additional paid-in capital 11,918,428 11,918,428
Treasury stock, at cost -- (500,000)
Retained earnings 13,639,759 20,177,782
----------- ------------
Total stockholders' equity 25,568,187 31,606,210
----------- ------------
Total liabilities and stockholders' equity $57,253,725 $69,511,965
=========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
Century Maintenance Supply, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1997 1998
---------------------------
(Unaudited)
<S> <C> <C>
Net sales $58,760,851 $94,182,095
Cost of goods sold 42,468,227 68,597,838
---------------------------
Gross profit 16,292,624 25,584,257
Selling, general, and administrative expenses 9,096,605 14,181,827
Stock-based compensation charge 6,343,536 -
---------------------------
Operating income 852,483 11,402,430
Interest expense 322,935 718,757
---------------------------
Income before income taxes and minority interest 529,548 10,683,673
Provision for income taxes 2,138,611 4,145,650
---------------------------
(Loss) income before minority interest (1,609,063) 6,538,023
Minority interest in earnings of subsidiaries 848,181 -
---------------------------
Net (loss) income $(2,457,244) $ 6,538,023
===========================
Pro forma information (unaudited):
Historical income before income taxes and
minority interest $ 529,548
Pro forma provision for income taxes (unaudited) 2,433,073
-----------
Pro forma loss before minority interest (1,903,525)
(unaudited)
Minority interest in earnings of subsidiaries 848,181
-----------
Pro forma net loss (unaudited) $(2,751,706)
===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
Century Maintenance Supply, Inc.
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL TOTAL
SHARES COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL STOCK EARNINGS EQUITY
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 10,000,000 $10,000 $11,918,428 $ - $13,639,759 $25,568,187
Purchase of
treasury stock,
at cost - - - (500,000) - (500,000)
Net income - - - - 6,538,023 6,538,023
------------------------------------------------------------------------------------------------------
Balances at June 30,
1998 10,000,000 $10,000 $11,918,428 $(500,000) $20,177,782 $31,606,210
======================================================================================================
</TABLE>
See accompanying notes.
F-20
<PAGE>
Century Maintenance Supply, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1997 1998
-------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (2,457,244) $ 6,538,023
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Compensation expense related to stock 6,343,536 -
transactions
Deferred income tax benefit (46,000) -
Depreciation and amortization 246,753 476,300
Bad debt expense 101,290 173,309
Loss on sale of property and equipment 13,377 -
Minority interest in earnings 848,181 -
Changes in operating assets and liabilities:
Accounts receivable (10,602,123) (8,617,787)
Inventory (4,977,094) (5,895,723)
Prepaid expenses and other assets 161,056 (379,374)
Accounts payable 5,651,053 5,772,404
Accrued expenses (56,346) (88,500)
Income taxes payable (77,479) (442,398)
-------------------------------
Net cash used in operating activities (4,851,040) (2,463,746)
INVESTING ACTIVITIES
Purchases of property and equipment (983,721) (500,099)
Proceeds from sale of property and equipment 681,958 40,350
-------------------------------
Net cash used in investing activities (301,763) (459,749)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit 2,275,549 2,225,000
Proceeds from long-term debt 600,000 -
Repayments of long-term debt (723,477) (1,096,289)
Purchase of treasury stock, at cost - (500,000)
Capital contributions 346,464 -
-------------------------------
Net cash provided by financing activities 2,498,536 628,711
-------------------------------
Net decrease in cash (2,654,267) (2,294,784)
Cash at beginning of period 4,923,622 6,598,687
-------------------------------
Cash at end of period $ 2,269,355 $ 4,303,903
===============================
</TABLE>
See accompanying notes.
F-21
<PAGE>
Century Maintenance Supply, Inc.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1998
1. BASIS OF PRESENTATION
Century Maintenance Supply, Inc. (the "Company"), distributes general
maintenance supplies and air conditioning and heating equipment and parts to
apartment complexes throughout the United States.
The consolidated financial statements include the accounts of Century
Maintenance Supply, Inc., and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
The consolidated balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information or footnotes required by generally accepted accounting principles
for complete financial statements. The Company's consolidated balance sheet at
June 30, 1998 and the consolidated statements of operations, changes in
stockholders' equity, and cash flows for the interim periods ended June 30, 1997
and 1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position, results of
operations, and cash flows have been made. The results of operations for the
interim periods are not necessarily indicative of the operating results for a
full year or of future operations.
On June 30, 1997, the Company acquired all of the outstanding minority
shareholder interests in each of the Company's subsidiaries with common stock of
the Company. The exchanges were completed at fair value and resulted in the
Company distributing 1,681,324 shares of common stock to the minority
shareholders. The acquisition resulted in compensation expense of $6,343,536 for
the difference between the fair value of the stock exchanged and the recorded
basis of minority shareholder interests consisting of amounts paid by the
minority shareholders for their stock in the subsidiaries and their allocated
earnings reflected as charges to minority interest in earnings of subsidiaries.
F-22
<PAGE>
Century Maintenance Supply, Inc.
Notes to Consolidated Financial Statements (Unaudited) (continued)
1. BASIS OF PRESENTATION (CONTINUED)
On June 30, 1997, the Company purchased all assets of the general maintenance
supply operations of an affiliated company, Century Airconditioning Supply, Inc.
("CAC"), with 1,702,703 shares of the Company's common stock. Also on June 30,
1997, the Company sold one of its subsidiaries in the heating and air
conditioning business to CAC for $215,000. These transactions were conducted
between the Company and CAC, which were under common control, and, as such, the
transactions were recorded at historical cost in a manner similar to a pooling
of interests. The six months ended June 30, 1997 have been restated to reflect
these transactions.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1997.
2. INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
differences between the financial statement basis and income tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The Company's interim provisions for income taxes were computed using its
estimated effective tax rate for the year. The Company's provision for income
taxes differs from the federal statutory rate of 35% in 1998 due primarily to
nondeductible goodwill and state income taxes and in 1997 due primarily to the
stock compensation and state income taxes (see also Note 3).
3. PRO FORMA PROVISION FOR INCOME TAXES (UNAUDITED)
As mentioned in Note 1, the Company acquired all of the assets of the general
maintenance supply operations of CAC and has restated the financial statements
for the periods presented to reflect the transaction in a manner similar to a
pooling of interests. The operations that the Company acquired were part of an S
corporation and were not subject to federal income taxes. To reflect the
earnings of the restated financial statements of the Company on an after-tax
basis since the operations are now all a part of a
F-23
<PAGE>
Century Maintenance Supply, Inc.
Notes to Consolidated Financial Statements (Unaudited) (continued)
3. PRO FORMA PROVISION FOR INCOME TAXES (UNAUDITED) (CONTINUED)
C corporation, an unaudited pro forma provision for income tax has been included
in the accompanying consolidated statements of operations. The provision was
computed as if the Company were a C corporation and responsible for its federal
and state income taxes.
4. ACQUISITIONS
On July 11, 1997, the Company acquired all of the issued and outstanding common
stock of Nationwide Apartment Supply, Inc., and Fairview Wholesale Supply, Inc.
(collectively, "Nationwide"), for approximately $9,160,000. The seller also
received 140,000 options to purchase common stock of the Company at $7.00 per
share. The acquisition was accounted for using the purchase method of accounting
and resulted in goodwill of approximately $5,787,000. The purchase price was
adjusted in the first quarter 1998 by $150,000 as a reduction in goodwill and
the note payable to the seller.
The following unaudited pro forma results of operations have been prepared
assuming the acquisitions had occurred as of the beginning of the periods
presented. Those results are not necessarily indicative of results of the future
operations nor of results that would have occurred had the acquisitions been
consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
1997
--------------
<S> <C>
Net sales $77,100,000
Net loss $(1,413,000)
</TABLE>
5. STOCKHOLDERS' EQUITY
Effective March 29, 1998, the Company repurchased 83,962 shares of common stock
from a stockholder for $500,000. These shares have been placed in treasury
stock.
F-24
<PAGE>
Century Maintenance Supply, Inc.
Notes to Consolidated Financial Statements (Unaudited) (continued)
6. SUBSEQUENT EVENTS
Effective July 8, 1998, the Company consummated a recapitalization of the
Company pursuant to an Agreement and Plan of Merger (the "Recapitalization").
Key components of the Recapitalization include:
(1) Common equity investments in consideration for approximately 56% ownership
in the Company's common stock
(2) Issuance of $40 million senior exchangeable payment-in-kind preferred stock
(3) Execution of a new bank credit facility consisting of $100 million of term
loans and a $25 million revolving loan facility
(4) Repayment of existing indebtedness
(5) Merger consideration payments to the existing shareholders (the existing
shareholders will retain approximately 44% interest of the outstanding
common shares).
The Company has incurred approximately $345,000 in costs related to the
Recapitalization which has been paid and recorded as a prepaid expense at June
30, 1998. The Company will recognize a charge of approximately $10.9 million,
net of taxes, at the date of the transaction, related to transaction costs,
bonuses, and the cancellation of stock options.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
Nationwide Apartment Supply, Inc. and Fairview Wholesale Supply, Inc.
We have audited the accompanying combined balance sheets of Nationwide
Apartment Supply, Inc., and Fairview Wholesale Supply, Inc. (collectively, the
"Company"), as of June 30, 1997 and 1996, and the related combined statements
of income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Nationwide
Apartment Supply, Inc., and Fairview Wholesale Supply, Inc., at June 30, 1997
and 1996, and the combined results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
August 25, 1997
F-26
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
----------------------
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash.................................................. $ 419,898 $ 8,588
Accounts receivable, net of allowance for doubtful
accounts
(1997--$100,974; 1996--$80,974)...................... 4,625,033 3,750,080
Inventory............................................. 4,031,100 2,942,500
Note receivable....................................... 23,781 34,325
----------- ----------
Total current assets................................ 9,099,812 6,735,493
Available-for-sale securities........................... 425,000 321,700
Property and equipment, net............................. 584,641 503,448
Deferred tax asset...................................... 40,575 --
----------- ----------
Total assets........................................ $10,150,028 $7,560,641
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable...................................... $ 3,307,642 $2,668,543
Accrued expenses...................................... 784,740 666,186
Income taxes payable:
Federal............................................. 642,603 166,769
State............................................... 141,020 44,833
Dividend payable...................................... -- 11,140
Revolving note payable line of credit................. 200,000 125,000
Current portion of long-term debt..................... 373,742 331,076
Current portion of notes payable, related party....... 245,132 197,500
----------- ----------
Total current liabilities........................... 5,694,879 4,211,047
Long-term debt.......................................... 667,897 833,883
Notes payable, related party............................ 658,219 816,756
Shareholders' equity:
Preferred stock, $10 par value, authorized shares--
100,000, Issued and outstanding shares--10,000....... 100,000 100,000
Common stock, no par value, authorized shares--
101,000, Issued and outstanding shares--3,000........ 201,000 201,000
Retained earnings..................................... 2,828,033 1,397,955
----------- ----------
Total shareholders' equity.......................... 3,129,033 1,698,955
----------- ----------
Total liabilities and shareholders' equity.......... $10,150,028 $7,560,641
=========== ==========
</TABLE>
See accompanying notes.
F-27
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Sales................................................. $34,957,514 $25,846,800
Cost of sales......................................... 24,028,094 17,912,700
----------- -----------
Gross profit.......................................... 10,929,420 7,934,100
Selling, general and administrative expenses.......... 8,457,232 6,999,256
----------- -----------
Income from operations................................ 2,472,188 934,844
Other (income) expense:
Interest expense.................................... 177,334 186,617
Other............................................... (88,715) 13,787
----------- -----------
Income before income taxes............................ 2,383,569 734,440
Income taxes.......................................... 953,491 326,695
----------- -----------
Net income............................................ 1,430,078 407,745
Retained earnings, beginning of year.................. 1,397,955 990,210
----------- -----------
Retained earnings, end of year........................ $ 2,828,033 $ 1,397,955
=========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................. $ 1,430,078 $ 407,745
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Depreciation.............. 217,792 206,053
Deferred tax expense...... (40,575) --
Gain on disposal of
property and equipment... (427) --
Changes in operating
assets and liabilities:
Accounts receivable..... (874,953) (1,449,864)
Inventory............... (1,088,600) (749,025)
Accounts payable........ 639,099 1,000,504
Accrued expenses........ 118,554 115,577
Income taxes payable.... 572,021 211,602
----------- -----------
Net cash provided by (used
in) operating activities... 972,989 (257,408)
INVESTING ACTIVITIES
Purchases of property and
equipment.................. (301,558) (297,150)
Proceeds from sale of
property and equipment..... 3,000 --
Notes receivable............ 10,544 14,306
Purchases of available-for-
sale securities............ (103,300) (78,300)
----------- -----------
Net cash used in investing
activities................. (391,314) (361,144)
FINANCING ACTIVITIES
Proceeds from notes payable. 525,000 1,282,000
Principal payments on notes
payable.................... (573,320) (1,028,476)
Proceeds from notes payable,
related parties............ 100,000 420,000
Principal payments on notes
payable, related parties... (210,905) (106,921)
Dividends paid.............. (11,140) (13,018)
----------- -----------
Net cash (used in) provided
by financing activities.... (170,365) 553,585
----------- -----------
Net increase (decrease) in
cash....................... 411,310 (64,967)
Cash at beginning of year... 8,588 73,555
----------- -----------
Cash at end of year......... $ 419,898 $ 8,588
=========== ===========
</TABLE>
See accompanying notes.
F-29
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1997
1. PRINCIPLES OF COMBINATION AND NATURE OF BUSINESS
The combined financial statements include the accounts of Nationwide
Apartment Supply, Inc. ("Nationwide"), and Fairview Wholesale Supply, Inc.
("Fairview"), entities affiliated through common ownership, and are
hereinafter referred to collectively as the "Company." All significant
intercompany accounts and transactions have been eliminated in the combination
of the Company's financial statements.
The Company has its principal office in Indianapolis, Indiana. The Company
operates exclusively in one industry segment, the sale of repair and
maintenance products primarily to the apartment housing markets in the
Midwestern United States. Nationwide has offices in Indianapolis, Indiana;
Cincinnati, Ohio; St. Louis, Missouri; Detroit, Michigan; Atlanta, Georgia;
Kansas City, Missouri; the District of Columbia; Columbus, Ohio; and
Cleveland, Ohio. Fairview has offices in Chicago, Illinois and Minneapolis,
Minnesota.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventory is recorded at the lower of cost (determined using the last-in,
first-out method) or market. Inventory costs determined using current costs
exceed the carrying amounts of inventories determined by the last-in, first-
out method by $487,853 at June 30, 1997 ($347,934 at June 30, 1996).
Available-for-Sale Securities
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the Company
classifies its ownership interest in the Co-op of one of its vendors as
"available-for-sale." The Co-op is required to repurchase these securities at
their fair value in the event the Company's relationship with the Co-op is
terminated. These securities are valued at cost which the Company believes
approximates fair value.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight-
line basis over the estimated useful lives of the assets. The carrying value
of long-lived assets is periodically reviewed by management. If this review
indicates that the carrying value may be impaired, then the impaired amount
will be written off.
Revenue Recognition
Revenue is recognized upon shipment of inventory to customers.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, Accounting for Income Taxes, which requires recognition of deferred tax
liabilities and assets based on the difference between the financial statement
and tax bases of assets and liabilities. Both Nationwide and Fairview file
separate tax returns at the state and federal levels.
F-30
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting on Comprehensive Income, and
No. 131, Disclosures about Segments of an Enterprise and Related Information.
These statements will affect the disclosure requirements for annual and
interim financial statements beginning after December 15, 1997. The Company
expects that the new reporting requirements will have no material effect on
its financial position or results of operations.
Advertising Expenses
Advertising and promotion expenses are charged to operations during the year
in which they are incurred in accordance with AICPA Statement of Position 93-
7, Reporting on Advertising Costs. The Company incurred advertising expenses
of approximately $198,000 in 1997 ($153,000 in 1996).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Land.................................................. $ 20,000 $ 20,000
Buildings and improvements............................ 71,390 71,390
Equipment and fixtures................................ 435,432 499,607
Vehicles.............................................. 834,083 685,494
--------- ---------
1,360,905 1,276,491
Accumulated depreciation.............................. 776,264 773,043
--------- ---------
$584,641 $ 503,448
========= =========
</TABLE>
4. RELATED PARTY TRANSACTIONS
At June 30, 1997, the Company has notes payable aggregating $903,351 due to
the principal shareholder maturing through June 2006. The notes payable relate
primarily to various payments made on behalf of the Company and bear interest
at rates ranging from 8% to 10.25%. Included in accrued liabilities at June
30, 1997 is $6,000 of interest in connection with these notes payable.
At June 30, 1997, the Company has a lease commitment for a warehouse
building with a revocable trust in the name of the principal shareholder. The
lease expires in April 2001 and requires monthly lease payments of $8,025.
F-31
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Note payable to a bank requiring monthly principal
payments of $19,917 plus interest (9.0% at June 30, 1997)
at the bank's prime rate plus .5%, maturing in February
2000, collateralized by substantially all of the
Company's assets......................................... $ 657,250 $ 896,250
Note payable to a bank requiring monthly principal
payments of $3,750 plus interest (8.5% at June 30, 1997)
at the bank's prime rate, balance due October 2000,
collateralized by substantially all of the Company's
assets................................................... 206,250 --
Revolving line of credit not to exceed $200,000 due
November 1997 plus interest (9.0% at June 30, 1997) at
the bank's prime rate plus .5%, collateralized by
equipment................................................ 200,000 125,000
Note payable to a bank requiring monthly principal
payments of $6,250 plus interest (9.0% at June 30, 1997)
at the bank's prime rate plus .5%, maturing in April
1998, subordinately collateralized by substantially all
of the Company's assets.................................. 137,500 212,500
Note payable to a bank requiring monthly principal
payments of $667 plus interest (9.0% at June 30, 1997) at
the bank's prime rate plus .5%, maturing in December
1997..................................................... 4,000 12,000
Notes payable to a bank requiring aggregate monthly
principal payments of $1,064 including interest at 9.05%,
maturing in September 2000, collateralized by two
automobiles.............................................. 36,639 44,209
--------- ---------
1,241,639 1,289,959
Less current portion...................................... 573,742 456,076
--------- ---------
$667,897 $ 833,883
========= =========
</TABLE>
Aggregate maturities of notes payable as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY BANK TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
1998.......................................... $245,132 $ 573,742 $ 818,874
1999.......................................... 159,456 357,639 517,095
2000.......................................... 125,132 307,395 432,527
2001.......................................... 64,847 2,863 67,710
2002.......................................... 70,591 -- 70,591
Thereafter.................................... 238,193 -- 238,193
-------- ---------- ----------
$903,351 $1,241,639 $2,144,990
======== ========== ==========
</TABLE>
The carrying amounts of the Company's notes payable at June 30, 1997
approximate their fair values. The fair values of the Company's notes payable
to banks and related party are estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Cash paid for interest in 1997 was approximately $183,000 ($161,000 in
1996).
F-32
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASE COMMITMENTS
The Company has operating lease agreements for eleven warehouse buildings
located throughout the Midwestern United States. The lease agreements expire
at various dates between 1997 and 2003.
Future minimum payments for lease obligations at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................ $ 594,223
1999............................................................ 573,454
2000............................................................ 486,948
2001............................................................ 289,884
2002............................................................ 176,936
Thereafter...................................................... 112,500
----------
$2,233,945
==========
</TABLE>
Total rent expense was approximately $566,000 in 1997 ($424,000 in 1996).
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Deferred income taxes relate to a temporary difference associated with the
allowance for doubtful accounts.
The reconciliation of income tax expense for 1997 and 1996 computed at the
U.S. federal statutory rate to the Company's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Tax at U.S. federal statutory rate:............................ 34.0% 34.0%
State and local income taxes, net of U.S. federal benefit...... 4.5 6.0
Other.......................................................... 1.5 4.5
---- ----
40.0% 44.5%
==== ====
</TABLE>
Income tax expense (benefit) is composed of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current expense:
Federal............................................... $826,803 $260,329
State................................................. 167,263 66,366
Deferred expense:
Federal............................................... (35,375) --
State................................................. (5,200) --
-------- --------
$953,491 $326,695
======== ========
</TABLE>
Cash paid for income taxes in 1997 was approximately $356,000 ($123,000 in
1996).
F-33
<PAGE>
NATIONWIDE APARTMENT SUPPLY, INC. AND
FAIRVIEW WHOLESALE SUPPLY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. 401(K) PLAN
The Company has a 401(k) retirement savings plan which is available to all
employees over the age of 21 who have completed one year of service with the
Company. Employees may contribute up to 12% of their compensation per payroll
period. The Company matches a discretionary percentage of contributions made
by employees. The Company's total contribution in 1997 was approximately
$194,000 ($165,000 in 1996).
9. SUBSEQUENT EVENT
On July 11, 1997, all of the outstanding stock of the Company was purchased
by Century Air Supply, Inc., for an aggregate purchase price of $9,000,000
plus the assumption and payment of existing indebtedness of the Company.
F-34
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
December 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------- ---------------------------------------------------------------
CENTURY RECAPITALIZATION
MAINTENANCE NATIONWIDE AS ADJUSTMENTS AS
SUPPLY, INC. (NOTE 2) ADJUSTMENTS ADJUSTED (NOTE 3) ADJUSTED
-------------- ------------ ------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $146,166 $19,845 $ - $166,011 $ - $166,011
Cost of sales........................ 105,636 14,734 (70) (a) 120,300 - 120,300
-------- ------- ------ -------- -------- --------
Gross profit......................... 40,530 5,111 70 45,711 - $ 45,711
Expenses:
General and
administrative................... 22,264 3,731 102 (b)
(12) (c)
(44) (d) 26,041 - 26,041
Stock-based compensation
charge........................... 6,969 - - 6,969 - 6,969
-------- ------- ------ -------- -------- --------
Operating income..................... 11,297 1,380 24 12,701 - 12,701
Interest expense..................... 1,147 86 287 (e) 1,520 7,743 (i) 9,263
-------- ------- ------ -------- -------- --------
Income (loss) before income
taxes and minority interest........ 10,150 1,294 (263) 11,181 (7,743) 3,438
Provision (benefit) for income
taxes.............................. 6,370 552 (64) (f)
295 (g) 7,153 (3,096) (j) 4,056
-------- ------- ------ -------- -------- --------
Income (loss) before minority
interest........................... 3,780 742 (494) 4,028 (4,647) (618)
Minority interest in earnings
of subsidiaries.................... 848 - (848) (h) - - -
-------- ------- ------ -------- -------- --------
Net income (loss).................... $ 2,932 $ 742 $ 354 $ 4,028 (4,647) (618)
======== ======= ====== ======== -------- --------
Preferred stock dividends............ (5,707) (k) (5,707)
-------- --------
Net loss available to common
stock.............................. $(10,354) $ (6,325)
======== ========
</TABLE>
See accompanying notes.
P-1
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation
The accompanying unaudited pro forma consolidated statement of operations (the
"Pro Forma Financial Statements") is based on adjustments to the historical
consolidated financial statements of Century Maintenance Supply, Inc. (the
"Company"), to give effect to the acquisitions described in Note 2 (the
"Acquisitions") and the transaction described in Note 3 ("Recapitalization").
The pro forma consolidated statement of operations assumes the Acquisitions
described in Note 2 and the Recapitalization described in Note 3 were
consummated at the beginning of the period presented. The pro forma consolidated
statement of operations is not necessarily indicative of results that would have
occurred had the Acquisitions and Recapitalization been consummated as of the
beginning of the period presented or that might be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Pro Forma Financial Statements should be read in conjunction
with the historical consolidated financial statements of the Company, the
historical financial statements of the entity acquired in the Acquisition and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Registration Statement.
2. ACQUISITIONS AND TRANSACTIONS AMONG ENTITIES UNDER COMMON CONTROL
On June 30, 1997, the Company acquired all of the outstanding minority
shareholder interests in each of the Company's subsidiaries with common stock of
the Company. The exchanges were completed at fair value, resulting in the
Company's distributing 1,681,324 shares of common stock. This acquisition
resulted in compensation expense of $6,343,536.
On June 30, 1997, the Company purchased all of the assets of the general
maintenance supply operations of Century Airconditioning Supply, Inc. ("CAC"),
an affiliated company, which were located in San Antonio and Austin, Texas
(acquired assets to be called "SA/A"), with 1,702,703 shares of the Company's
common stock. CAC was an S corporation and was not subject to federal income
taxes. Also, on June 30, 1997, the Company sold one of its subsidiaries in the
heating and air conditioning business to CAC for $215,000. The transactions were
conducted between the Company and CAC, which were under common control, and, as
such, the transactions were recorded at historical cost in a manner similar to a
pooling of interests. All periods in the consolidated historical financial
statements have been restated to reflect the transactions.
On July 11, 1997, the Company acquired all of the issued and outstanding
common stock of Nationwide Apartment Supply, Inc., and Fairview Wholesale
Supply, Inc. (collectively "Nationwide"), for approximately $9,160,000. The
seller also received 140,000 options to purchase common stock of the Company at
$7.00 per share. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of these companies have
been included in the consolidated results of operations of the Company from the
date of acquisition. This acquisition resulted in goodwill of approximately
$5,787,000. The historical combined statement of operations for Nationwide prior
to the acquisition, from January 1, 1997 to July 11, 1997, is included as part
of the pro forma information.
3. TRANSACTION
On July 8, 1998, the Company consummated a recapitalization pursuant to an
Agreement and Plan of Merger (the "Recapitalization Agreement"). Under the terms
of the Recapitalization Agreement, Century Acquisition Corporation, an entity
formed by affiliates of Freeman, Spogli & Co. LLC ("FS&Co.") merged with and
into the Company, with the Company as the surviving corporation.
P-2
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to the Recapitalization, affiliates of FS&Co. invested $67.5 million,
a prospective director of the Company invested $750,000, and a third-party
invested $125,000 in cash for common stock of the Company (the "Common Stock
Investment") and the stockholders that existed prior to the Recapitalization
(after the Recapitalization, called "Continuing Stockholders"), retained common
stock with a value of $54.2 million (based on the valuation of the Company used
in the Recapitalization). As part of the Recapitalization, Senior Exchangeable
PIK Preferred Stock (with a dividend rate of 13.25%), due 2010, of the Company
with an aggregate liquidation preference of $28.0 million was sold to third
parties, and additional preferred stock with an aggregate liquidation preference
of $12.0 million was sold to two affiliates of the Company in a private
placement ("Sales of Preferred").
The Company entered into the New Credit Facility, providing for $100.0 million
of secured term loan facilities (the "Term Loan Facility"), which was funded in
connection with the consummation of the Recapitalization, and a $25.0 million
revolving loan facility (the "Revolving Credit Facility").
Century Acquisition Corporation merged into the Company with the Company being
the surviving entity and the Century Acquisition Corporation common stock was
converted into 2,969,820 newly issued shares of the Company's common stock. The
Company applied the proceeds from the Common Stock Investment, Sales of
Preferred, and $100.0 million of the Term Loan Facility to pay cash
consideration of $179.3 million to the Continuing Stockholders and option
holders, repay existing indebtedness and pay transaction fees and expenses
(including bonuses). In connection with the Recapitalization 7,561,355 shares of
common stock and 240,750 options to purchase shares of common stock were
converted into the right to receive cash. In connection with the cancellation of
common stock options in the Recapitalization, the Company recognized a one-time
compensation charge of approximately $2.4 million, net of taxes. Immediately
following consummation of the Recapitalization, FS&Co. and the Continuing
Stockholders beneficially own approximately 55.2% and 44.2%, respectively of the
outstanding common stock of the Company.
The Pro Forma Consolidated Financial Statements give effect to the Common
Stock Investment, the Sales of Preferred and the Recapitalization as if these
transactions occurred as of January 1, 1997 for purposes of the consolidated
statement of operations.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
consolidated statement of operations as if the acquisitions described in Note 2
and the Recapitalization described in Note 3 were consummated as of the
beginning of the period presented:
(a) To reduce cost of goods sold to eliminate the change in the LIFO reserve
for the period prior to acquisition to conform the accounting method of
Nationwide to the Company's accounting method.
(b) To reflect additional amortization of goodwill related to the purchase of
Nationwide, which is being amortized on a straight-line basis over 30 years, for
the period from January 1, 1997 to date of acquisition.
(c) To reduce lease expense due to contractual reductions in monthly lease
expense as a result of the Nationwide acquisition.
(d) To reduce expenses for reductions in salary expense in connection with the
Nationwide acquisition.
(e) To reflect additional interest expense related to the purchase of
Nationwide, for the period from January 1, 1997 to date of acquisition.
(f) To reflect the change in taxes related to the above pro forma adjustments
based on an effective rate of 40% (considering goodwill and stock compensation
as nondeductible).
(g) To record the effect of taxes as if SA/A operating assets had been part of
the C corporation since the beginning of the period presented.
P-3
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) To reflect the acquisition of minority shares as if the transaction had
occurred on January 1, 1997.
(i) To reflect the adjustment to interest expense and amortization of deferred
financing costs as follows (amounts in thousands):
<TABLE>
<S> <C>
Elimination of interest expenses on existing debt................................... $(1,520)
Interest expense on new bank facility at an approximate interest rate of 8.5%....... 8,500
Amortization of deferred financing costs (6.2 year life)............................ 763
-------
Total............................................................................... $ 7,743
=======
</TABLE>
(j) To reflect the change in taxes related to the Recapitalization pro forma
adjustment based on an effective rate of 40%.
(k) To reflect the payment-in-kind preferred stock dividends at a rate of
13.25% due semiannually.
5. USE OF ESTIMATES IN THE PRO FORMA FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
P-4
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(Unaudited)
June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
Century
Maintenance Recapitalization Pro Forma
Supply, Inc. Adjustments as Adjusted
-------------- ------------------ -------------
<S> <C> <C> <C>
Revenues........................................... $94,182 $ - $94,182
Cost of sales...................................... 68,598 - 68,598
------- ------- -------
Gross profit...................................... 25,584 - 25,584
Expenses:
General and administrative........................ 14,182 - 14,182
------- ------- -------
Operating income................................... 11,402 - 11,402
Interest expense................................... 719 3,912 (a) 4,631
------- ------- -------
Income (loss) before income taxes.................. 10,683 (3,912) 6,771
Provision (benefit) for income taxes............... 4,145 (1,565)(b) 2,580
------- ------- -------
Net income......................................... $ 6,538 (2,347) 4,191
=======
Preferred stock dividend........................... (2,766)(c) (2,766)
------- -------
Net income available to common stock............... $(5,113) $ 1,425
======= =======
</TABLE>
P-5
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET--(Unaudited)
June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
Recapitalization
Historical Adjustments Pro Forma
------------ ------------------ -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash......................................................... $ 4,304 $ (4,304) (d) $ -
Accounts receivable.......................................... 24,895 - 24,895
Inventory, net............................................... 29,796 - 29,796
Deferred income taxes........................................ 857 - 857
Prepaid expenses and other current assets.................... 1,019 (345) (f) 674
------- --------- -----------
Total current assets....................................... 60,871 (4,649) 56,222
Goodwill, net................................................. 5,459 - 5,459
Other assets.................................................. 547 - 547
Deferred financing costs..................................... - 4,728 (e) 4,728
Property and equipment, net.................................. 2,635 - 2,635
------- --------- -----------
Total assets............................................... $69,512 $ 79 $ 69,591
======= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Current liabilities:
Trade accounts payable....................................... $13,134 $ - $ 13,134
Notes payable................................................ 11,025 (11,025) (f) -
Income taxes payable......................................... 1,552 - 1,552
Accrued expenses............................................. 2,913 (533) (f) -
1,863 (f) 4,243
Current portion of long-term debt............................ 205 (205) (f) -
Current portion of long-term debt--related parties........... 2,034 (2,034) (f) -
------- --------- -----------
Total current liabilities.................................. 30,863 (11,934) 18,929
New Credit Facility........................................... - 100,000 (f) 100,000
Long-term debt, less current portion.......................... 360 (360) (f) -
Long-term debt--related parties, less current portion......... 6,352 (6,352) (f) -
Deferred income taxes......................................... 331 - 331
Mandatory redeemable preferred stock - 37,227 (f) 37,227
Stockholders' equity (deficit):
Common stock................................................. 10 (5) (g) 5
Additional paid-in capital................................... 11,918 59,238 (h) 71,156
Treasury stock, at cost...................................... (500) 500 (i) -
Retained earnings (deficit).................................. 20,178 (178,235) (j) (158,057)
------- --------- -----------
Total stockholders' equity (deficit)....................... 31,606 (118,502) (86,896)
------- --------- -----------
Total liabilities and stockholders' equity................. $69,512 $ 79 $ 69,591
======= ========= =========
</TABLE>
P-6
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited)
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated statement of operations (the
"Pro Forma Financial Statements") are based on adjustments to the historical
consolidated financial statements of Century Maintenance Supply, Inc. (the
"Company"), to give effect to the transaction described in Note 2
("Recapitalization"). The pro forma consolidated balance sheet and the pro forma
consolidated statement of operations assumes the Recapitalization described in
Note 2 was consummated at the beginning of the period presented. The pro forma
consolidated balance sheet and the pro forma consolidated statement of
operations are not necessarily indicative of results that would have occurred
had the Recapitalization been consummated as of the beginning of the period
presented or that might be attained in the future. Certain information normally
included in financial statements prepared in accordance with generally accepted
accounting principals has been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Pro Forma Financial
Statements should be read in conjunction with the historical consolidated
financial statements of the Company and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Registration Statement.
2. TRANSACTION
On July 8, 1998, the Company consummated a recapitalization pursuant to an
Agreement and Plan of Merger (the "Recapitalization Agreement"). Under the terms
of the Recapitalization Agreement, Century Acquisition Corporation, an entity
formed by affiliates of Freeman, Spogli & Co. LLC ("FS&Co.") merged with and
into the Company, with the Company as the surviving corporation.
Pursuant to the Recapitalization, affiliates of FS&Co. invested $67.5 million,
a prospective director of the Company invested $750,000, and a third party
invested $125,000 in cash for common stock of the Company (the "Common Stock
Investment"), and the stockholders that existed prior to Recapitalization (after
the Recapitalization, called "Continuing Stockholders") retained common stock
with a value of $54.2 million (based on the valuation of the Company used in the
Recapitalization). As part of the Recapitalization, Senior Exchangeable PIK
Preferred Stock (with a dividend rate of 13.25%), due 2010, of the Company with
an aggregate liquidation preference of $28.0 million was sold to third parties,
and additional preferred stock with an aggregate liquidation preference of $12.0
million was sold to two affiliates of the Company in a private placement ("Sales
of Preferred").
The Company entered into the New Credit Facility, providing for $100.0 million
of secured term loan facilities (the "Term Loan Facility"), which was funded in
connection with the consummation of the Recapitalization, and a $25.0 million
revolving loan facility (the "Revolving Credit Facility").
Century Acquisition Corporation merged into the Company with the Company being
the surviving entity and the Century Acquisition Corporation common stock was
converted into 2,969,820 newly issued shares of the Company's common stock. The
Company applied the proceeds from the Common Stock Investment, the Sales of
Preferred, and $100.0 million of the Term Loan Facility to pay cash
consideration of $179.3 million to the Continuing Stockholders and option
holders, repay existing indebtedness and pay transaction fees and expenses
(including bonuses). In connection with the Recapitalization, 7,561,355 shares
of common stock and 240,750 options to purchase shares of common stock were
converted into the right to receive cash. In connection with the cancellation of
common stock options in the Recapitalization, the Company recognized a one-time
compensation charge of approximately $2.4 million, net of taxes. Immediately
following consummation of the Recapitalization, FS&Co. and the Continuing
Stockholders beneficially own approximately 55.2% and 44.2%, respectively, of
the outstanding common stock of the Company.
P-7
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Pro Forma Consolidated Financial Statements give effect to the Common
Stock Investment, the Sales of Preferred, and the Recapitalization as if these
transactions occurred as of January 1, 1998 for purposes of the consolidated
statement of operations.
3. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
consolidated balance sheet and historical consolidated statement of operations
as if the Recapitalization described in Note 2 was consummated as of the
beginning of the period presented.
Pro forma adjustments to the consolidated statement of operations:
(a) To reflect the adjustment to interest expense and amortization of
deferred financing costs as follows (amounts in thousands):
<TABLE>
<S> <C>
Elimination of interest expenses on existing debt................................... $ (719)
Interest expense on new bank facility at an approximate interest rate of 8.5%....... 4,250
Amortization of deferred financing costs (6.2 year life)............................ 381
------
Total............................................................................... $3,912
======
</TABLE>
(b) To reflect the change in taxes related to the Recapitalization pro
forma adjustment based on an effective rate of 40%.
(c) To reflect the payment-in-kind preferred stock dividends at a rate of
13.25% due semiannually.
Pro forma adjustments to the consolidated balance sheet:
(d) Reflects the use of existing cash in connection with the
Recapitalization.
(e) Reflects the portion of the transaction and other related expenses
which will be attributable to obtaining the debt as part of the
Recapitalization.
(f) The pro forma adjustments which reflect the financing and repayment of
existing debt of the Company are as follows (amounts in thousands):
<TABLE>
<S> <C>
Repayment of note payable........................................................... $(11,025)
Repayment of accrued interest....................................................... (533)
Repayment of current portion of long-term debt...................................... (205)
Repayment of current portion of long-term debt--related parties..................... (2,034)
Long-term debt:
Repayment of long-term debt, less current portion................................. (360)
Repayment of long-term debt--related parties, less current portion................ (6,352)
New credit facility............................................................... 100,000
--------
Total debt.......................................................................... $ 79,491
========
Issuance of mandatory redeemable preferred stock
Series A (less costs of $2,754)................................................... $ 25,246
Series B (less costs of $19)...................................................... 11,981
--------
$ 37,227
========
Prepayment of expenses related to the transaction $ 345
========
Accrued expenses related to the transaction $ 1,863
========
</TABLE>
P-8
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(g) Reflects the par value of the 7,561,355 shares of common stock
converted into the right to receive cash in the Recapitalization and the
issuance of 2,969,820 shares of common stock purchased in connection with the
Common Stock Investment.
(h) Reflects the following adjustments (amounts in thousands):
<TABLE>
<S> <C>
Additional paid-in capital related to the conversion of common stock
in (g) above................................................................... $(9,088)
Common Stock Investment........................................................... 68,326
---------
Total............................................................................. $59,238
=========
</TABLE>
(i) Reflects the elimination of treasury stock.
(j) Reflects the following adjustments (amounts in thousands):
<TABLE>
<S> <C>
Payment for shares and stock options.............................................. $(169,236)
Transaction costs................................................................. (7,499)
Other costs....................................................................... (1,000)
Cancellation of existing treasury stock........................................... (500)
---------
Total............................................................................. $(178,235)
=========
</TABLE>
4. USE OF ESTIMATES IN THE PRO FORMA FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
P-9
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ ---------------------------------------------------------
Century Recapitalization
Maintenance Nationwide As Adjustments As
Supply, Inc. (Note 2) Adjustments Adjusted (Note 3) Adjusted
-------------- ------------ ------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $58,761 $18,339 $ - $77,100 $ - $77,100
Cost of sales............................ 42,468 13,588 (70) (a) 55,986 - 55,986
------- ------- ----- ------- ------- -------
Gross profit............................. 16,293 4,751 70 21,114 - 21,114
Expenses:
General and administrative............. 9,097 3,495 102 (b)
(12) (c)
(44) (d) 12,638 12,638
Stock-based compensation charge........ 6,343 - - 6,343 - 6,343
------- ------- ----- ------- ------- -------
Operating income (loss).................. 853 1,256 24 2,133 2,133
Interest expense......................... 323 76 270 (e) 669 3,962 (i) 4,631
------- ------- ----- ------- ------- -------
Income (loss) before income
taxes and minority interest............ 530 1,180 (246) 1,464 (3,962) (2,498)
Provision (benefit) for income
taxes.................................. 2,139 507 (64) (f)
295 (g) 2,877 (1,585) (j) 1,292
----- ------- ------- -------
Income before minority interest.......... (1,609) 673 (477) (1,413) (2,377) (3,790)
Minority interest in earnings of
subsidiaries........................... 848 - (848) - - -
------- ------- ----- ------- ------- -------
Net income (loss)........................ $(2,457) $ 673 $ 371 $(1,413) (2,377) (3,790)
======= ======= ===== =======
Preferred stock dividends................ (2,766) (k) (2,766)
------- -------
Net loss available to common
stock.................................. $(5,143) $(6,556)
======= =======
</TABLE>
See accompanying notes.
P-10
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited)
June 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated statement of operations (the
"Pro Forma Financial Statements") is based on adjustments to the historical
consolidated financial statements of Century Maintenance Supply, Inc. (the
"Company"), to give effect to the acquisitions described in Note 2 (the
"Acquisitions") and the transaction described in Note 3 ("Recapitalization").
The pro forma consolidated statement of operations assumes the Acquisitions
described in Note 2 and the Recapitalization described in Note 3 were
consummated at the beginning of the period presented. The pro forma consolidated
statement of operations is not necessarily indicative of results that would have
occurred had the Acquisitions and Recapitalization been consummated as of the
beginning of the period presented or that might be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Pro Forma Financial Statements should be read in conjunction
with the historical consolidated financial statements of the Company, the
historical financial statements of the entity acquired in the Acquisition and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Registration Statement.
2. ACQUISITIONS AND TRANSACTIONS AMONG ENTITIES UNDER COMMON CONTROL
On June 30, 1997, the Company acquired all of the outstanding minority
shareholder interests in each of the Company's subsidiaries with common stock of
the Company. The exchanges were completed at fair value, resulting in the
Company's distributing 1,681,324 shares of common stock. This acquisition
resulted in compensation expense of $6,343,536.
On June 30, 1997, the Company purchased all of the assets of the general
maintenance supply operations of Century Airconditioning Supply, Inc. ("CAC"),
an affiliated company, which were located in San Antonio and Austin, Texas
(acquired assets to be called "SA/A"), with 1,702,703 shares of the Company's
common stock. CAC was an S corporation and was not subject to federal income
taxes. Also, on June 30, 1997, the Company sold one of its subsidiaries in the
heating and air conditioning business to CAC for $215,000. The transactions were
conducted between the Company and CAC, which were under common control and, as
such, the transactions were recorded at historical cost in a manner similar to a
pooling of interests. All periods in the consolidated historical financial
statements have been restated to reflect the transactions.
On July 11, 1997, the Company acquired all of the issued and outstanding
common stock of Nationwide Apartment Supply, Inc., and Fairview Wholesale
Supply, Inc. (collectively, "Nationwide"), for approximately $9,160,000. The
seller also received 140,000 options to purchase common stock of the Company at
$7.00 per share. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of these companies have
been included in the consolidated results of operations of the Company from the
date of acquisition. This acquisition resulted in goodwill of approximately
$5,787,000. The historical combined statement of operations for Nationwide prior
to the acquisition, from January 1, 1997 to June 30, 1997, is included as part
of the pro forma information.
3. TRANSACTION
On July 8, 1998, the Company consummated a recapitalization pursuant to an
Agreement and Plan of Merger (the "Recapitalization Agreement"). Under the terms
of the Recapitalization Agreement, Century Acquisition Corporation, an entity
formed by affiliates of Freeman, Spogli & Co. LLC ("FS&Co.") merged with and
into the Company, with the Company as the surviving corporation.
P-11
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Pursuant to the Recapitalization, affiliates of FS&Co. invested $67.5 million,
a prospective director of the Company invested $750,000, and a third-party
invested $125,000 in cash for common stock of the Company (the "Common Stock
Investment") and the stockholders, that existed prior to the Recapitalization
(after the Recapitalization, called "Continuing Stockholders"), retained common
stock with a value of $54.2 million (based on the valuation of the Company used
in the Recapitalization). As part of the Recapitalization, Senior Exchangeable
PIK Preferred Stock (with a dividend rate of 13.25%), due 2010, of the Company
with an aggregate liquidation preference of $28.0 million was sold to third
parties, and additional preferred stock with an aggregate liquidation preference
of $12.0 million was sold to two affiliates of the Company in a private
placement ("Sales of Preferred").
The Company entered into the New Credit Facility, providing for $100.0 million
of secured term loan facilities (the "Term Loan Facility"), which was funded in
connection with the consummation of the Recapitalization, and a $25.0 million
revolving loan facility (the "Revolving Credit Facility").
Century Acquisition Corporation merged into the Company with the Company being
the surviving entity and the Century Acquisition Corporation common stock was
converted into 2,969,820 newly issued shares of the Company's common stock. The
Company applied the proceeds from the Common Stock Investment, the Sales of
Preferred, and $100.0 million of the Term Loan Facility to pay cash
consideration of $179.3 million to the Continuing Stockholders and option
holders, repay existing indebtedness, and pay transaction fees and expenses
(including bonuses). In connection with the Recapitalization, 7,561,355 shares
of common stock and 240,750 options to purchase shares of common stock were
converted into the right to receive cash. In connection with the cancellation of
common stock options in the Recapitalization, the Company recognized a one-time
compensation charge of approximately $2.4 million, net of taxes. Immediately
following consummation of the Recapitalization, FS&Co. and the Continuing
Stockholders beneficially own approximately 55.2% and 44.2%, respectively, of
the outstanding common stock of the Company.
The Pro Forma Consolidated Financial Statements give effect to the Common
Stock Investment, the Sales of Preferred, and the Recapitalization as if these
transactions occurred as of January 1, 1997 for purposes of the consolidated
statement of operations.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
consolidated statement of operations as if the Acquisitions described in Note 2
and the Recapitalization described in Note 3 were consummated as of the
beginning of the period presented:
(a) To reduce cost of goods sold to eliminate the change in the LIFO
reserve for the period prior to acquisition to conform the accounting method
of Nationwide to the Company's accounting method.
(b) To reflect additional amortization of goodwill related to the purchase
of Nationwide, which is being amortized on a straight-line basis over 30
years, for the period from January 1, 1997 to date of acquisition.
(c) To reduce lease expense due to contractual reductions in monthly lease
expense as a result of the Nationwide acquisition.
(d) To reduce expenses for reductions in salary expense in connection with
the Nationwide acquisition.
(e) To reflect additional interest expense related to the purchase of
Nationwide, for the period from January 1, 1997 to date of acquisition.
P-12
<PAGE>
CENTURY MAINTENANCE SUPPLY, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(f) To reflect the change in taxes related to the above pro forma
adjustments based on an effective rate of 40% (considering goodwill and stock
compensation as nondeductible).
(g) To record the effect of taxes as if SA/A operating assets had been
part of the C corporation since the beginning of the period presented.
(h) To reflect the acquisition of minority shares as if the transaction
had occurred on January 1, 1997.
(i) To reflect the adjustment to interest expense and amortization of
deferred financing costs as follows (amounts in thousands):
<TABLE>
<S> <C>
Elimination of interest expense on existing debt....................................... $ (669)
Interest expense on new bank facility at an approximate interest
rate of 8.5%........................................................................ 4,250
Amortization of deferred financing costs (6.2-year life)............................... 381
------
Total.................................................................................. $3,962
======
</TABLE>
(j) To reflect the change in taxes related to the Recapitalization pro
forma adjustment based on an effective rate of 40%.
(k) To reflect the payment-in-kind preferred stock dividends at a rate of
13.25% due semiannually.
5. USE OF ESTIMATES IN THE PRO FORMA FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
P-13
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE INITIAL
PREFERRED STOCK BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
-----------------
TABLE OF CONTENTS
PAGE
----
Summary............................................................ 1
Risk Factors....................................................... 16
Use of Proceeds.................................................... 23
Dividend Policy.................................................... 23
Capitalization..................................................... 24
The Exchange Offer................................................. 26
Selected Historical and Pro Forma Consolidated Financial
Information....................................................... 34
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 37
Business........................................................... 43
Management......................................................... 51
Security Ownership of Certain Beneficial Owners.................... 56
Certain Transactions............................................... 57
Description of New Credit Facility................................. 60
Description of the Exchange Preferred Stock........................ 62
Description of the Exchange Debentures............................. 87
Certain U.S. Federal Income Tax Considerations..................... 103
Description of Capital Stock....................................... 112
Plan of Distribution............................................... 113
Experts............................................................ 113
Legal Matters...................................................... 113
Index to Consolidated Financial Statements......................... F-1
Pro Forma Consolidated Financial Statements........................ P-1
================================================================================
================================================================================
280,000 SHARES
CENTURY MAINTENANCE
SUPPLY, INC.
13 1/4% SENIOR EXCHANGEABLE
PIK PREFERRED STOCK
DUE 2010
___________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article XI
of the Certificate of Incorporation of the Company, as amended, attached as
Exhibit 3.1 to this Registration Statement (the "Certificate of Incorporation")
provides that no director of the Company shall be personally liable for monetary
damages for a breach of his duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Corporation Law for any unlawful payment of a dividend or unlawful
stock purchase or redemption, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Certificate of Incorporation further provides that if the Delaware
General Corporation Law is amended to authorize further elimination or
limitation of the liability of directors, then the liability of a director of
the Company shall be limited to the fullest extent permitted by the amended
Delaware law. The Certificate of Incorporation requires the Company to
indemnify its directors and officers against liabilities that may arise by
reason of their status or service as directors, officers, employees or agents of
the Company to the full extent permitted by Delaware law or any other applicable
law as may from time to time be in effect.
Pursuant to Section 145 of the Delaware Corporation Law, Article X, Section
8 of the Amended and Restated Bylaws of the Company, attached as Exhibit 3.2 to
this Registration Statement (the "Bylaws"), provides that each director,
officer, and former director or officer of the Company, and any person who may
have served or who may in the future serve at the request of the Company as a
director or officer of another corporation in which the Company owns shares of
capital stock or of which it is a creditor, is indemnified by the Company
against expenses actually and necessarily incurred by him or her in connection
with the defense of any action, suit or proceeding in which he or she is made a
party by reason of being or having been such director or officer, except in
relation to matters as to which he or she shall be adjudged in such action, suit
or proceeding to be liable for negligence or misconduct in the performance of
duty and except as otherwise provided by law. Such indemnification will not be
deemed exclusive of any other rights to which such director, officer or other
person may be entitled under any agreement, vote of stockholders, or otherwise.
The indemnification provision in the Bylaws shall not limit the indemnification
provisions in the Certificate of Incorporation.
Reference is made to the Registration Rights Agreement (attached as Exhibit
4.2 to this Registration Statement) which provides for indemnification by each
Holder of securities (as defined therein) of the Company, its directors and
officers and each person controlling the Company, but only with reference to
information relating to such Holder furnished to the Company in writing by such
Holder expressly for use in any registration statement or prospectus.
Reference is also made to that certain Preferred Stock Registration Rights
Agreement between FS Equity Partners IV, LP, Dennis C. Bearden and the Company
(attached as Exhibit 10.10 to this Registration Statement) which provides for
indemnification by each Selling Holder (as defined therein) of the Company, its
directors and officers and each person controlling the Company, but only with
reference to information relating to such Selling Holder furnished in writing by
such Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted with respect to directors, officers or persons controlling
the Registrant pursuant to the foregoing provisions, the Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The foregoing discussion of the Certificate of Incorporation, Bylaws and
the Delaware Corporation Law is not intended to be exhaustive and is qualified
in its entirety by the Certificate of Incorporation, Bylaws and the relevant
provisions of the Delaware Corporation Law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Purchase Agreement dated July 1, 1998 between Century Maintenance Supply, Inc. (the
"Company" or "Century") and Salomon Brothers Inc.
2.1 Agreement and Plan of Merger dated as of May 5, 1998 among Century Acquisition Corporation,
Dennis C. Bearden ("Bearden"), FS Equity Partners IV, LP ("FSEP IV"), the Company, and the
shareholders of the Company.
2.2 First Amendment to Agreement and Plan of Merger dated June 19, 1998 among Century
Acquisition Corporation, Bearden, FSEP IV, the Company, and the shareholders of the Company.
3.1 Amended and Restated Certificate of Incorporation of Century.
3.2 Amended and Restated Bylaws of Century.
3.3 Certificate of Designation by Century dated July 8, 1998.
4.1 Exchange Indenture dated as of July 8, 1998 between Century and United States Trust Company
of New York, as Trustee, with respect to the 13 1/4% Senior Subordinated Exchange Debentures due
2010 (including form of 13 1/4% Senior Subordinated Exchange Debenture due 2010).
4.2 Registration Agreement dated July 8, 1998 between Century and Salomon Brothers Inc.
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1 Credit Agreement dated as of July 8, 1998 among the Company, the lenders party thereto, Salomon
Brothers Inc and Citicorp USA, Inc. ("Citicorp").
10.2 Security Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.3 Pledge Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.4 Subsidiary Guarantee Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.5 Indemnity, Subrogation and Contribution Agreement dated as of July 8, 1998 between the Company
and Citicorp.
10.6 Amended and Restated Stockholders' Agreement dated as of May 5, 1998 among FSEP IV,
Bearden, the Company and certain of its stockholders and their spouses.
10.7 Second Amended and Restated Stockholders' Agreement dated as of July 8, 1998 among FSEP IV,
Bearden, the Company and certain of its stockholders and their spouses.
10.8 Stockholders Agreement dated July 8, 1998 among FSEP IV, William C. Johnson ("Johnson"), The
Parthenon Group, Bearden, Century Airconditioning Supply, Inc. ("Century AC") and the
Company.
10.9 Registration Rights Agreement dated July 8, 1998 among FSEP IV, Bearden, Century AC, the
Company and certain stockholders of the Company.
10.10 Preferred Stock Registration Rights Agreement dated July 8, 1998 among FSEP IV, Bearden and
the Company.
10.11 Preferred Stock Subscription Agreement dated July 8, 1998 among the Company, FSEP IV and
Bearden.
10.12 1998 Nonqualified Stock Option Plan.
10.13 1997 Incentive Stock Plan.
10.14 Form of Nonqualified Stock Option Agreement for 1998 Nonqualified Stock Option Plan.
10.15 Form of Agreement for 1997 Incentive Stock Plan.
10.16 Executive Employment Agreement dated July 8, 1998 between Century Maintenance Supply, Inc.
and Bearden.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.17 Executive Employment Agreement dated July 8, 1998 between Century Maintenance Supply, Inc.
and Richard E. Penick.
10.18 Non-competition Agreement dated July 8, 1998 among Bearden, Century AC, Air Management
Supply, Inc. and Century.
12.1 Statement re Computation of Earnings to Fixed Charges Ratio.
21.1 Subsidiaries of Century.
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature pages hereof).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
United States Trust Company of New York.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULE
Schedule I - Valuation and Qualifying Accounts and Reserves.
No other schedules have been included because the information
required to be set forth therein is not applicable.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-3
<PAGE>
4. To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
5. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
6. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
7. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this Registration Statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Act of 1933, as amended, the
undersigned Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Houston, Texas,
on August 31, 1998.
CENTURY MAINTENANCE SUPPLY,INC.
By: /s/ Richard E. Penick
----------------------------------
Richard E. Penick
Chief Financial Officer, Vice President
and Assistant Secretary
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard E. Penick his true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and any registration statement relating to the offering covered by this
Registration Statement and filed pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Dennis C. Bearden Chief Executive Officer and August 31, 1998
- ------------------------- Director (Principal Executive Officer)
Dennis C. Bearden
/s/ Charles L. Littlepage Chief Operating Officer and Director August 31, 1998
- -------------------------
Charles L. Littlepage
/s/ Richard E. Penick Chief Financial Officer and Director August 31, 1998
- -------------------------
Richard E. Penick
Director August __, 1998
- -------------------------
Mark J. Doran
/s/ William C. Johnson
- ------------------------- Director August 28, 1998
William C. Johnson
/s/ Jon D. Ralph Director August 28, 1998
- -------------------------
Jon D. Ralph
/s/ J. Frederick Simmons Director August 28, 1998
- -------------------------
J. Frederick Simmons
/s/ Ronald P. Spogli Director August 28, 1998
- -------------------------
Ronald P. Spogli
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Purchase Agreement dated July 1, 1998 between Century Maintenance Supply, Inc. (the
"Company" or "Century") and Salomon Brothers Inc.
2.1 Agreement and Plan of Merger dated as of May 5, 1998 among Century Acquisition Corporation,
Dennis C. Bearden ("Bearden"), FS Equity Partners IV, LP ("FSEP IV"), the Company, and the
shareholders of the Company.
2.2 First Amendment to Agreement and Plan of Merger dated June 19, 1998 among Century
Acquisition Corporation, Bearden, FSEP IV, the Company, and the shareholders of the Company.
3.1 Amended and Restated Certificate of Incorporation of Century.
3.2 Amended and Restated Bylaws of Century.
3.3 Certificate of Designation by Century dated July 8, 1998.
4.1 Exchange Indenture dated as of July 8, 1998 between Century and United States Trust Company
of New York, as Trustee, with respect to the 13 1/4% Senior Subordinated Exchange Debentures due
2010 (including form of 13 1/4% Senior Subordinated Exchange Debenture due 2010).
4.2 Registration Agreement dated July 8, 1998 between Century and Salomon Brothers Inc.
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1 Credit Agreement dated as of July 8, 1998 among the Company, the lenders party thereto, Salomon
Brothers Inc and Citicorp USA, Inc. ("Citicorp").
10.2 Security Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.3 Pledge Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.4 Subsidiary Guarantee Agreement dated as of July 8, 1998 between the Company and Citicorp.
10.5 Indemnity, Subrogation and Contribution Agreement dated as of July 8, 1998 between the Company
and Citicorp.
10.6 Amended and Restated Stockholders' Agreement dated as of May 5, 1998 among FSEP IV,
Bearden, the Company and certain of its stockholders and their spouses.
10.7 Second Amended and Restated Stockholders' Agreement dated as of July 8, 1998 among FSEP IV,
Bearden, the Company and certain of its stockholders and their spouses.
10.8 Stockholders Agreement dated July 8, 1998 among FSEP IV, William C. Johnson ("Johnson"), The
Parthenon Group, Bearden, Century Airconditioning Supply, Inc. ("Century AC") and the
Company.
10.9 Registration Rights Agreement dated July 8, 1998 among FSEP IV, Bearden, Century AC, the
Company and certain stockholders of the Company.
10.10 Preferred Stock Registration Rights Agreement dated July 8, 1998 among FSEP IV, Bearden and
the Company.
10.11 Preferred Stock Subscription Agreement dated July 8, 1998 among the Company, FSEP IV and
Bearden.
10.12 1998 Nonqualified Stock Option Plan.
10.13 1997 Incentive Stock Plan.
10.14 Form of Nonqualified Stock Option Agreement for 1998 Nonqualified Stock Option Plan.
10.15 Form of Agreement for 1997 Incentive Stock Plan.
10.16 Executive Employment Agreement dated July 8, 1998 between Century Maintenance Supply, Inc.
and Bearden.
10.17 Executive Employment Agreement dated July 8, 1998 between Century Maintenance Supply, Inc.
and Richard E. Penick.
10.18 Non-competition Agreement dated July 8, 1998 among Bearden, Century AC, Air Management Supply,
Inc. and Century.
12.1 Statement re Computation of Earnings to Fixed Charges Ratio.
21.1 Subsidiaries of Century.
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on the signature pages hereof).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
United States Trust Company of New York.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
EXECUTION COPY
CENTURY MAINTENANCE SUPPLY, INC.
280,000 Shares of 13.250%
Senior Exchangeable PIK Preferred Stock due 2010
PURCHASE AGREEMENT
New York, New York
July 1, 1998
Salomon Smith Barney
Salomon Brothers Inc
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Century Maintenance Supply, Inc., a Delaware corporation (the
"Company") proposes to issue and sell to Salomon Brothers Inc (the "Purchaser"),
280,000 shares of the Company's 13.250% Senior Exchangeable PIK Preferred Stock
due 2010 (the "Preferred Stock"). The Preferred Stock is exchangeable at the
Company's option, subject to certain conditions, in whole but not in part, for
the Company's[ ]% Subordinated Exchange Debentures due 2010 (the "Exchange
Debentures" and, together with the Preferred Stock, the "Securities").
The sale of the Preferred Stock to you will be made without
registration of the Securities under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof. You have
advised the Company that you will make an offering of the Preferred Stock
purchased by you hereunder in accordance with Section 4 hereof as soon as you
deem advisable after the execution and delivery of this Agreement.
In connection with the sale of the Preferred Stock, the Company has
prepared a preliminary offering
<PAGE>
2
memorandum, dated June 17, 1998, relating to the offering of the Preferred Stock
(the "Preliminary Memorandum"), and a final offering memorandum, dated July 1,
1998, relating to the offering of the Preferred Stock (the "Final Memorandum").
Each of the Preliminary Memorandum and the Final Memorandum sets forth certain
information concerning the Company and the Securities. The Company hereby
confirms that it has authorized the use of the Preliminary Memorandum and the
Final Memorandum, and any amendment or supplement thereto, in connection with
the offer and sale of the Preferred Stock by the Purchaser. Unless stated to the
contrary, all references herein to the Final Memorandum are to the Final
Memorandum at the Execution Time (as defined below) and are not meant to include
any amendment or supplement thereto subsequent to the Execution Time.
The holders of the Securities will be entitled to the benefits of the
Registration Agreement dated the Closing Date, between the Company and the
Purchaser (the "Registration Agreement").
Capitalized terms used herein without definition have the respective
meanings assigned to them in the Final Memorandum.
1. Representations and Warranties. The Company represents and
-------------------------------
warrants to, and agrees with, the Purchaser as set forth below in this Section
1.
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
(other than pricing terms and other financial terms for the Securities
intentionally left blank) necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Final
Memorandum, at the date hereof, does not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circum stances under which they were
made, not misleading; provided, however, that no representation or warranty is
-------- -------
made as to the information contained in or omitted from the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement thereto, in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Purchaser specifically for inclusion therein, it
being understood that the only such information is that described in Section
8(b) hereof.
<PAGE>
3
(b) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act of
1934, as amended (the "Exchange Act"), in connection with the offering of the
Securities.
(c) Neither the Company nor any of its Affiliates (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")), or any person
acting on their behalf, has (i) sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the Preferred Stock in a
manner that would require the registration of the Preferred Stock under the
Securities Act or (ii) engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any offer or
sale of the Preferred Stock in the United States.
(d) The Preferred Stock satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(e) Neither the Company nor any of its Affiliates or any person
acting on their behalf has engaged in any directed selling efforts with respect
to the Securities, and each of them has complied with the offering restrictions
requirement of Regulation S ("Regulation S") under the Securities Act. Terms
used in this paragraph have the meanings given to them by Regulation S.
(f) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
without taking account of any exemption arising out of the number of holders of
the Company's securities.
(g) The Company and all of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of organization, with full corporate
power and authority to own or lease, as the case may be, their properties and
conduct their business as described in the Final Memorandum, and are duly
qualified to do business as foreign corporations and are in good standing under
the laws of all jurisdictions in which their ownership or lease of property or
the conduct of their business requires such qualification except where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below). The
<PAGE>
4
Company has full corporate power and authority to enter into this Agreement, the
Registration Agreement, the Agreement and Plan of Merger dated as of May 5,
1998, among the Company, Century Acquisition Corporation and the shareholders of
the Company (the "Merger Agreement"), the Credit Agreement dated as of the
Closing Date among the Company, certain lenders named therein, Salomon Brothers
Inc, as arranger and Citicorp (USA) Inc., as administrative agent (the "New
Credit Facility"), the Indenture governing the Exchange Debentures (the
"Exchange Indenture") and the Securities and to perform the transactions
contemplated hereby and thereby (the "Transactions"). This Agreement and the
Registration Agreement have been duly authorized, executed and delivered by the
Company. The execution and delivery of the Merger Agreement, the New Credit
Facility and the Exchange Indenture have been duly authorized by the Company
and, when duly executed and delivered by the parties thereto (assuming the due
authorization, execution and delivery of the Exchange Indenture by the Trustee),
each of the Merger Agreement, the New Credit Facility and the Exchange Indenture
will constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(h) All the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth in the Final Memorandum, as of
the Closing Date, all outstanding ownership interests of the Subsidiaries will
be owned, directly or indirectly, by the Company free and clear of any perfected
security interest and any other security interests, claims or encumbrances,
except for security interests, claims and encumbrances under the New Credit
Facility.
(i) (i) The Preferred Stock has been duly and validly authorized for
issuance and sale by the Company to the Purchaser, and when the Preferred
Stock has been delivered and paid for in accordance with the terms of this
Agreement, the Preferred Stock will be validly issued, fully paid and
nonassessable; and the issuance of the Preferred Stock is not subject to
preemptive or other similar rights.
<PAGE>
5
(ii) The Exchange Debentures have been duly authorized for issuance
in exchange for Preferred Stock by the Company; and upon execution and
delivery of the Exchange Indenture, and, when the Exchange Debentures are
issued and authenticated in accordance with the Exchange Indenture and
delivered in exchange for the Preferred Stock, the Exchange Debentures will
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their terms and entitled to the benefits of
the Exchange Indenture, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium, and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(j) The Securities conform, in all material respects, to the
description thereof contained in the Preliminary Memorandum and Final
Memorandum.
(k) The execution, delivery and performance of this Agreement, the
Registration Agreement, the Merger Agreement, the New Credit Facility, the
Exchange Indenture, the Preferred Stock and the Exchange Debentures by the
Company, and the consummation of the Transactions, will not conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) the articles of incorporation, by-laws or other
organizational documents of the Company or any Subsidiary, (ii) any statute,
rule or regulation applicable to the Company or any Subsidiary or any order of
any governmental agency or body or any court having jurisdiction over the
Company, any Subsidiary or any of their respective properties, (iii) any
agreement or instrument relating to borrowed money to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or to
which any of their respective properties is subject or (iv) any other material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of their respective
properties is subject, except in the cases of clauses (ii), (iii) or (iv) for
conflicts, breaches, violations or defaults which would not reasonably be
expected to have a Material Adverse Effect. Assuming the Securities are sold as
described in this Agreement, no consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
<PAGE>
6
governmental body which has not already been obtained is required for the
execution and delivery of this Agreement, the Registration Agreement, the Merger
Agreement, the New Credit Facility, the Exchange Indenture or the Securities or
for the consummation of the Transactions, except for compliance with state
securities or blue sky laws and the Securities Act and Trust Indenture Act in
connection with the Registration Rights Agreement.
(l) Except as disclosed in the Final Memorandum, (i) there are no
legal or governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened to which the Company, or any Subsidiary is,
or to the best of the Company's knowledge, is threatened to be made a party or
of which property owned or leased by the Company or any Subsidiary is or, to the
best of the Company's knowledge, threatened to be made the subject, which
actions, suits or proceedings could, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company and the
Subsidiaries, taken as a whole, or materially and adversely affect the ability
of the Company to perform its obligations under this Agreement, the Registration
Agreement, the Merger Agreement, the New Credit Facility, the Exchange Indenture
or the Securities or to consummate the Transactions (a "Material Adverse
Effect"), and (ii) no labor disturbance by the employees of the Company, or any
Subsidiary exists or, to the best of the Company's knowledge is imminent, in
either case which could have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body the violation of which could
have, or could reasonably be expected to have, a Material Adverse Effect.
(m) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the Company
(except as contemplated by this Agreement).
(n) The Company and each Subsidiary are conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which they are conducting business, and all applicable environmental laws and
regulations, except where the failure to be so in compliance would not have a
Material Adverse Effect.
<PAGE>
7
(o) Neither the Company nor any Subsidiary (i) is in violation of its
charter, by-laws or other constituent documents or (ii) is in default in any
material respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such default, in the due performance or observance of
any term, covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument to which
it is a party or by which it is bound or to which any of its properties or
assets is subject which violation or default would cause a Material Adverse
Effect.
(p) There are no defects in title to the owned properties or
encumbrances upon the leased properties of the Company or any Subsidiary or the
assets or facilities used by the Company or any Subsidiary, (except any such
defects that are in the ordinary course of business of the Company or such
Subsidiary) which, individually or in the aggregate, have a Material Adverse
Effect.
(q) Except as set forth in the Final Memorandum each of the Company
and each Subsidiary owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary for the conduct of
its respective business, except where the failure to own or possess such rights
would not have a Material Adverse Effect, and has no reason to believe that the
conduct of its business will conflict with any such rights of others which is
reasonably likely to have a Material Adverse Effect, and has not received any
notice of any claim of conflict with any such rights of others which is
reasonably likely to have a Material Adverse Effect.
(r) (i) The consolidated financial statements with respect the
Company included in the Final Memorandum present fairly in all material
respects the consolidated financial position of the Company, and its
consolidated Subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such consolidated
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis.
<PAGE>
8
(ii) The pro forma financial statements of the Company included in the
Final Memorandum are based upon reasonable assumptions for presenting the
significant effects of the Transactions, give appropriate effect to those
assumptions, and reflect the proper application of those adjustments to the
historical consolidated financial statement amounts in the consolidated
financial statements of the Company.
(s) On the Closing Date (after giving effect to the issuance of the
Preferred Stock and the consummation of the Transactions) the Company will be
Solvent. As used in this paragraph, the term "Solvent" means, with respect to a
-------
particular date, that on such date (i) the aggregate fair value or present fair
salable value of the assets of the Company is not less than its total existing
debts and liabilities (including identified contingent liabilities) as they
become absolute and matured in the normal course of business, (ii) the Company
is able to pay its debts and other liabilities, contingent obligations and
commitments as they mature and become due in the normal course of business and
(iii) the Company does not have an unreasonably small amount of capital with
which to conduct its business. In computing the amount of such contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount that, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.
(t) Since the date of the latest audited consolidated financial
statements of the Company included in the Final Memorandum, there has been no
material adverse change, nor to the Company's knowledge any development or event
involving a prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of Company and its
Subsidiaries taken as a whole, and, except as disclosed in the Final Memorandum,
since the date of the latest audited consolidated financial statements of the
Company included in the Final Memorandum, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock.
(u) Assuming the accuracy of the representations and warranties
contained in Section 4, it is not necessary in connection with the offer, sale
and delivery of the Preferred Stock in the manner contemplated by this Agreement
<PAGE>
9
and the Final Memorandum to register the Securities under the Securities Act or
to qualify the Exchange Indenture under the Trust Indenture act of 1939, as
amended (the "Trust Indenture Act").
(v) The Company has agreed to permit the Securities to be designated
Portal eligible securities, will pay the requisite fees related thereto and have
provided all necessary information to the National Association of Securities
Dealers, Inc., in order to ensure that the Securities are designated Portal
eligible securities.
(w) The Company has made a preliminary determination that the
computer hardware and software used by the Company and each Subsidiary are and
will be able to process all date information prior to and after December 31,
1999 without any errors, aborts, delays or other interruptions in operations
arising from the inability of computer hardware and software to recognize and
properly execute date sensitive function involving certain dates prior to and
any dates after December 31, 1999 (the "Year 2000 Problem") which could
reasonably be expected to result in a Material Adverse Effect.
2. Purchase and Sale. Subject to the terms and conditions and in
------------------
reliance upon the representations and warranties herein set forth, the Company
agrees, to sell to the Purchaser and the Purchaser agrees to purchase from the
Company 280,000 shares of Preferred Stock at a purchase price of $96.50 per
share, plus accrued dividends, if any, with respect to the Preferred Stock from
July 8, 1998, to the Closing Date.
3. Delivery and Payment. Delivery of and payment for the Preferred
---------------------
Stock shall be made at 10:00 AM, New York City time, on July 8, 1998, or such
later date as the Purchaser may agree or as provided in Section 9 hereof (such
date and time of delivery and payment for the Preferred Stock being herein
called the "Closing Date"). Delivery of the Preferred Stock shall be made to
the Purchaser against payment by the Purchaser of the purchase price thereof to
or upon the order of the Company by wire transfer in Federal (same day) funds to
the U.S. dollar account previously designated by the Company. Delivery of the
Preferred Stock shall be made at the office of Cravath, Swaine & Moore ("Counsel
for the Purchaser"), 825 Eighth Avenue, New York, New York. Certificates for
the Preferred Stock shall be registered in such names and in such denominations
as the
<PAGE>
10
Purchaser may request not less than two full business days in advance of the
Closing Date.
The Company agrees to have the Preferred Stock available for
inspection, checking and packaging by the Purchaser in New York, New York, not
later than 1:00 PM on the business day prior to the Closing Date.
4. Offering of Securities. The Purchaser (i) acknowledges that the
-----------------------
Preferred Stock has not been registered under the Securities Act and may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act or pursuant to
an effective registration statement under the Securities Act and (ii) represents
and warrants to and agrees with the Company that:
(a) It has not offered or sold, and will not offer or sell, any
Preferred Stock except (i) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Securities Act) and
that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Preferred Stock is
aware that such sale is being made in reliance on Rule 144A or (ii) in
accordance with the restrictions set forth in Exhibit A hereto.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Preferred Stock in the United States by means
of any form of general solicitation or general advertising (within the
meaning of Regulation D) in the United States, except pursuant to a
registered public offering, whether an exchange offer or shelf
registration, as provided in the Registration Agreement.
5. Agreements. The Company agrees with the Purchaser that:
-----------
(a) The Company will furnish to the Purchaser and Cravath, Swaine &
Moore, without charge, as many copies of the Final Memorandum and any
supplements or amendments thereof or thereto as the Purchaser may
reasonably request, and will pay the expenses of printing or other
production of all documents relating to the offerings.
<PAGE>
11
(b) The Company will not amend or supplement the Final Memorandum
without the prior consent of the Purchaser.
(c) If at any time prior to the completion of the sale of the
Preferred Stock by the Purchaser, any event occurs as a result of which the
Final Memorandum, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend
or supplement the Final Memorandum to comply with the Exchange Act or the
rules thereunder or other applicable law, the Company promptly will notify
the Purchaser of the same and, subject to paragraph (b) of this Section 5,
will prepare and provide to the Purchaser pursuant to paragraph (a) of this
Section 5 an amendment or supplement which will correct such statement or
omission or effect such compliance.
(d) The Company will arrange for the qualifica tion of the Preferred
Stock for sale under the laws of such U.S. jurisdictions as the Purchaser
may designate and will maintain such qualifications in effect so long as
required for the sale of the Preferred Stock provided that Company will not
be obligated to qualify as foreign corporations or to execute a general
consent to service of process in any jurisdiction or to take any other
action that would subject them to general service of process or taxation in
any jurisdiction in which they are not otherwise subject. The Company will
promptly advise the Purchaser of the receipt by it of any notification with
respect to the suspension of the qualification of the Preferred Stock for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose.
(e) The Company will not, nor will it permit any of its Affiliates
to, resell any shares of Preferred Stock which constitute "restricted
securities" under Rule 144 that have been reacquired by any of them.
(f) None of the Company, any of its Affiliates, or any person acting
on their behalf will, directly or indirectly, make offers or sales of any
security, or solicit offers to buy any security, under circumstances
<PAGE>
12
that would require the registration of the Preferred Stock under the
Securities Act.
(g) None of the Company, any of its Affiliates or any person acting
on their behalf will engage in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any
offer or sale of the Preferred Stock in the United States, except pursuant
to a registered public offering, whether an exchange offer or shelf
registration, as provided in the Registration Agreement.
(h) So long as any shares of Preferred Stock are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
the Company will, during any period in which it is not subject to and in
compliance with Section 13 or 15(d) of the Exchange Act, provide to each
holder of such restricted securities and to each prospective purchaser (as
designated by such holder) of such restricted securities, upon the request
of such holder or prospective purchaser, any information required to be
provided by Rule 144A(d)(4) under the Securities Act. This covenant is
intended to be for the benefit of the holders, and the prospective
purchasers designated by such holders, from time to time of such restricted
securities.
(i) None of the Company, any of its Affiliates, or any person acting
on their behalf will engage in any directed selling efforts with respect to
the Preferred Stock except pursuant to a registered public offering as
provided in the Registration Agreement and each of them will comply with
the offering restrictions requirement of Regulation S. Terms used in this
paragraph have the meanings given to them by Regulation S.
(j) The Company will cooperate with the Purchaser and use its
reasonable best efforts to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(k) The Company hereby agrees to permit the Preferred Stock to be
designated Portal eligible securities, to pay the requisite fees related
thereto and the Company has been advised by the Portal Market
<PAGE>
13
that the Securities have or will be designated Portal eligible securities
in accordance with the rules and regulations of the National Association of
Securities Dealers, Inc.
(l) The Company will not take, directly or indirectly, any action
prohibited by Regulation M under the Exchange Act, in connection with the
offering of the Preferred Stock.
(m) The Company will not, until 90 days following the Closing Date,
without the prior written consent of Salomon Brothers Inc, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, or file a registration statement for, any debt
securities or capital stock which is preferred as to payment of dividends,
or as to distribution upon liquidation, over any other class of capital
stock issued or guaranteed by the Company ("preferred stock") (other than
(i) the Preferred Stock and (ii) pursuant to a registered public offering
as provided in the Registration Agreement).
(n) The Company will apply the net proceeds from the sale of the
Preferred Stock sold by them substantially in accordance with the
statements under the caption "Use of Proceeds" in the Final Memorandum.
6. Conditions to the Obligations of the Purchaser. The obligations
-----------------------------------------------
of the Purchaser to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
at the date and time that this Agreement is executed and delivered by the
parties hereto (the "Execution Time") and the Closing Date, to the accuracy of
the statements of the Company made in any certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) The Company shall have caused Riordan & McKinzie, counsel for the
Company, to have furnished to the Purchaser their opinion dated the Closing
Date and addressed to the Purchaser, to the effect that:
(i) the information contained in the Final Memorandum under the
headings "Description of New Credit Facility" and "Certain Federal
Income Tax
<PAGE>
14
Considerations", fairly summarizes the matters therein described in
all material respects;
(ii) the Exchange Indenture complies as to form in all material
respects with the requirements of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), and the rules and regulations of
the Commission applicable to an indenture which is qualified
thereunder;
(iii) provided the Securities are sold in the manner contemplated
by the Purchase Agreement and Final Memorandum, no consent, approval,
authorization or order of, or filing or registration with, any court
or governmental agency or body organized under the laws of the state
of California or the Federal laws of the United States is required for
the execution, delivery and performance of this Agreement, the
Exchange Indenture, the Registration Agreement and the Securities or
for the consummation of the Transactions contemplated thereby, except
such as may be required under the blue sky or securities laws of any
jurisdiction and such other approvals (specified in such opinion) as
have been obtained and except such as may be required under the
Securities Act and the Trust Indenture Act with respect to the
Registration Agreement and the transactions contemplated thereunder;
(iv) all corporate action required to be taken by the Company for
the due and proper authorization, execution and delivery of the
Exchange Indenture, the New Credit Facility, the Securities, the
Registration Agreement and this Agreement and for the consummation of
the transactions contemplated thereby has been duly and validly taken;
(v) this Agreement and the Registration Agreement have been duly
authorized, executed and delivered by the Company;
(vi) to such counsel's knowledge, the issuance of the Preferred
Stock is not subject to preemptive or other similar rights; and the
statements set forth under the heading "Description of the Preferred
Stock" in the Final
<PAGE>
15
Memorandum, insofar as such statements purport to summarize certain
provisions of the Preferred Stock, provide a fair summary of such
provisions in all material respects;
(vii) each of the Exchange Indenture and the Exchange Debentures
has been duly and validly authorized by the Company; and the
statements set forth under the heading "Description of Exchange
Debentures" in the Final Memorandum, provide a fair summary of such
provisions insofar as such statements purport to summarize certain
provisions of the Exchange Debentures and Exchange Indenture in all
material respects;
(viii) to such counsel's knowledge there is no pending or
threatened action or suit or judicial, arbitral or other
administrative proceeding to which the Company or any of its
Subsidiaries is a party or of which any property or assets of the
Company or any of its Subsidiaries is the subject that, singly or in
the aggregate, questions the validity of this Agreement, the
Registration Agreement, the Exchange Indenture, the Securities, the
Transactions or any action taken or to be taken pursuant hereto or
thereto;
(ix) assuming the accuracy of the representations and warranties
and compliance with the agreements contained herein, no registration
of the Securities under the Securities Act is required, and no
qualification of the Exchange Indenture under the Trust Indenture Act
is necessary, for the offer, sale and delivery of the Securities in
the manner contemplated by this Agreement; and
(x) the Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), without taking account of any exemption arising out of
the number of holders of the Company's securities.
Such counsel shall also state 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
<PAGE>
16
representatives of the Purchaser at which the contents of the Final
Memorandum and related matters were discussed. Such counsel shall state
that although such counsel has made no independent check or verification
of, and need not pass upon or assume any responsibility for, the accuracy,
completeness or fairness of the statements made in the Final Memorandum
(except as set forth in paragraphs 6(i), 6(vi), and 6(vii) above) on the
basis of the foregoing (relying as to materiality to a large extent upon
the statements of officers and other representatives of the Company) no
facts have come to such counsel's attention that have caused such counsel
to believe that the Final Memorandum as of its date and as of the Closing
Date contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
opinion on the financial statements or other financial and statistical data
included in the Final Memorandum).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of California and the federal laws of the United States to the extent they
deem proper and specified in such opinion, upon the opinion of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the purchaser and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials, copies of which shall be provided to the
Purchaser.
Such counsel may deliver the opinions relating to the Merger Agreement
and the New Credit Facility set forth in paragraphs 6(i) and 6(iv) above by
delivering letters dated the Closing Date permitting the Purchaser to rely
upon separate opinion letters dated the Closing Date rendered to the
parties to the Merger Agreement and the New Credit Facility and containing
substantially similar opinions.
All references in this Section 6(a) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
<PAGE>
17
(b) The Company shall have caused Porter & Hedges, counsel for the Company, to
have furnished to the Purchaser their opinion dated the Closing Date and
addressed to the Purchaser, to the effect that:
(i) the Company and each of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of the jurisdiction in which it has been organized,
with full corporate power and authority to own or lease, as the case
may be, its properties and conduct its business as it is now being
conducted;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth on
Schedule I to such opinion, all outstanding shares of capital stock of
each Subsidiary are owned of record by the Company either directly or
through wholly owned subsidiaries free and clear of (A) any security
interest which has been perfected by control of such capital stock
(and to such counsel's knowledge there are no adverse claims to such
capital stock), and (B) to such counsel's knowledge, any other
security interest, claims, liens or encumbrances. As used in such
opinion, the terms "control" and "notice of an adverse claim" have the
meanings given to them in Sections 8.106 and 8.105 of the Texas
Business and Commerce Code;
(iii) the authorized equity capitalization of the Company
effective upon the consummation of the Recapitalization is 15,000,000
shares of common stock, $.001 par value per share, and 2,000,000
shares of preferred stock, $.001 par value per share;
(iv) except as set forth on Schedule I to such opinion, none of
the issue and sale of the Securities, the execution and delivery of
this Agreement, the Registration Agreement, the Merger Agreement, the
New Credit Facility or the Exchange Indenture, the fulfillment of the
terms hereof or
<PAGE>
18
thereof or the consummation of the transactions contemplated thereby
will conflict with, result in a breach or violation of, or constitute
a default under any law or the charter or by-laws of the Company or
the terms of any material indenture or other material agreement or
instrument in each case identified in an officer's certificate as
material to the Company and to which the Company or any Subsidiary is
a party or bound or any judgment, order or decree, in each case
identified in an officer's certificate, of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Company, provided that such counsel need not
express any opinion as to whether or not any default or violation
exists with respect to any covenant containing any financial ratio or
like test;
(v) the Company has full corporate right, power and authority to
execute and deliver the Securities, the Registration Agreement, the
Merger Agreement, the New Credit Facility, the Exchange Indenture and
this Agreement and to perform its obligations thereunder; and all
corporate action required to be taken by the Company for the due and
proper authorization, execution and delivery of the Merger Agreement
and for the consummation of the transactions contemplated thereby has
been duly and validly taken;
(vi) the Merger Agreement has been duly authorized, executed and
delivered by the Company and Century Acquisition Corporation, and
constitutes a legal, valid and binding instrument enforceable against
the Company and Century Acquisition Corporation in accordance with its
terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect);
(vii) to such counsel's knowledge there is no pending or
threatened action or suit or judicial, arbitral or other
administrative proceeding to which the Company or any of its
Subsidiaries is a party or of which any property or assets of the
<PAGE>
19
Company or any of its Subsidiaries is the subject that, singly or in
the aggregate, questions the validity of this Agreement, the
Registration Agreement, the Exchange Indenture, the Securities, the
Transactions or any action taken or to be taken pursuant hereto or
thereto.
In rendering such opinion, such counsel may rely (A) on the opinion of
Dennis Teeter, Esq., general counsel to the Company and (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible
officers of the Company and public officials, copies of which shall be
provided to the Purchaser.
Such counsel may deliver the opinions relating to the Merger Agreement
and the New Credit Facility set forth above by delivering letters dated the
Closing Date permitting the Purchaser to rely upon separate opinion letters
dated the Closing Date rendered to the parties to the Merger Agreement and
the New Credit Facility and containing substantially similar opinions.
Such opinion will relate solely to the laws of the State of Texas; the
Delaware General Corporation Law and applicable United States federal law.
(c) The Company shall have caused Richards & O'Neil, special New York
counsel for the Company, to have furnished to the Purchaser their opinion
dated the Closing Date and addressed to the Purchaser, to the effect that:
(i) the New Credit Facility has been duly authorized, executed
and delivered by the Company and constitutes a legal, valid and
binding instrument enforceable against the Company in accordance with
its terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws'
affecting creditors' rights generally from time to time in effect).
(d) the Company shall have caused Richards, Layton & Finger, special
Delaware counsel for the Company, to have furnished to the Purchaser their
opinion dated the Closing Date and addressed to the Purchaser, to the
effect that:
<PAGE>
20
(i) the Preferred Stock has been duly and validly authorized by
the Company and when the Preferred Stock has been delivered by the
Company, countersigned by the Transfer Agent, and paid for in
accordance with the terms of this Agreement, the Preferred Stock will
be validly issued, fully paid and nonassessable.
(e) The Purchaser shall have received from Cravath, Swaine & Moore
such opinion or opinions, dated the Closing Date, with respect to the
issuance and sale of the Securities, the Final Memorandum (as amended or
supplemented at the Closing Date) and other related matters as the
Purchaser may reasonably require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(f) The Company shall have furnished to the Purchaser certificates of
the Company signed by the President of the Company and the Chief Financial
Officer of the Company, dated the Closing Date, to the effect that the
signers of such certificate have examined the Final Memorandum, any
amendment or supplement to the Final Memorandum and this Agreement and the
Registration Agreement and that:
(i) the representations and warranties of the Company in this
Agreement and the Registration Agreement are true and correct in all
material respects on and as of the Closing Date with the same effect
as if made on the Closing Date, and the Company has complied in all
material respects with all the agreements and satisfied all the
conditions on their part to be performed or satisfied hereunder or
thereunder at or prior to the Closing Date; and
(ii) since the date of the most recent financial statements
included in the Final Memorandum, there has been no material adverse
change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company or any of
its Subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as disclosed
in the Final
<PAGE>
21
Memorandum (exclusive of any amendment or supplement thereto).
(g) At the Execution Time and at the Closing Date, the Company shall
have caused Ernst & Young LLP to have furnished to the Purchaser a letter
or letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Purchaser,
confirming that they are independent accountants within the meaning of the
Securities Act and the Exchange Act and the applicable rules and
regulations thereunder and Rule 101 of the Code of Professional Conduct of
the American Institute of Certified Public Accountants (the "AICPA") and
stating in effect that:
(i) in their opinion the audited financial statements of the
Company included in the Final Memorandum and reported on by them,
comply in form in all material respects with the applicable accounting
requirements and the related published rules and regulations that
would apply to the Final Memorandum if the Final Memorandum were a
prospectus included in a registration statement on Form S-1 under the
Securities Act;
(ii) on the basis of a reading of the unaudited pro forma
financial statements of the Company included in the Final Memorandum;
carrying out certain specified procedures; inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
such unaudited pro forma financial statements, nothing came to their
attention which causes them to believe that such pro forma financial
statements do not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X and that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such pro forma financial statements;
(iii) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the latest audited
financial
<PAGE>
22
statements included in the Final Memorandum, including the reading of
the minutes and inquiries of certain officials of the Company who have
responsibility for the financial and accounting matters and certain
other limited procedures requested by the Purchaser and described in
detail in such letter, nothing has come to their attention that causes
them to believe that:
(A) any unaudited financial statements of the Company
included as to the Final Memorandum do not comply as to form in
all material respects with applicable accounting requirements of
the Securities Act that would apply to the Final Memorandum if
the Final Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act; or that such
unaudited financial statements are not, in all material respects,
in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited financial statements of the Company included or
incorporated by reference in the Final Memorandum; or
(B) with respect to the period subsequent to April 30, 1998,
there were any changes, at a specified date not more than five
business days prior to the date of the letter, in the long-term
debt of the Company and any of its Subsidiaries or capital stock
of the Company or decreases in the stockholders' equity of the
Company or decreases in working capital of the Company, and any
of its Subsidiaries, as compared with the amounts shown on the
March 31, 1998 consolidated balance sheet included in the Final
Memorandum, or for the period from April 30, 1998, to such
specified date there were any decreases, as compared with the
corresponding period in the preceding year in total revenues, net
income before income taxes, net income or EBITDA, as defined in
the Final Memorandum, except in all instances for changes or
decreases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company
<PAGE>
23
as to the significance thereof unless said explanation is not
deemed necessary by the Purchaser; and
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company or any of its Subsidiaries)
set forth in the Final Memorandum, including the information set forth
under the captions "Offering Memorandum Summary", "the
Recapitalization", "Risk Factors", "Use of Proceeds",
"Capitalization", "Selected Historical and Pro Forma Consolidated
Financial Information", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business",
"Management" and "Description of New Credit Facility" in the Final
Memorandum, agrees with the accounting records of the Company, or any
of their Subsidiaries, excluding any questions of legal
interpretation.
All references in this Section 6(g) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the date of the
letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum, there shall not have
been (i) any change or decrease specified in the letter or letters referred
to in paragraph (g)(iii)(B) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company or any of its Subsidiaries the effect of which,
in any case referred to in clause (i) or (ii) above, is not disclosed in
the Final Memorandum and is, in the judgment of the Purchaser, so material
and adverse as to make it impractical or inadvisable to market the
Securities as contemplated by the Final Memorandum.
(i) Subsequent to the Execution Time, there shall not have been (i)
any decrease in the rating of any of the Securities or any other debt
securities or preferred stock of the Company by any "nationally recognized
statistical rating organization" (as defined
<PAGE>
24
for purposes of Rule 436(g) under the Securities Act) or (ii) any notice
given of any intended or potential decrease in any such rating or that such
organization has under surveillance or review (other than any such notice
with positive implications of a possible upgrading) its rating of any of
the Securities or any other debt securities or preferred stock of the
Company.
(j) On or prior to the Closing Date, the Registration Agreement shall
have been executed substantially in the form hereto delivered to you and
shall have been delivered to you.
(k) Each of the New Credit Facility and the Merger Agreement shall
have been executed and delivered by the parties thereto. The terms of the
New Credit Facility and the Merger Agreement shall be reasonably
satisfactory to the Purchaser, and the Purchaser shall have received
executed copies of the New Credit Facility and the Merger Agreement and all
other documents and agreements entered into and received in connection
therewith certified by the Secretary of the Company as being true, complete
and correct. There shall exist at and as of the Closing Date (after giving
effect to the Transactions) no condition that would constitute a default or
an event of default (or an event that with notice or lapse of time, or
both, would constitute a default or an event of default) under the New
Credit Facility.
(l) The Purchaser shall have received evidence, reasonably
satisfactory to them, that (A) the merger of Century Acquisition
Corporation with and into the Company shall have been consummated in
accordance with the terms of the Merger Agreement, (B) the initial funding
shall have occurred under the New Credit Facility, and (C) Freeman Spogli &
Co. shall have made a $67.6 million cash investment in the Company on the
terms described in the Final Memorandum and otherwise reasonably
satisfactory to the Purchaser.
(m) Prior to the Closing Date, the Company shall have furnished to
the Purchaser such further information, certificates and documents as the
Purchaser may reasonably request.
<PAGE>
25
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Purchaser and Counsel for the Purchaser, this Agreement and
all obligations of the Purchaser hereunder may be canceled at, or at any time
prior to, the Closing Date by the Purchaser. Notice of such cancelation shall
be given to the Company in writing or by telephone confirmed in writing.
The documents required to be delivered by this Section 6 will be
delivered at the office of Counsel for the Purchaser, 825 Eighth Avenue, New
York, New York, on the Closing Date.
7. Reimbursement of Expenses. If the sale of the Securities provided
--------------------------
for herein is not consummated because any condition to the obligations of the
Purchaser set forth in Section 6 hereof is not satisfied or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, in each case other than by
reason of a default by the Purchaser, the Company will reimburse the Purchaser
upon demand for all reasonable out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless the Purchaser, each director, officer, employee and
agent of the Purchaser and each other person, if any, who controls the Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Memorandum, the Final Memorandum, or in any amendments thereof or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements
<PAGE>
26
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made in the Preliminary Memorandum or the Final Memorandum, or
in any amendment thereof or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Purchaser specifically for inclusion therein, it being understood that the
only such information is that described in Section 8(b); provided further,
----------------
however, that the indemnity agreement contained in this Section 8(a) shall not
- -------
inure to the benefit of any indemnified party to the extent that it is
determined by a final, non-appealable judgment that (i) the Preliminary
Memorandum contained an untrue statement of a material fact or omitted to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (ii) the sale to the person asserting any such losses, claims,
damages or liabilities was an initial resale of the Securities by the Purchaser,
(iii) any such loss, claim, damage or liability of such indemnified party
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Securities to such person,
a copy of any revised Preliminary Memorandum, the Final Memorandum or the Final
Memorandum as amended or supplemented, and the Company had previously furnished
copies thereof to the Purchaser and (iv) the revised Preliminary Memorandum, the
Final Memorandum or the Final Memorandum as amended or supplemented corrected
such untrue statement or omission. This indemnity agreement will be in addition
to any liability that the Company may otherwise have.
(b) The Purchaser agrees to indemnify and hold harmless the Company,
its directors and officers, and each other 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, to the same extent as the foregoing indemnity from the
Company to the Purchaser, but only with reference to written information
relating to the Purchaser furnished to the Company by or on behalf of the
<PAGE>
27
Purchaser specifically for inclusion in the Preliminary Memorandum or the Final
Memorandum (or in any amendment thereof or supplement thereto). This indemnity
agreement will be in addition to any liability which the Purchaser may otherwise
have. The Company acknowledges that the statements set forth in the last
paragraph of the cover page and under the heading "Plan of Distribution" in the
Preliminary Memorandum and the Final Memorandum (or in any amendment or
supplement thereto) constitute the only information furnished in writing by or
on behalf of the Purchaser for inclusion in the Preliminary Memorandum or the
Final Memorandum (or in any amendment thereof or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to participate therein, and to
the extent it may wish, to assume the defense thereof with counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
-------- -------
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel, if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
<PAGE>
28
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party; provided that the indemnifying
party shall not be responsible for the expenses of more than one separate
counsel (in addition to one local counsel in each relevant jurisdiction) in any
one action. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. An indemnified party
will not, without the prior written consent of the indemnifying party, which
consent will not be unreasonably withheld, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason (other than as provided in paragraph (a)), the
Company and the Purchaser agree to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "Losses") to
which the Company and the Purchaser may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Purchaser on the other from the offering of the Securities;
provided, however, that in no case shall the Purchaser be responsible for any
- -------- -------
amount in excess of the purchase discount or commission applicable to the
Securities purchased by such the Purchaser hereunder. If the
<PAGE>
29
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Purchaser shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and of the Purchaser on the other in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
of the Securities (before deducting expenses), and benefits received by the
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions, in each case as set forth on the cover page of the Final
Memorandum. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
Company on the one hand or the Purchaser on the other. The Company and the
Purchaser agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls the Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each director, officer,
employee and agent of the Purchaser shall have the same rights to con tribution
as the Purchaser, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer and director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
9. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Purchaser, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in securities generally on the New York Stock Exchange shall have been suspended
or limited or minimum prices shall have been established on such Exchange, (ii)
a banking moratorium shall have been declared either by Federal or New York
State authorities or (iii) there shall have occurred any outbreak or escalation
of hostilities, declaration by the United States of a national emergency or
<PAGE>
30
war or other calamity or crisis the effect of which on financial markets of the
United States is such as to make it, in the judgment of the Purchaser,
impracticable or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Final Memorandum.
10. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Purchaser set forth in this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of the Purchaser, the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancelation of this Agreement.
11. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Purchaser, will be mailed,
delivered or sent by fax and confirmed to them, at 388 Greenwich Street, New
York, New York, 10013; or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 9100 Winkler Drive, Houston, Texas, 77017.
12. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and,
except as expressly set forth in Section 5(h) hereof, no other person will have
any right or obligation hereunder.
13. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
---------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE
CONFLICT OF LAW PROVISIONS THEREOF).
14. Business Day. For purposes of this Agreement, "business day"
-------------
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in the City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
15. Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which will be deemed to
<PAGE>
31
be an original, but all such counterparts will together constitute one and the
same instrument.
<PAGE>
32
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Purchaser.
Very truly yours,
CENTURY MAINTENANCE SUPPLY, INC.
by
/s/ Dennis Bearden
-----------------------------------
Name: Dennis Bearden
Title: President
by
/s/ Richard E. Penick
-----------------------------------
Name: Richard E. Penick
Title: Vice President
<PAGE>
33
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
by /s/ H. Allen Bouch
---------------------------
Name: H. Allen Bouch
Title: Director
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CENTURY ACQUISITION CORPORATION
(THE "INVESTOR")
AND
CENTURY MAINTENANCE SUPPLY, INC.
(THE "CORPORATION")
AND
THE SHAREHOLDERS OF THE CORPORATION
DATED AS OF MAY 5, 1998
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions........................................... 1
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
SECTION 2.1 The Merger.................................................... 2
SECTION 2.2 Closing....................................................... 2
SECTION 2.3 Effective Time................................................ 2
SECTION 2.4 Certificate of Incorporation.................................. 3
SECTION 2.5 By-Laws....................................................... 3
SECTION 2.6 Officers and Directors........................................ 3
SECTION 2.7 Conversion and Cancellation of Shares......................... 3
SECTION 2.8 Employee Stock Options........................................ 5
SECTION 2.9 Payment for Shares and Options................................ 5
SECTION 2.10 Transfer of Shares after the Effective Time................... 5
SECTION 2.11 No Fractional Shares.......................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
SECTION 3.1 Authority Relative to the Agreement........................... 6
SECTION 3.2 Capitalization................................................ 6
SECTION 3.3 No Violation.................................................. 6
SECTION 3.4 Consents and Approvals........................................ 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDER
SECTION 4.1 Organization, Qualification and Capitalization................ 7
SECTION 4.2 Authority Relative to the Agreement........................... 8
SECTION 4.3 No Violation.................................................. 8
SECTION 4.4 Consents and Approvals........................................ 8
SECTION 4.5 Regulatory Reports............................................ 8
SECTION 4.6 Financial Statements.......................................... 9
SECTION 4.7 Absence of Changes............................................ 10
SECTION 4.8 Indebtedness.................................................. 11
SECTION 4.9 Litigation.................................................... 11
SECTION 4.10 Tax Matters................................................... 12
SECTION 4.11 Employee Benefit Plans........................................ 13
SECTION 4.12 Employment Matters............................................ 14
SECTION 4.13 Patents, Trademarks and Copyrights............................ 15
SECTION 4.14 Environmental Matters......................................... 15
SECTION 4.15 Title to Properties; Encumbrances............................. 17
SECTION 4.16 Sufficiency of Assets......................................... 17
SECTION 4.17 Permits and Licenses.......................................... 17
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(CONTINUED)
<TABLE>
<S> <C>
SECTION 4.18 Agreements, Contracts and Commitments................................... 17
SECTION 4.19 Compliance with Law..................................................... 18
SECTION 4.20 Insurance............................................................... 18
SECTION 4.21 Disclosure.............................................................. 18
SECTION 4.22 Brokers Commission or Finder's Fee...................................... 18
SECTION 4.23 Transactions with Affiliates............................................ 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVESTOR
SECTION 5.1 Organization and Authority.............................................. 19
SECTION 5.2 Authority Relative to the Agreement..................................... 19
SECTION 5.3 No Violation............................................................ 20
SECTION 5.4 Consents and Approvals.................................................. 20
SECTION 5.5 Financing............................................................... 20
SECTION 5.6 Brokers Commission or Finder's Fee...................................... 20
ARTICLE VI
COVENANTS OF CORPORATION
SECTION 6.1 Affirmative Covenants of Corporation.................................... 20
SECTION 6.2 Negative Covenants of Corporation....................................... 21
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Continuing Employees and Employee Benefit Plans......................... 23
SECTION 7.2 Access To, and Information Concerning, Properties and Records........... 25
SECTION 7.3 Good Faith Efforts...................................................... 26
SECTION 7.4 HSR Filing.............................................................. 26
SECTION 7.5 Exclusive Nature of Agreement........................................... 26
SECTION 7.6 Accounting Treatment.................................................... 26
SECTION 7.7 Payment Approvals....................................................... 27
SECTION 7.8 Additional Financial Statements......................................... 27
SECTION 7.9 Tax Matters............................................................. 27
SECTION 7.10 New Stock Option Plan................................................... 30
SECTION 7.11 Directors' and Officers' Indemnifications............................... 30
SECTION 7.12 Option to Purchase...................................................... 32
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Each Party's Obligation................................... 32
SECTION 8.2 Conditions to the Obligations of Investor............................... 32
SECTION 8.3 Conditions to the Obligations of Selling Shareholders................... 34
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(CONTINUED)
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<S> <C>
ARTICLE IX
TERMINATION
SECTION 9.1 Termination............................................................. 35
SECTION 9.2 Effect of Termination................................................... 36
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnification......................................................... 36
SECTION 10.2 Limitations on Claims................................................... 38
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses................................................................ 40
SECTION 11.2 Governing Law; Forum Selection; Consent to Service of Process........... 40
SECTION 11.3 Survival and Exclusivity of Representations and Warranties.............. 41
SECTION 11.4 Public Announcements.................................................... 42
SECTION 11.5 Consent to Merger....................................................... 42
SECTION 11.6 Entire Agreement; Assignment............................................ 42
SECTION 11.7 Amendments; Waiver; Consents............................................ 42
SECTION 11.8 Further Assurances...................................................... 43
SECTION 11.9 Severability............................................................ 43
SECTION 11.10 Notices................................................................. 43
SECTION 11.11 Governing Law........................................................... 44
SECTION 11.12 Descriptive Headings.................................................... 44
SECTION 11.13 Parties in Interest; No Third Party Beneficiary......................... 44
SECTION 11.14 Counterparts............................................................ 44
SECTION 11.15 Incorporation by Reference.............................................. 44
SECTION 11.16 Guarantee............................................................... 44
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TABLE OF CONTENTS
(CONTINUED)
SCHEDULE 2.7(b) SELLING SHAREHOLDERS; ALLOCATION OF CONSIDERATION
SCHEDULE 3.3 NO VIOLATION
SCHEDULE 3.4 CONSENTS AND APPROVALS
SCHEDULE 4.1(a) AUTHORITY TO DO BUSINESS
SCHEDULE 4.1(c) CAPITALIZATION; OPTIONS; ENCUMBRANCES
SCHEDULE 4.3 CERTAIN DEFAULTS
SCHEDULE 4.4 CONSENTS AND APPROVALS
SCHEDULE 4.6 UNAUDITED 1997 FINANCIAL STATEMENTS
SCHEDULE 4.7 ABSENCE OF CHANGES
SCHEDULE 4.7(n) CAPITAL EXPENDITURE BUDGET
SCHEDULE 4.8 INDEBTEDNESS TO SHAREHOLDERS
SCHEDULE 4.9 LITIGATION
SCHEDULE 4.10 TAX MATTERS
SCHEDULE 4.11 EMPLOYEE BENEFIT PLANS
SCHEDULE 4.12 EMPLOYMENT MATTERS
SCHEDULE 4.13 PATENTS, TRADEMARK AND COPYRIGHTS
SCHEDULE 4.14 ENVIRONMENTAL MATTERS
SCHEDULE 4.15 TITLE TO PROPERTIES AND ENCUMBRANCES
SCHEDULE 4.16 SOFTWARE/HARDWARE YEAR 2000 ISSUES
SCHEDULE 4.17 PERMITS AND LICENSES
SCHEDULE 4.18 MATERIAL CONTRACTS
SCHEDULE 4.20 INSURANCE POLICIES
SCHEDULE 4.23 TRANSACTIONS WITH AFFILIATES
SCHEDULE 5.5 FINANCING COMMITMENTS
SCHEDULE 8.2(m) TRADEMARKS
SCHEDULE 8.3(c) PERSONAL GUARANTIES
SCHEDULE 8.3(d) FINANCIAL INSTITUTION AND THIRD-PARTY INDEBTEDNESS
SCHEDULE 8.3(e) MAJOR SHAREHOLDER INDEBTEDNESS
SCHEDULE 8.3(g) OPTIONS
SCHEDULE 10.1(a) REAL ESTATE LIMITED PARTNERSHIPS
EXHIBIT A CERTIFICATE OF MERGER
EXHIBIT B PREFERRED STOCK TERM SHEET
EXHIBIT C WARRANT TERM SHEET
EXHIBIT D 1998 STOCK OPTION PLAN TERM SHEET
EXHIBIT E SHAREHOLDER AGREEMENT TERM SHEET
EXHIBIT F OPINION OF CORPORATION'S COUNSEL
EXHIBIT G NON-COMPETITION AGREEMENT
EXHIBIT H LEASE AMENDMENT TERM SHEET
EXHIBIT I-1 TRADEMARK ASSIGNMENT AGREEMENT
EXHIBIT I-1.1 ASSIGNMENT OF REGISTERED TRADEMARKS
EXHIBIT I-2 TRADEMARK LICENSE AGREEMENT
EXHIBIT J OPINION OF INVESTOR'S COUNSEL
EXHIBIT K AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
iv
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TABLE OF CONTENTS
(CONTINUED)
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("AGREEMENT") is entered into as of May
5, 1998, by and among Century Acquisition Corporation, a Delaware corporation
("INVESTOR"), Century Maintenance Supply, Inc., a Delaware corporation (the
"CORPORATION"), Dennis C. Bearden (the "MAJOR SHAREHOLDER") and the other
shareholders of the Corporation set out on Schedule 2.7(b) of this Agreement
---------------
(the Major Shareholder and the other shareholders of the Corporation are herein
collectively referred to as the "SELLING SHAREHOLDERS") and for purposes of
Sections 11.3 and 11.16 of this Agreement, FS Equity Partners IV, a Delaware
- ------------- -----
limited partnership and the sole shareholder of Investor ("FSEP IV").
A. The Board of Directors of Investor and the Board of Directors of the
Corporation each have determined that it is in the best interests of their
respective stockholders for Investor to merge with the Corporation upon the
terms and subject to the conditions set out herein.
B. In the Merger the Selling Shareholders will each have a portion of
their shares of Corporation Common Stock (as defined below) converted into the
right to receive the Cash Merger Consideration (as defined below) and will also
retain shares of Corporation Common Stock, all as specified and set out on
Schedule 2.7(b) of this Agreement. The Major Shareholder and his affiliates
will retain a smaller portion of their shares of Corporation Common Stock than
the remaining Selling Shareholders and may receive up to $7,000,000 in
liquidation preference of the Corporation's New Preferred Stock (as defined
below) in lieu of Cash Merger Consideration.
C. The Corporation and Investor desire to make certain representations,
warranties, covenants and agreements in connection with the aforesaid merger of
the Corporation and, for purposes thereof, have entered into this Agreement.
NOW, THEREFORE, in consideration of the recitals and the respective
representations, warranties and covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions. For the purposes of this Agreement,
-------------------
the following terms shall have the meanings specified or referred to below
whether or not capitalized when used in this Agreement.
(a) "KNOWLEDGE" or "KNOWN" -- the Corporation shall be deemed to have
"KNOWLEDGE" of or to have "KNOWN" a particular fact or other matter if any
of Dennis C. Bearden, John M. Morotti, Charles L. Littlepage, Richard E.
Penick, Theresa M. Tollett (Cullens), Sandra Toton, Vicki L. Reynolds,
Danny N. Errico, R. Allan Kea, Daryl D. Morse and Don R. Hodina (with
respect to Mr. Hodina, the Corporation shall be deemed to have knowledge
only of facts or matters which have become known to Mr. Hodina after the
Corporation's acquisition of Nationwide (as defined in Section 4.6)) has
-----------
current, actual
<PAGE>
knowledge of such fact or other matter, or would have such knowledge after
completion of a reasonably comprehensive review of the matter at issue.
(b) "LAW" means any law, ordinance, rule, regulation, statute, decree,
permit, treaty, code, arbitration award, order, judgment, writ, injunction,
decree or other legal requirement of any federal, state, local or foreign
court or other governmental authority.
(c) "MATERIAL ADVERSE EFFECT" shall mean any fact, event, change or
occurrence which, individually or in the aggregate, has a material adverse
effect on the business, financial condition, results of operations, assets
or liabilities of the Corporation and the Subsidiaries taken as a whole (or
when the reference is to Investor, Investor and its parent entity taken as
a whole).
(d) "TAX" and "TAXES" means all federal, state, local or foreign
income, gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, withholding or similar
taxes imposed on the income, properties or operations of the Corporation
and the Subsidiaries, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or
penalties.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
SECTION 2.1 The Merger. Subject to the terms and conditions of this
----------
Agreement, at the Effective Time (as defined in Section 2.3) the Investor shall
-----------
be merged with and into the Corporation and the separate corporate existence of
the Investor shall thereupon cease (the "MERGER"). The Corporation shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"SURVIVING CORPORATION") and shall continue to be governed by the laws of the
State of Delaware. The separate corporate existence of the Corporation with all
of its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, and the Corporation shall succeed, without other
transfer, to all of the rights and properties of the Investor and shall be
subject to all of the debts and liabilities of the Investor. The Merger shall
have the effects specified in the General Corporation Law of Delaware (the
"GCL").
SECTION 2.2 Closing. The closing of the Merger (the "CLOSING") shall
-------
take place at the offices of Porter & Hedges, LLP, 700 Louisiana, Houston, Texas
77002, at 9:00 a.m., Houston time, or at such other place as the Corporation and
the Investor may agree, within three business days following the day on which
all of the conditions set out in Article VIII of this Agreement shall be
fulfilled or waived in accordance with this Agreement.
SECTION 2.3 Effective Time. The Merger shall become effective at the
--------------
time of filing a certificate of merger substantially in the form attached hereto
as Exhibit A (the "CERTIFICATE OF MERGER") with the Secretary of State of the
---------
State of Delaware in accordance with the provisions of Section 251 of the GCL,
which Certificate of Merger shall be delivered to the Secretary of State of the
State of Delaware for filing within three business days following the day on
which the last of the conditions set out in Article VIII of this Agreement shall
have been fulfilled or waived in accordance with this Agreement. The date and
time on which the Merger shall become effective is herein referred to as the
"EFFECTIVE TIME".
2
<PAGE>
SECTION 2.4 Certificate of Incorporation. Prior to the Effective Time,
----------------------------
the Major Shareholder and the Corporation shall take all action necessary to (a)
amend and restate the Certificate of Incorporation of the Corporation to, among
other things, (i) increase the number of authorized shares of capital stock,
(ii) authorize preferred stock for issuance, and create and authorize the
preferred stock (the "NEW PREFERRED STOCK"), which will be authorized as "BLANK
CHECK" preferred and when issued will have substantially the same rights,
preferences and privileges as the preferred stock of Investor set out in the
term sheet and subject to modification as set out therein (the "PREFERRED STOCK
TERM SHEET") attached as Exhibit K hereto, and (iii) amend Article X thereof in
---------
the manner described in Section 7.11 of this Agreement, and such Certificate of
------------
Incorporation of the Corporation as so amended and restated shall be the
Certificate of Incorporation of the Surviving Corporation until duly amended in
accordance with the terms thereof and the GCL, and (b) to effect a stock split
of one to 2.30068 (the "STOCK SPLIT") of the common stock, $.001 par value of
-----------
the Corporation ("CORPORATION COMMON STOCK"), which Stock Split shall become
effective immediately after consummation of the Merger and the payment of the
Cash Merger Consideration and the conversion of the Investor shares into
Corporation Common Stock pursuant to Section 2.7(f).
--------------
SECTION 2.5 By-Laws. The By-Laws of the Corporation in effect at the
-------
Effective Time shall be the By-Laws of the Surviving Corporation until duly
amended in accordance with the terms thereof and the GCL.
SECTION 2.6 Officers and Directors. The officers of the Corporation at
----------------------
the Effective Time shall be the officers of the Surviving Corporation. As of
the Effective Time, the Major Shareholder and FSEP IV agree to elect the
following individuals as directors of the Surviving Corporation: Ronald P.
Spogli, William Johnson, J. Frederick Simmons, Jon D. Ralph, Mark J. Doran,
Dennis C. Bearden, and two other individuals designated by Major Shareholder.
Such directors and officers shall remain as such until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-Laws and applicable laws, and the expiration
of the term of, or any termination of, any employment agreement entered into
with any such person which entitles such person to serve as an officer or
director.
SECTION 2.7 Conversion and Cancellation of Shares. At the Effective
-------------------------------------
Time, by virtue of the Merger:
(a) Except as set out in Section 2.7(b) and (c) below, each share of
-------------- ---
Corporation Common Stock, issued and outstanding immediately prior to the
Effective Time (the "SHARES"), without giving effect to the Stock Split,
shall without any action on the part of the holder thereof, be converted
into the right to receive, without interest, an amount in cash equal to
$23.0068 (the "CASH MERGER CONSIDERATION").
(b) Each of the Shares as shown on Schedule 2.7(b) set out opposite
---------------
each Selling Shareholders name under the column "Retained Shares" on
Schedule 2.7(b) shall remain outstanding and immediately after the
---------------
consummation of the Merger and payment of the Cash Merger Consideration,
shall be adjusted for the Stock Split and shall become 2.30068 shares of
Corporation Common Stock (the "RETAINED SHARES").
(c) Subject to the terms of this Section 2.7(c), a portion of the Cash
--------------
Merger Consideration payable to the Major Shareholder as shown on Schedule
2.7(b), without
3
<PAGE>
giving effect to the Stock Split, may be paid with shares of the
Corporation's New Preferred Stock having a liquidation preference of up to
$7,000,000 in accordance with the Preferred Stock Term Sheet (the
"PREFERRED STOCK MERGER CONSIDERATION"). The New Preferred Stock will have
an aggregate liquidation preference of up to $44.5 million (reduced to the
extent that funding requirements are less than anticipated, as determined
by Investor, as a result of the Corporation's performance) as contemplated
in the Preferred Stock Term Sheet. In order to accommodate the requirements
of third party investors, the preferred stock described in the Preferred
Stock Term Sheet may be issued by Investor or by the Corporation. The
aggregate liquidation preference of preferred stock or New Preferred Stock
will be $44.5 million (subject to reduction as provided above). To the
extent that $7,000,000 or more of such preferred stock or New Preferred
Stock remains unsold to third party investors, Major Shareholder shall
receive New Preferred Stock having a liquidation preference of $7,000,000
and if less than $7,000,000 of preferred stock or New Preferred Stock
remains unsold to third party investors, Major Shareholder shall receive a
combination of New Preferred Stock and cash up to a value of $7,000,000.
The Cash Merger Consideration otherwise payable to the Major Shareholder
shall be reduced by the amount of the liquidation preference of any New
Preferred Stock issued to the Major Shareholder pursuant to this Section
-------
2.7(c).
------
(d) All Shares (other than the Retained Shares) shall without any
action on the part of the holders thereof cease to be outstanding and shall
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except the right of holders to receive
the Cash Merger Consideration and Preferred Stock Merger Consideration for
each outstanding Share upon the surrender of such certificate in accordance
with Section 2.7.
-----------
(e) Each Share owned by the Corporation shall without any action on
the part of the holder thereof cease to be outstanding, shall be canceled
and retired without payment of any consideration therefor and shall cease
to exist.
(f) Each share of common stock, $.01 par value, of Investor issued and
outstanding immediately prior to the Effective Time shall without any
action on the part of the holder thereof be converted into one share of
Corporation Common Stock and immediately after such conversion shall be
adjusted for the Stock Split.
(g) Each share of the preferred stock, $.01 par value, of the Investor
held by FSEP IV, Major Shareholder, or third-party investors issued and
outstanding immediately prior to the Effective Time shall without any
action on the part of the holder thereof be converted into one share of New
Preferred Stock.
(h) Each warrant to acquire common stock, $.01 par value, of the
Investor outstanding immediately before the Effective Time (the "INVESTOR
WARRANTS"), which will have substantially the same terms and conditions set
out in the term sheet (the "WARRANT TERM SHEET") attached hereto as Exhibit
C, shall without any action on the part of the holder thereof be converted
into a warrant to acquire Shares of the Common Stock of the Surviving
Corporation at the exercise price and on the terms and conditions as set
out in the terms of the Investor Warrants, subject to the modification
thereof as described in the Modification section of the Warrant Term Sheet.
The Corporation will also directly issue the Investor Warrants to third
party investors if necessary to meet the requirements of such investors.
4
<PAGE>
SECTION 2.8 Employee Stock Options. The Corporation will use its
----------------------
commercially reasonable efforts to enter into agreements with the holders of any
outstanding employee options to purchase Corporation Common Stock granted under
the Corporation's 1997 Incentive Stock Plan ("OPTIONS"), which agreements will
provide that they shall be treated as follows: (i) if a holder has been granted
Options to purchase fewer than 1,500 shares of Corporation Common Stock, such
Options shall be canceled, for the right to receive at the Effective Time an
amount in cash equal to the product of (x) the excess of the Cash Merger
Consideration over the exercise price per share of such Option, and (y) the
number of shares of Corporation Common Stock subject to such Option prior to the
Stock Split (such product to be the "CASH OPTION CONSIDERATION"); and (ii) if a
holder has been granted Options to purchase 1,500 or more shares of Corporation
Common Stock, fifty percent (50%) of such Options shall be canceled, for the
right to receive at the Effective Time the Cash Option Consideration with
respect to such Options prior to the Stock Split and fifty percent (50%) of such
Options shall remain outstanding. If the holders of fewer than 168,750 options
(prior to the Stock Split) enter into agreements under which they retain Options
or otherwise elect to retain Options, the Major Shareholder agrees to increase
the number of Retained Shares held by him pursuant to Section 2.7(b) above
--------------
prior to the Stock Split, by the number of Shares equal to the difference
between 168,750 and, prior to the Stock Split, the number of Options which will
remain outstanding after the Effective Time as Options to purchase Corporation
Common Stock. The Surviving Corporation shall perform in all respects its
obligations under the Option.
SECTION 2.9 Payment for Shares and Options.
------------------------------
(a) On the date of the Effective Time, the Surviving Corporation
shall, by wire transfer or check of the Corporation, as requested by each
of the Selling Shareholders, make the payments pursuant to Section 2.7(a)
of the Cash Merger Consideration, and if applicable pursuant to Section
2.7(c), of the Preferred Stock Merger Consideration. The Cash Option
Consideration shall be paid promptly after the Effective Time by check of
the Corporation.
(b) No interest will be paid or will accrue on the amount payable upon
the surrender of any certificate or Option, whether or not such certificate
or Option was surrendered for the Cash Merger Consideration, the Preferred
Stock Merger Consideration or the Cash Option Consideration, as the case
may be. The Cash Option Consideration shall only be payable to the
optionee. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such
payment that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, as determined by the Surviving
Corporation, and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to
the satisfaction of the Surviving Corporation that such tax has been paid
or is not payable.
SECTION 2.10 Transfer of Shares after the Effective Time. No transfers
-------------------------------------------
of Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Cash Merger Consideration and Preferred Stock
Merger Consideration as set out in Section 2.7 above.
-----------
SECTION 2.11 No Fractional Shares. The Corporation shall not be required
--------------------
to issue fractional shares of Corporation Common Stock in respect of the
Retained Shares prior to adjustment
5
<PAGE>
for the Stock Split or in respect of the Retained Shares after giving effect to
the Stock Split. If any fraction of a share of Corporate Common Stock would,
except for the provisions of this Section, be issuable upon the consummation of
the Merger without giving effect to the Stock Split, the Corporation shall pay
an amount in cash calculated by it to be equal to the Cash Merger Consideration
for one share of Corporation Common Stock at the Effective Time multiplied by
such fraction computed to the nearest whole cent. If any fraction of a share of
Corporate Common Stock would, except for the provisions of this Section, be
issuable after giving effect to the Stock Split, the Corporation shall not issue
fractional shares or pay cash for such fractional share. The Corporation shall
round down to the nearest whole share of Corporate Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
Each Selling Shareholder, severally but not jointly, makes the
representations and warranties set out in this Article III to Investor and FSEP
IV.
SECTION 3.1 Authority Relative to the Agreement. Each Selling
-----------------------------------
Shareholder has full power and authority to execute, deliver and perform this
Agreement and the other documents contemplated herein, and no further action or
proceeding on the part of each Selling Shareholder is necessary to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each Selling Shareholder, and this Agreement
constitutes the legal, valid and binding obligation of each Selling Shareholder
enforceable against each Selling Shareholder in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or
other similar laws relating to creditors' rights generally and general equitable
principles.
SECTION 3.2 Capitalization. Each of the Selling Shareholders are, on
--------------
the date of this Agreement, the record and beneficial owners and holders of the
Shares set out by their respective names on Schedule 2.7(b), and, except as set
---------------
out in the Shareholders Agreement among the Corporation, Major Shareholder and
the Selling Shareholders dated June 30, 1997 (a) each has good and valid title
to such Shares free and clear of any lien, charge, claim, equitable interest,
option, security interest, right of first refusal, preemptive right or
restriction of any kind (collectively, an "ENCUMBRANCE"). and (b) each of the
Selling Shareholders has the absolute and unrestricted right, power, authority
and capacity to transfer such Shares at the Closing.
SECTION 3.3 No Violation. Neither the execution, delivery nor
------------
performance of this Agreement or the other documents contemplated herein, nor
the consummation of the transactions contemplated hereby or thereby (including
the Merger) will, as of the date of this Agreement (i) violate any law, order,
writ, judgment, injunction, award, decree, rule, statute, ordinance or
regulation applicable to a Selling Shareholder, (ii) except as set out in
Schedule 3.3, be in conflict with, result in a breach or termination of any
- ------------
provision of, cause the acceleration of the maturity of any debt or obligation
pursuant to, constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, require the consent under, or result in the
creation of any security interest, lien, charge or other encumbrance upon any
property of a Selling Shareholder pursuant to, any terms, conditions or
provisions of any note, license, instrument, indenture, mortgage, deed of trust,
contract, lease, or other agreement or understanding or any other restriction of
any kind or character, to which any of the Selling Shareholders is a party or by
which any of their properties is subject or bound, or (iii) with respect to
Selling Shareholders that are not individuals, conflict with
6
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or result in any breach of any provision of the charter or other organizational
documents or bylaws of such Selling Shareholder.
SECTION 3.4 Consents and Approvals. Except as described on Schedule 3.4
---------------------- ------------
hereto, and except for termination of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), no prior
consent, approval or authorization of, or declaration, filing or registration
with, any person, domestic or foreign, or any federal, state or local government
agency or body of any type (a "GOVERNMENTAL AUTHORITY"), is required of or by
any Selling Shareholder in connection with the execution, delivery and
performance by such Selling Shareholder of this Agreement and consummation of
the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDER
The Major Shareholder hereby makes the representations and warranties set
out in this Article IV to Investor and FSEP IV.
----------
SECTION 4.1 Organization, Qualification and Capitalization.
----------------------------------------------
(a) Each of the Corporation and the subsidiaries of the Corporation,
all of which are listed on Schedule 4.1(a) hereto (collectively, the
---------------
"SUBSIDIARIES"), is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each of
the Corporation and the Subsidiaries has all requisite corporate power and
authority to carry on its business as it is now being conducted, to own,
lease and operate its properties and assets, and to perform all its
obligations under the agreements and instruments to which it is a party or
by which it is bound. Each of the Corporation and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which the properties
and assets owned, leased or operated by it or the nature of the business
conducted by it make such qualification necessary, except where the failure
to be so qualified would not have a Material Adverse Effect. Each such
jurisdiction in which each Corporation and the Subsidiaries is so qualified
is listed on Schedule 4.1(a).
---------------
(b) True, correct and complete copies of the charter documents and
bylaws of each of the Corporation and the Subsidiaries, with all amendments
thereto through the date of this Agreement, have been delivered by
Corporation to Investor.
(c) As of the date of this Agreement, the authorized capital stock and
the issued and outstanding capital stock of the Corporation and each of the
Subsidiaries is as set out on Schedule 4.1(c). Schedule 4.1(c) lists each
--------------- ---------------
holder of such shares of capital stock and the number of shares owned by
each such holder. Except as set out on Schedule 4.1(c), there are no
---------------
outstanding subscriptions, options, phantom stock, convertible securities,
rights, warrants, calls, irrevocable proxies or other agreements or
commitments of any kind directly or indirectly obligating the Corporation
and the Subsidiaries to issue any security of or equitable interest in the
Corporation or any of the Subsidiaries, or to repurchase, redeem or
otherwise acquire any such security, or irrevocable proxies or any
agreements (including shareholder agreements) restricting the transfer of
or otherwise relating to any security or equity interest in the Corporation
or any of the Subsidiaries. All of the issued and
7
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outstanding shares of capital stock of the Corporation and each of the
Subsidiaries set out on Schedule 4.1(c), have been duly authorized, validly
---------------
issued and are fully paid and nonassessable. All of the shares of issued or
unissued capital stock of the Corporation and each of the Subsidiaries are
free of Encumbrances, except as set out on Schedule 4.1(c). Except as
---------------
described on Schedule 4.1(a) and Schedule 4.1(c), the Corporation does not
--------------- ---------------
own, directly or indirectly, legally or beneficially, any shares of capital
stock or any equity interest in, or otherwise control, any corporation,
partnership, joint venture or other entity or business other than the
Subsidiaries.
SECTION 4.2 Authority Relative to the Agreement. The Corporation has
-----------------------------------
full power and authority to execute, deliver and perform this Agreement and the
other documents contemplated herein, and no further corporate proceedings on the
part of the Corporation is necessary to consummate the transactions contemplated
hereby, which have been duly and validly authorized and approved by the
Corporation's board of directors and shareholders. This Agreement has been duly
and validly executed and delivered by the Corporation, and this Agreement
constitutes the legal, valid and binding obligation of the Corporation
enforceable against the Corporation in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
laws relating to creditors' rights generally and general equitable principles.
SECTION 4.3 No Violation. Neither the execution, delivery nor
------------
performance of this Agreement and the other documents contemplated herein, nor
the consummation of the transactions contemplated hereby and thereby will, as of
the date of this Agreement (i) violate any law, order, writ, judgment,
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Corporation and the Subsidiaries or the Major Shareholder, (ii) except as
set out on Schedule 4.3, be in conflict with, result in a breach or termination
------------
of any provision of, cause the acceleration of the maturity of any debt or
obligation pursuant to, constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, require the consent under, or
result in the creation of any security interest, lien, charge or other
encumbrance upon any property of the Corporation or the Subsidiaries pursuant
to, any terms, conditions or provisions of any note, license, instrument,
indenture, mortgage, deed of trust, contract, lease or other agreement or
understanding or any other restriction of any kind or character, to which any of
the Corporation or the Subsidiaries is a party or by which any of the properties
of the Corporation or the Subsidiaries are subject or bound, or (iii) conflict
with or result in any breach of any provision of the charter documents or bylaws
of the Corporation or the Subsidiaries.
SECTION 4.4 Consents and Approvals. Except as described on Schedule 4.4
---------------------- ------------
hereto, and except for termination of the waiting period under HSR Act, no prior
consent, approval or authorization of, or declaration, filing or registration
with any person, domestic or foreign, or any Governmental Authority, is required
of or by the Corporation and the Subsidiaries in connection with the execution,
delivery and performance by Corporation of this Agreement and their consummation
of the transactions contemplated hereby.
SECTION 4.5 Regulatory Reports. Each of the Corporation and the
------------------
Subsidiaries has filed all reports, registrations and statements, together with
any amendments required to be made thereto, that are required to be filed with
any Governmental Authority having jurisdiction over it except for those filings
which, if not made, would not result in a Material Adverse Effect.
8
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SECTION 4.6 Financial Statements. Attached hereto as Schedule 4.6 is
-------------------- ------------
(a) a true and complete copy of the unaudited consolidated balance sheet of the
Corporation and the Subsidiaries as of December 31, 1997 and the related
consolidated statement of income , shareholders equity, and cash flows for the
year then ended, which financial statements give effect to the acquisition of
Nationwide Apartment Supply, Inc. and Fairview Wholesale Supply, Inc.
(collectively, "NATIONWIDE") by the Corporation in 1997 as of the date of such
acquisition (the "UNAUDITED 1997 FINANCIAL STATEMENTS") and (b) a true and
complete copy of the draft pro forma consolidated results of operations for the
year ended December 31, 1997 as though the Corporation had acquired Nationwide
and the minority interests of the various Subsidiaries as of January 1, 1997
(the "DRAFT 1997 PRO FORMAS"). The audited consolidated balance sheet of the
Corporation and the Subsidiaries as of December 31, 1997 and the related audited
consolidated statements of income, shareholders equity and cash flows for the
year then ended to be delivered to Investor on or prior to May 7, 1998 with
Ernst & Young's unqualified opinion thereon (the "AUDITED 1997 FINANCIAL
STATEMENTS") will not differ in any respect from the Unaudited 1997 Financial
Statements. The final pro forma consolidated results of operations for the year
ended December 31, 1997 as though the Corporation had acquired Nationwide and
the minority interests of the various Subsidiaries as of January 1, 1997 to be
delivered to Investor on or before May 8, 1998 with Ernst & Young's examination
report thereon (the "FINAL 1997 PRO FORMAS") will not differ in any material
adverse respect, with respect to the pro forma adjustments themselves, from the
pro forma adjustments in the Draft 1997 Pro Formas. The consolidated balance
sheet of the Corporation and the Subsidiaries as of December 31, 1996, and the
consolidated statements of income, shareholders equity and cash flow for the
years ended December 31, 1995 and December 31, 1996 to be delivered to Investor
on or prior to May 5, 1998 which have been retroactively restated to reflect
Major Shareholder's contribution to the Corporation of the San Antonio and
Austin, Texas maintenance, repair and operation supplies business and the sale
of the Corporation's Air Management air conditioning supply locations' net
assets for cash (the "1996 AND 1995 RESTATED FINANCIAL STATEMENTS") will not
differ in any material respect from the historical financial results for the
same periods included in the Memorandum (as defined in Section 11.3 of this
------------
Agreement). The unaudited consolidated balance sheet of the Corporation and the
Subsidiaries as of March 31, 1998 and the related consolidated statements of
income, shareholder's equity and cash flows for the three-month period ended
March 31, 1998 reviewed by Ernst & Young are hereinafter referred to as the
"MARCH 31, 1998 FINANCIAL STATEMENTS." Corporation has also provided Investor
with true and complete copies of the audited consolidated balance sheet of the
Corporation and the Subsidiaries (which do not reflect the acquisition of
Nationwide and the acquisition of the minority interests of the Subsidiaries) as
of December 31, 1993, 1994, 1995 and 1996 and the related audited consolidated
statements of income, shareholders equity and cash flows for each of the years
then ended (collectively, together with the Unaudited 1997 Financial Statements,
the Draft 1997 Pro Formas and when delivered, the Audited 1997 Financial
Statements, the Final 1997 Pro Formas, the 1996 and 1995 Restated Financial
Statements and the March 31, 1998 Financial Statements are referred to as the
"FINANCIAL STATEMENTS"). The Financial Statements fairly present, in all
material respects, the consolidated financial condition of the Corporation and
the Subsidiaries and the results of operations at the dates and for the periods
indicated, have been prepared in accordance with GAAP applied on a consistent
basis except as set out on Schedule 4.6 (except that the Unaudited 1997
------------
Financial Statements and the March 31, 1998 Financial Statements are unaudited
and therefore do not have certain notes otherwise required by GAAP), were
prepared in accordance with the books and records of the Corporation and its
Subsidiaries, and were prepared in accordance with regulation S-X promulgated
under the Securities Act of 1933, as amended ("REGULATION S-X"). Except as set
out in this Agreement or the schedules hereto, the Corporation and the
Subsidiaries have no liabilities except
9
<PAGE>
as set out in the Financial Statements or arising in the ordinary course of
business after December 31, 1997.
SECTION 4.7 Absence of Changes. Except as and to the extent set out on
------------------
Schedule 4.7, or as expressly provided for in this Agreement, since December 31,
- ------------
1997, none of the Corporation nor the Subsidiaries have directly or indirectly:
(a) made any amendment to its charter documents or bylaws or changed
the character of its business in any material manner;
(b) suffered any Material Adverse Effect;
(c) entered into or amended, canceled or terminated any agreement,
license, commitment or transaction, except in the ordinary course of
business or except in connection with the transactions contemplated by this
Agreement;
(d) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this
Article IV in the future so that any such representation would not be true
in all material respects as of the date of this Agreement;
(e) made any declaration, setting aside, or payment of any dividend or
other distribution in respect of its capital stock, or any direct or
indirect redemption, recapitalization, purchase or other acquisition by it
of such stock;
(f) effected any increase in the compensation paid or payable by
Corporation or any Subsidiary, other than in the ordinary course of
business and consistent with past practices, to any of their respective
directors, officers or employees, or entered into any employment,
consulting or severance agreement, or any other agreement (or termination
of, or amendment to any agreement), other than in the ordinary course of
business and consistent with past practices, with any present or former
director, officer or other employee of Corporation or any of its
Subsidiaries;
(g) effected any issuance, transfer, sale or pledge by Corporation or
any Subsidiary of its capital stock or any other equity interest or of any
commitments, options, warrants, rights or privileges under which
Corporation or the Subsidiary is or may become obligated to issue any
shares of its capital stock or any other equity interest;
(h) incurred any liability, indebtedness, commitment or obligation
(excluding intercompany transactions solely between the Corporation and the
Subsidiaries), except such as may have been incurred or entered into in the
ordinary course of business and consistent with past practices;
(i) made or agreed to make any loan, capital contribution, or advance
(excluding intercompany transactions solely between the Corporation and the
Subsidiaries), or become liable or agreed to become liable as a guarantor
with respect to any obligation of a third party except for advances to
employees for reimbursable business expenses entered into in the ordinary
course of business and consistent with past practices;
10
<PAGE>
(j) adopted, amended or entered into any bonus, profit sharing, stock
option, pension, retirement, severance, deferred compensation or other
employee benefit plan or agreement (including, without limitation, the
grant of stock options, stock appreciation rights, performance awards or
restricted stock awards);
(k) entered into or committed to enter into any transaction between
Corporation or the Subsidiaries, on the one hand, and any Related Party, on
the other hand, other than purchases of supplies by Corporation from
Century Air Conditioning Supply, Inc. as set out on Schedule 4.7;
------------
(l) effected any material change in the accounting methods, practices
or policies followed by Corporation (other than as required by GAAP), any
material increase in reserves or any material revaluation of any of their
assets from those in effect during the past three fiscal years;
(m) effected any acquisition (whether by merger, consolidation,
acquisition of stock or assets or otherwise) of any corporation,
partnership or other business organization or division thereof;
(n) made any capital expenditure in excess of $1.0 million, other than
in accordance with Corporation's capital expenditure budget for the fiscal
year ending December 31, 1998, a copy of which is attached as Schedule
--------
4.7(n);
------
(o) effected any change in any election for Tax purposes, or entered
into any agreement (or amendment to any agreement) to (i) make or not make
any election for Tax purposes, or (ii) claim or not claim any particular
item of income, gain, loss, deductions or credit for tax purposes; or
(p) made any agreement or commitment to do any of the foregoing.
SECTION 4.8 Indebtedness. The Corporation has delivered to Investor
------------
true and complete copies of all loan documents related to the indebtedness of
Corporation and the Subsidiaries. Schedule 4.8 hereto lists all indebtedness of
------------
the Corporation and the Subsidiaries to the Selling Shareholders.
SECTION 4.9 Litigation. Except as set out on Schedule 4.9, (a) there
---------- ------------
are no actions, suits, claims, investigations, reviews or other proceedings
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any of the Subsidiaries or any Selling Shareholder or involving
any of the employees, former employees, properties or assets of the Corporation
or any of the Subsidiaries or any Selling Shareholder, at law or in equity or
before or by any foreign, federal, state, municipal, or other governmental
court, department, commission, board, bureau, agency, or other instrumentality
or person or any board of arbitration or similar entity which could result in a
Material Adverse Effect or could reasonably be expected to prevent, hinder or
delay consummation of the transactions contemplated by this Agreement, declare
the same unlawful or cause the rescission thereof, and (b) there are no
judgments, decrees, injunctions, rules or orders of any Governmental Authority
outstanding against the Corporation or any of the Subsidiaries or any Selling
Shareholder which could result in a Material Adverse Effect.
11
<PAGE>
SECTION 4.10 Tax Matters.
-----------
(a) Each of the Corporation and the Subsidiaries has timely filed, or
will timely file, all Tax returns required to be filed by it prior to the
Closing, and each of such returns is, or will be, correct and complete in
all material respects.
(b) All Taxes shown to be due on each of the Tax returns specified in
Section 4.10(a) have been, or will be, timely and appropriately paid.
---------------
(c) Reserves adequate for the payment of all Taxes of each the
Corporation and the Subsidiaries with respect to any period or portion
thereof ending on or prior to the date of this Agreement for which Tax
returns have not yet been filed have been established, and such reserves
will continue to be established with respect to any period or portion
thereof ending on or prior to the Closing.
(d) No liens for Taxes exist with respect to any assets or properties
of any of the Corporation and the Subsidiaries, except for statutory liens
for Taxes not yet due.
(e) Except as set out in Schedule 4.10, none of the Tax returns of any
-------------
of the Corporation and the Subsidiaries have been audited or examined or is
being audited or examined by any taxing authority.
(f) Except as set out in Schedule 4.10, no assessment, audit or other
-------------
proceeding by any taxing authority is proposed, pending, or, to the
knowledge of the Corporation, threatened with respect to any Taxes or Tax
returns of any of the Corporation and the Subsidiaries.
(g) Except as set out in Schedule 4.10, there are no outstanding
-------------
agreements, waivers, or arrangements extending the statutory period of
limitations applicable to any claim for the period for the collection or
assessment of any Taxes of any of the Corporation and the Subsidiaries due
for any taxable period.
(h) No consent to the application of Section 341(f)(2) of the Internal
Revenue Code of 1986, as amended (the "CODE") has been made or filed by or
with respect to any of the Corporation and the Subsidiaries or any of their
assets and properties.
(i) Except as set out in Schedule 4.10, the Corporation and the
-------------
Subsidiaries have not taken any action that would require an adjustment
pursuant to Section 481 of the Code by reason of a change in accounting
method or otherwise.
(j) There have not been, nor will there be from the date of this
Agreement through and including the Closing date, any payments, or any
agreements to make payments, which are contingent upon, or related to, the
transactions contemplated hereunder and which would be "EXCESS PARACHUTE
PAYMENTS" under Section 280G of the Code.
(k) The Corporation and the Subsidiaries are not a party to any tax
sharing or tax allocation agreement.
12
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(l) The Corporation and the Subsidiaries have not executed or entered
into any closing agreement pursuant to Section 7121 of the Code, or any
predecessor provisions thereof or any similar provision of state or other
law.
(m) Schedule 4.10 of this Agreement sets forth (i) a list of each
-------------
Subsidiary which (A) filed, within the past five years, its return for
federal income tax purposes as part of the consolidated return of which the
Corporation, or any predecessor, was the parent corporation and (B)
subsequently ceased filing its return as part of such consolidated return,
and (ii) the last year in which each such Subsidiary so filed on a
consolidated basis.
SECTION 4.11 Employee Benefit Plans.
----------------------
(a) The Corporation has set out in Schedule 4.11 the names and current
-------------
base salaries for all employees of the Corporation and the Subsidiaries as
of December 31, 1997 with base salaries in excess of $75,000 per annum.
(b) The Corporation has delivered to Investor (i) copies of the
health, dental and life insurance plans, bonus, deferred compensation,
pension, profit sharing and retirement plans and all other employee benefit
plans, programs or arrangements providing benefits for employees, former
employees, officers, directors, agents, and consultants, whether or not the
plan, program, or arrangement is subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"), of the Corporation and the Subsidiaries
(the "BENEFIT PLANS"); (ii) a copy of the most recent favorable
determination letter received with respect to a Benefit Plan from the
Internal Revenue Service (if the Benefit Plan is intended to be a tax-
qualified plan under the Code); (iii) the most recent annual report (Form
5500) filed with the Internal Revenue Service with respect to each Benefit
Plan (if any such report was required); and (iv) the most recent summary
plan description for each Benefit Plan for which a summary plan description
is required.
(c) If applicable, each of the Benefit Plans has been administered and
maintained in material compliance with the requirements of ERISA, and, if
applicable, the Code, and all other applicable laws. There is no
"ACCUMULATED FUNDING DEFICIENCY" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code) with respect to a Benefit Plan that is an
"EMPLOYEE PENSION BENEFIT PLAN" (as defined in Section 3(2) of ERISA, a
"PENSION PLAN"), and there has been no application for waiver of the
minimum funding standards imposed by Code Section 412 with respect to any
such plan and no event has occurred or circumstance exists that may result
in an accumulated funding deficiency as of the last day of the current year
of any Pension Plan. Except as provided in Schedule 4.11, the value,
-------------
determined on a termination basis using the actuarial assumptions stated in
the Pension Plan, of all accrued and ancillary benefits (whether or not
vested) under each Pension Plan did not exceed, as of the most recent
valuation date, and will not exceed as of the Closing Date, the then
current fair market value of the assets of the plan.
(d) All costs of administering and contributions required to be made
to each Benefit Plan under the terms of that Benefit Plan, ERISA, Code or
any other applicable law have been timely made, and all contributions are
fully deductible in the year for which the contributions were made or
accrued. There will be no material liability of the Corporation (or
Subsidiary, whichever is applicable) under any insurance policy or similar
arrangement
13
<PAGE>
procured in connection with any Benefit Plan in the nature of a retroactive
rate adjustment, loss sharing arrangement, or other material liability
arising wholly or partially out of events occurring before the Closing.
(e) There are no pending or, to the knowledge of the Corporation,
threatened claims by or on behalf of the Benefit Plans, the United States
Department of Labor, the Internal Revenue Service, or by any current or
former employee of the Corporation and the Subsidiaries or beneficiary of
such current or former employee alleging a breach of any fiduciary duties
or a violation of applicable state or federal law which could result in a
Material Adverse Effect (other than benefit claims and funding obligations
in the ordinary course of business and qualified domestic relations orders
(as defined in Section 414(p) of the Code)), nor is there any reasonable
basis for any such claim. As of the date of this Agreement, there are no
investigations, proceedings, or lawsuits, either currently in progress or,
to the knowledge of the Corporation, expected to be instituted in the
future, relating to any Benefit Plan, by any administrative agency, whether
local, state, or federal; with respect to any investigations, proceedings
and lawsuits instituted after the date of this Agreement, the
representations and warranties of the Corporation will only be breached if
such investigations, proceedings, and lawsuits could result in a Material
Adverse Effect. The Corporation and the Subsidiaries have never
established, maintained, or contributed to, or otherwise participated in,
or had an obligation to maintain, contribute to, or otherwise participate
in, any "MULTIEMPLOYER PLAN" (as defined in Section 3(37) of ERISA). The
Corporation and the Subsidiaries have not suffered or otherwise caused a
"COMPLETE WITHDRAWAL" or "PARTIAL WITHDRAWAL," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA, from any Pension
Plan that is a multiemployer plan.
(f) For purposes of this Section 4.11, the terms "CORPORATION" and
------------
"SUBSIDIARIES" shall include any entity that is aggregated with either of
them under Code Section 414(b), (c), (m), or (o).
(g) Except as provided in Schedule 4.11, neither the Corporation nor
-------------
any of the Subsidiaries maintains any plan that provides (or will provide)
medical or death benefits to one or more former employees (including
retirees), other than benefits that are required to be provided pursuant to
Code Section 4980B or state law continuation coverage or conversion rights.
(h) Except as provided in Schedule 4.11, none of the Benefit Plans or
-------------
employment contracts with the Corporation or any of the Subsidiaries
provide any benefits that become payable solely as a result of the
consummation of this transaction.
(i) None of the persons performing services for the Corporation or any
of the Subsidiaries have been improperly classified as independent
contractors, leased employees, or as being exempt from the payment of wages
for overtime in a manner which has created or could create a material
liability.
SECTION 4.12 Employment Matters. Except as disclosed on Schedule 4.12,
------------------ -------------
for the five years preceding the date of this Agreement, neither of the
Corporation nor any of the Subsidiaries or Selling Shareholders are or have been
a party to any contracts, collective bargaining agreements, settlement
agreements, or arrangements granting benefits or rights to employees or
consultants, or
14
<PAGE>
any settlement conciliation agreement or back pay order with the Department of
Labor, the Equal Employment Opportunity Commission or any Governmental Authority
which requires equal employment opportunities or affirmative action in
employment. There are no civil rights charges of any kind or charges of unfair
labor practice complaints pending against the Corporation or any of the
Subsidiaries or Selling Shareholders before the National Labor Relations Board,
the Equal Employment Opportunity Commission or any comparable Governmental
Authority. There are no union election petition, strikes, slowdowns, work
stoppages, lockouts, or to the knowledge of the Corporation, threats thereof, by
or with respect to any employees of the Corporation or any of the Subsidiaries.
The Corporation and each of the Subsidiaries are in compliance in all material
respects with all applicable laws respecting employment practices, employee
health, safety or welfare, employee documentation, terms and conditions of
employment and wages and hours and is not and has not engaged in any unfair
labor practice which could have a Material Adverse Effect.
SECTION 4.13 Patents, Trademarks and Copyrights.
----------------------------------
(a) Schedule 4.13 hereto sets forth a complete list of all registered
-------------
(and material unregistered) trademarks, trade names, product identifiers
and/or trade dresses of any type whatsoever which is, has been or is
presently planned to be used in the business (the "TRANSFERRED
TRADEMARKS"). Except as set out on Schedule 4.13, (a) each of the
-------------
Transferred Trademarks is valid and the subject of an application for
registration on the Principal Register of the United States Patent and
Trademark Office in the name of the person or entity identified, (b) as of
the date of this Agreement, Corporation has no knowledge of any
infringement of the Transferred Trademarks by others, (c) the continued use
of the Transferred Trademarks in the business (as the business has
heretofore been conducted and as currently planned) will not result in any
infringement of the rights of others in the United States, (d) the person
or entity identified on Schedule 4.13 is the sole and legal owner of the
-------------
Transferred Trademarks in the United States and, as of the date of this
Agreement, such owner has no knowledge of any claim by any other person
that such other person is the legal owner of such Trademarks, (e) no
license or right to use any Transferred Trademark has been granted to any
other person, and (f) each of Transferred Trademarks registered in the
United States is and has been in use in interstate commerce since the date
of first use in the application or any non-use of such trade mark is
excused under the law.
(b) Neither the Corporation nor any of its Subsidiaries has any
copyright registrations or patents which are, individually or collectively,
material to the conduct of the business.
(c) The Corporation has valid and enforceable contracts with each and
every employee, consultant and/or contractor of the Corporation and its
Subsidiaries which vests with the Corporation all rights in any invention,
copyright and/or trade secret which relates to the business of the
Corporation to the fullest extent permitted by law and also protects the
trade secrets and/or proprietary information of the Corporation and its
Subsidiaries to the fullest extent permitted by law.
SECTION 4.14 Environmental Matters. Except as set out on Schedule 4.14,
--------------------- -------------
with respect to any real property currently or previously owned, operated or
leased by the Corporation and the Subsidiaries (the "PROPERTIES"):
15
<PAGE>
(a) There are no environmental conditions or circumstances, such as
the discharge, transportation, disposal, presence treatment, release or
threatened release of any hazardous substance, on from, at, under or about
any Properties which could, individually or in the aggregate, have a
Material Adverse Effect or materially and adversely affect the value of, or
operations conducted at any such Property;
(b) The Corporation and the Subsidiaries have in full force and effect
all material environmental permits, licenses, approvals and other
authorizations required to conduct their operations and are operating in
material compliance thereunder;
(c) The operations and use of the assets of each of the Corporation
and the Subsidiaries including, without limitation, the Properties, do not
violate, and neither the Corporation nor the Subsidiaries has any liability
under any applicable federal, state or local law, statute, ordinance, rule,
regulation, consent decree, judgment order or notice requirement pertaining
to (a) the environment, and/or health and safety including natural
resources or any activity which affects the environment, or (b) the
regulation of any pollutants, contaminants, waste, substances (whether or
not hazardous or toxic), petroleum, petroleum-based products, asbestos,
PCB, and any and all other substances or wastes regulated under any laws,
statute, ordinance or regulation; including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42
U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. (S) 1609 et seq.) the Clean Water Act (33 U.S.C. 1251 et seq.), the
Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control
Act (17 U.S.C. (S) 2601 et seq.), the Safe Drinking Water Act (42 U.S.C.
(S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S)
401 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.) and
analogous, foreign, state and local provisions, as any of the foregoing may
have been amended or supplemented from time to time (collectively the
"APPLICABLE ENVIRONMENTAL LAWS") except for such violations which would not
result in a Material Adverse Effect;
(d) None of the operations, assets or Properties of the Corporation
and the Subsidiaries have ever been conducted or used in such a manner as
to constitute a violation of any of the Applicable Environmental Laws which
would result in a Material Adverse Effect;
(e) No notice has been served on the Corporation and the Subsidiaries
from any entity, Governmental Authority or individual regarding any
existing, pending or threatened investigation or inquiry related to alleged
violations under any Applicable Environmental Laws nor are there any
consent decrees, other decrees, consent orders, administrative orders or
other administrative or judicial requirements outstanding under any
Applicable Environmental Law naming the Corporation and the Subsidiaries as
a person that may have liability regarding any of the Properties; and
(f) There are no underground storage tanks located on the Properties
and there are no claims against the Corporation and the Subsidiaries
associated with any underground storage tanks previously located on the
Properties existing, or to the knowledge of Corporation, threatened which
claims could result in a Material Adverse Effect.
16
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(g) Investor has been provided with an opportunity to review true,
correct and complete copies of all significant correspondence, notices,
contingency plans, consent decrees, audits, assessments, studies, judgments
and pleadings relating to any environmental condition or circumstance
affecting the Corporation, the Subsidiaries or any Property.
SECTION 4.15 Title to Properties; Encumbrances. Schedule 4.15 contains a
--------------------------------- -------------
list of all real property which is owned, leased or operated by the Corporation
and the Subsidiaries (collectively, the "REAL PROPERTIES"). Except for goods
and other property sold, used or otherwise disposed of in the ordinary course of
business for fair value, each of the Corporation and the Subsidiaries has good
and indefeasible title to all of its properties, interests in properties, and
assets (whether real, personal or mixed, tangible and intangible), reflected in
Schedule 4.15 and the Financial Statements. None of such property is subject to
- -------------
any Encumbrance except (i) as described in Schedule 4.15 and the Financial
-------------
Statements; (ii) for liens for Taxes, assessments or governmental charges or
levies which are not delinquent; and (iii) for Encumbrances which do not
materially impair the operations of the Corporation or materially detract from
the value or use of the property subject thereto. Investor has been provided
with true, correct and complete copies of all leases affecting the Real
Properties, all of such leases are in full force and effect and constitute the
binding obligation of the Corporation or the Subsidiaries, as the case may be,
and no default has occurred under any such leases.
SECTION 4.16 Sufficiency of Assets. The buildings, plants, structures,
---------------------
equipment, real properties, personal properties, and vehicles of the Corporation
and the Subsidiaries constitute all of the assets of the Corporation and the
Subsidiaries, and are sufficient for the continued conduct of the Corporation's
and the Subsidiaries' business after the Closing in substantially the same
manner as conducted prior to the date of this Agreement. Except as set out on
Schedule 4.16, the software and hardware used in the management information
- -------------
systems of the Corporation and its Subsidiaries (including its recently
installed system) will not fail to operate in any material respect on or after
January 1, 2000 due to software or hardware coded to read "00" in a date as the
year 1900.
SECTION 4.17 Permits and Licenses. Except as set out in Schedule 4.17,
-------------------- -------------
each of the Corporation and the Subsidiaries has all permits, licenses,
certificates and authorities from Governmental Authorities required to conduct
its business as now being conducted (collectively, the "LICENSES"), and the
consummation of the transactions contemplated by this Agreement will not
constitute a violation of any such License which would result in a Material
Adverse Effect. Such Licenses are in full force and effect unimpaired by any
act or omission of the Corporation or any Subsidiaries, or their employees or
agents, have not been suspended or revoked, and each of the Corporation and the
Subsidiaries has complied with, and will continue to comply with, their terms
until Closing, except for any failure to comply which would not result in a
Material Adverse Effect, and neither the Corporation, nor any of the
Subsidiaries or Selling Shareholders, has been notified by a Governmental
Authority that such authority intends to cancel, terminate or modify any of such
Licenses.
SECTION 4.18 Agreements, Contracts and Commitments. Except as described
-------------------------------------
in Schedule 4.18, the Corporation and the Subsidiaries are not a party to or
-------------
bound by (i) any written or oral contract, agreement or commitment which
involves or may involve aggregate future payments (whether in payment of a debt,
as a result of a guarantee or indemnification, for goods or services or
otherwise) by or to the Corporation or any Subsidiary of $50,000 or more and
which is not, by its terms, terminable by the Corporation and the Subsidiaries
without penalty or payment on
17
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30 days notice or less, (ii) each contract, agreement or commitment, whether or
not fully performed, pursuant to which the Corporation or any Subsidiary has
acquired or disposed of a material portion of its business or assets at any time
since December 31, 1995, or (iii) any non-competition or secrecy agreement, any
loan or credit agreement, security agreement, indenture, mortgage, pledge,
conditional sale or title retention agreement, lease, purchase agreement or
other instrument evidencing indebtedness (other than equipment purchases or
lease agreements entered into in the ordinary course of business), or any sales
representative, partnership, joint venture, joint operating or similar
agreement, or any other executory contract or agreement which is material to the
Corporation and the Subsidiaries, considered as a whole. Each of the contracts
and agreements which are required to be identified on Schedule 4.18 pursuant to
-------------
(i), (ii) and (iii) above are hereinafter referred to as the "MATERIAL
CONTRACTS." Each of the Material Contracts is a valid, binding and enforceable
agreement of the Corporation or the Subsidiary, as the case may be, and, to the
knowledge of the Corporation, the other parties thereto. The Corporation and the
Subsidiaries have not breached any material provision of, and are not in default
in any material respect under the terms of, any of the Material Contracts, and
to the knowledge of the Corporation, no event has occurred which, after notice
or lapse of time or both, would constitute such a material default under the
terms of any Material Contract. To the knowledge of the Corporation, there does
not exist any event that, with the giving of notice or the lapse of time or
both, would constitute a material breach of or a material default under any such
Material Contract by any third party to such contracts, and neither the
Corporation nor any of the Subsidiaries has received or been given notice of any
such breach, default or event.
SECTION 4.19 Compliance with Law. The Corporation and the Subsidiaries
-------------------
are, and at all times since January 1, 1993, have been, in compliance in all
respects with any Law applicable to them or to the conduct and operation of
their business or the ownership or use of any of their assets, except to the
extent which such non-compliance would not result in any Material Adverse
Effect.
SECTION 4.20 Insurance. Schedule 4.20 sets forth a true and complete list
--------- -------------
of all policies of insurance to which the Corporation and or the Subsidiaries
are a party or under which the Corporation and the Subsidiaries are currently
covered. Copies of all such policies have been made available to Investor for
its inspection. The Corporation and the Subsidiaries have in effect insurance
coverage with responsible insurance carriers which in respect of the amounts,
types and risks insured, is customary in the type of business in which they are
engaged, are in full force and effect through the Closing and, except as
otherwise set out on Schedule 4.20, such policies, or other policies covering
-------------
the same risks, have been in full force and effect, without gaps, continuously
for the past five years. Neither the Corporation nor any Subsidiary is in
default under any of such policies or binders and, to the knowledge of the
Corporation, none has failed to give any notice or to present any claim under
such policy or binder in a due and timely fashion.
SECTION 4.21 Disclosure. No representation or warranty regarding
----------
Corporation or the Subsidiaries made in Article IV of this Agreement and no
statement in the Schedules omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
SECTION 4.22 Brokers Commission or Finder's Fee. Neither the Corporation
----------------------------------
nor any of the Subsidiaries or Selling Shareholders has retained any broker or
finder (other than Salomon Smith Barney) or agreed to become obligated to pay
any fee or commission to any broker or finder
18
<PAGE>
(other than fees and commissions payable to Salomon Smith Barney pursuant to
that certain agreement (the "SALOMON ENGAGEMENT LETTER") dated as of August 25,
1997, between the Corporation and Salomon Smith Barney) for or on account of the
transactions contemplated by this Agreement. The payment of the fees and
commissions payable to Salomon Smith Barney will be paid by the Surviving
Corporation pursuant to the terms of Section 11.1 of this Agreement.
------------
SECTION 4.23 Transactions with Affiliates. Except as set out on Schedule
---------------------------- --------
4.23, no officer, director, employee or shareholder of the Corporation or any
- ----
Subsidiary nor any member of any such person's immediate family or any entity in
which any of the foregoing has an interest (collectively, a "RELATED PARTY") is
presently, or within the last year has been, a party to any transaction or
arrangement with the Corporation or any Subsidiary, including, without
limitation, any contract, lease or other agreement (a) providing for the
furnishing of services or assets by, (b) providing for the rental of real
property from, or (c) otherwise requiring payments to (other than for (i)
dividends or distributions to any shareholder in his or her capacity as such or
(ii) compensation to any officer, director or employee in his or her capacity as
such) such Related Party. Each such transaction shown on Schedule 4.23 is on
-------------
terms no less favorable to the Corporation or such Subsidiary than could be
obtained from an unaffiliated third party, except as set out on Schedule 4.23.
-------------
As of the date of this Agreement, all liabilities owed by Century Air
Conditioning, Inc. ("CAC") to the Corporation, other than liabilities incurred
in the ordinary course of business, the approximate amount of which is set out
on Schedule 4.23, have been paid in full.
-------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor makes the representations and warranties set out in this Article V
---------
to Selling Shareholders.
SECTION 5.1 Organization and Authority. Investor is a Delaware
--------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Investor has all requisite corporate power and
authority to carry on its business as it is now being conducted, to own, lease
and operate its properties and assets, and to perform all of its obligations
under the agreements and instruments to which it is a party or by which it is
bound. Investor is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
the properties and assets owned, leased or operated by it or the nature of the
business conducted by it make such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
SECTION 5.2 Authority Relative to the Agreement. Investor has full
-----------------------------------
corporate power and authority to execute, deliver and perform this Agreement and
the other documents contemplated herein, and no further corporate proceedings on
the part of Investor is necessary to consummate the transactions contemplated
hereby, which have been duly and validly authorized and approved by the board of
directors and shareholders of Investor. This Agreement has been duly and
validly executed and delivered by Investor, and this Agreement constitutes the
legal, valid and binding obligation of Investor enforceable against Investor in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and general equitable principles.
19
<PAGE>
SECTION 5.3 No Violation. Neither the execution, delivery nor
------------
performance of this Agreement or the other documents contemplated herein, nor
the consummation of all of the transactions contemplated hereby and thereby
will, as of the date of this Agreement, (a) violate any law, order, writ,
judgment, injunction, award, decree, rule, statute, ordinance or regulation
applicable to Investor which would result in a Material Adverse Effect, (b) be
in conflict with, result in a breach or termination of any provision of, cause
the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, require the consent under, or result in the creation of any
security interest, lien, charge or other encumbrance upon any property or assets
of Investor pursuant to, any terms, conditions or provisions of any note,
license, instrument, indenture, mortgage, deed of trust, contract, lease or
other agreement or understanding or any other restriction of any kind or
character, to which Investor is a party or by which any of its assets or
properties are subject or bound, and which in each case would result in a
Material Adverse Effect, or (c) conflict with or result in any breach of any
provision of the charter documents or bylaws of the Investor.
SECTION 5.4 Consents and Approvals. Except for termination of the
----------------------
waiting period under the HSR Act, no prior consent, approval or authorization
of, or declaration, filing or registration with any person, domestic or foreign,
or any Governmental Authority, is required of or by Investor in connection with
the execution, delivery and performance by Investor of this Agreement and their
consummation of the transactions contemplated hereby.
SECTION 5.5 Financing. Investor has available the funds necessary to
---------
pay the Cash Merger Consideration, the Preferred Stock Merger Consideration, the
Cash Option Consideration and the payment of expenses by the Surviving
Corporation as set out in Section 11.1 of this Agreement or has funding
------------
commitments for financing therefor on terms and conditions which are fully
disclosed on Schedule 5.5 of this Agreement.
------------
SECTION 5.6 Brokers Commission or Finder's Fee. Investor has not
----------------------------------
retained any broker or finder or agreed to become obligated to pay any fee or
commission to any broker or finder for or on account of the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS OF CORPORATION
SECTION 6.1 Affirmative Covenants of Corporation. For so long as this
------------------------------------
Agreement is in effect, except as specifically contemplated by this Agreement,
the Corporation shall, from the date of this Agreement to the Closing, and shall
cause the Subsidiaries to:
(a) operate and conduct their business in the ordinary course of
business consistent with past practice;
(b) use good faith and reasonable efforts to preserve intact their
corporate existence, goodwill, business reputation, business organization,
assets, licenses, permits and authorizations;
(c) comply with all material contractual obligations applicable to
their operations;
20
<PAGE>
(d) use good faith and reasonable efforts to maintain all their
properties in good repair, order and condition, reasonable wear and tear
excepted;
(e) in good faith and in a timely manner (i) cooperate with Investor
in satisfying the conditions in this Agreement, (ii) assist Investor as
promptly as practicable in obtaining all consents, approvals,
authorizations and rulings whether regulatory, corporate or otherwise, as
are necessary for Investor and the Corporation to carry out and consummate
the transactions contemplated by this Agreement, and (iii) furnish
information concerning it not previously provided to Investor required for
inclusion in any filings or application that may be necessary in that
regard;
(f) use good faith and reasonable efforts to keep available the
services of its officers and employees and to preserve the relationships
that it currently maintains with its customers, suppliers, distributors and
other persons having business dealings with the Corporation and the
Subsidiaries;
(g) maintain its books, accounts and records consistent with past
practices and policies and in accordance with GAAP;
(h) maintain its existing insurance policies covering it, unless
comparable insurance is substituted theretofore, and not take any action to
terminate or modify those insurance policies;
(i) cooperate with Investor and use commercially reasonable efforts to
take, or cause to be taken, all action reasonably requested by Investor in
connection with the financing of the transactions contemplated by this
Agreement, and to treat the transactions contemplated by this Agreement as
a recapitalization for financial reporting purposes, including, without
limitation, assisting Investor with any presentation to Investor's and its
accountants and financing sources as well as any regulatory authority;
(j) give prompt written notice to Investor of the commencement of any
action, suit, proceeding or investigation or the assertion of any claim or
threat to commence any action, suit, proceeding or investigation that
challenges the Merger or the transactions contemplated by this Agreement or
would result in a Material Adverse Effect, if adversely decided, and keep
Investor promptly informed as to any developments in any pending action,
suit, proceeding or investigation.
In connection with its obligations under subparagraph (e) of this Section
-------
6.1, and in connection with its negotiations for consents, the Corporation may
- ---
not offer or consent to any modification or amendment of any lease, or other
contract without Investor's prior written consent. The Corporation shall keep
Investor apprised of its progress in obtaining such consents.
SECTION 6.2 Negative Covenants of Corporation. Except with the prior
---------------------------------
written consent of Investor or as otherwise specifically permitted by this
Agreement, the Corporation will not, from the date of this Agreement to the
Closing, and will cause the Subsidiaries not to, directly or indirectly:
(a) make any amendment to their charter documents or bylaws;
21
<PAGE>
(b) make (i) any change in their accounting practices or policies,
except as may be required by applicable law or regulation, or make any
material revaluation of any of their respective assets, including without
limitation, any material writeoff, increases in any reserves (including any
reserve for taxes payable), or any writeoff of the value of inventory,
property, plant, equipment or any other asset or material increase or
change any assumptions underlying, or methods of calculating, any bad debt,
contingency or other reserves except in the ordinary course of business
consistent with past practice, (ii) any material change to its rebate or
discount programs, (iii) any material change to its promotion and/or
advertising programs, or (iv) any material change to its inventory policies
or practices.
(c) make any change in the number of shares of the capital stock
issued and outstanding, or issue, redeem or purchase, or reserve for
issuance, grant, sell or authorize the issuance of any shares of their
capital stock or subscriptions, options, warrants, calls, rights or
commitments of any kind relating to the issuance or sale of or conversion
into shares of their capital stock;
(d) contract to create any obligation or liability, except in the
ordinary course of business;
(e) contract to create or permit to exist any mortgage, pledge, lien,
security interest or encumbrances, restrictions, or charge of any kind
(other than capital leases and statutory liens for which the obligations
secured thereby shall not become delinquent), except to the extent that
such mortgage, pledge, lien, security interest or encumbrance, restriction
or charge of any kind is incurred pursuant to the Corporation's credit
facilities in effect on the date of this Agreement or pursuant to the
Corporation's purchase of equipment in accordance with the capital budget
set out on Schedule 4.7(n) hereto;
---------------
(f) waive any material right under or cancel any material contract,
lease, commitment, option or agreement, or (without payment in full) any
material note, loan or other obligation owing to the Corporation,;
(g) except for sales of inventory and obsolete equipment in the
ordinary course of business consistent with past practice, sell, lease,
transfer, distribute, or otherwise dispose of any of its properties or
enter into any agreement to do any of the foregoing;
(h) grant any increase in compensation or pay or agree to pay or
accrue any bonus or like benefit to or for the credit of any director or
officer; except in the ordinary course of business consistent with past
practices, grant any increase in compensation or pay or agree to pay or
accrue any bonus or like benefit to or for the credit of any employee;
enter into any employment, consulting or severance agreement or other
agreement with any current or prospective director, officer or employee
which does not permit termination "at will" by the Corporation; or adopt,
amend or terminate any Benefit Plan or change or modify the period of
vesting or retirement age for any participant of such a plan;
(i) except as otherwise provided herein declare, pay or set aside for
payment any dividend or other distribution or payment in respect of shares
of their capital stock;
22
<PAGE>
(j) dissolve, liquidate, reorganize, recapitalize, merge, consolidate
or otherwise make any change in their capital stock, capital structure,
corporate structure or existence;
(k) make any investment in any person or entity, whether by loan or
advance, purchase of stock or other securities or contributions to capital;
(l) enter into or commit to enter into transaction between the
Corporation or a Subsidiary, on the one hand, and any Related Party, on the
other hand;
(m) guaranty the obligations of any third party (other than a
Subsidiary);
(n) incur any indebtedness other than pursuant to its presently
existing credit facility and the lease facilities set out in Schedule 4.18E
--------------
hereto, in each case in the ordinary course of business consistent with
past practice;
(o) settle any material litigation or similar proceeding involving the
Corporation, any Subsidiary or any Selling Shareholder;
(p) take any action which would result in a breach of the
representations and warranties contained in Article IV of this Agreement,
----------
such that the same will not be true and correct on the Closing Date; or
(q) enter into any agreement, plan or commitment to do any of the
foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Continuing Employees and Employee Benefit Plans.
-----------------------------------------------
(a) The Corporation and the Investor agree that the Corporation will
continue after the Effective Time to employ each employee employed by the
Corporation and the Subsidiaries in connection with the conduct of the
business of the Corporation and the Subsidiaries on the Closing Date (the
"CONTINUING EMPLOYEES") on substantially the same terms and conditions as
those enjoyed by such Continuing Employees immediately prior to the Closing
Date; provided, however, this paragraph shall not effect any employment-at-
will status of any such Continuing Employee or confer on any employee the
right to remain in the Corporation's employ for any specified period after
the Closing Date.
(b) Effective as soon as administratively practicable after the
Closing Date, the participation of the Corporation and the Subsidiaries in
the Century Air Supply, Inc. 401(k) Plan (the "CENTURY 401(k) PLAN") shall
be restated by Corporation as a new plan (the "CORPORATION 401(k) PLAN")
that is substantially similar to the Century 401(k) Plan for the benefit of
the Continuing Employees and their beneficiaries. The Continuing Employees
shall become participants in the Corporation's 401(k) Plan as of its
effective date without a gap or lapse (from the Century 401(k) Plan) in
coverage, time or effect of an employee plan and trust which are qualified
and exempt under applicable provisions of the Code. The Continuing
Employees shall have all the rights and obligations under the Corporation
401(k) Plan that are substantially similar to their rights and obligations
under the Century 401(k)
23
<PAGE>
Plan. All account balances transferred from the trust maintained in
connection with the Century 401(k) Plan to the trust maintained in
connection with the Corporation 401(k) Plan which are 100% vested and
nonforfeitable under the Century 401(k) Plan shall be 100% vested and
nonforfeitable as of the Closing Date. The Corporation 401(k) Plan shall be
intended to meet the requirements for qualification under Sections 401(a)
and 401(k) of the Code and the trust maintained in connection with the
Corporation 401(k) Plan shall be intended as tax exempt under Section
501(a) of the Code. The Corporation agrees to file for a determination
letter from the Internal Revenue Service, to the effect that the
Corporation 401(k) Plan is qualified under Section 401(a) of the Code and
its trust is tax exempt under Section 501(a) of the Code, within 60 days
from the effective date of the Corporation 401(k) Plan. The Corporation
401(k) Plan shall provide that all service credited to the Continuing
Employees under the Century 401(k) Plan shall be credited for all purposes,
including eligibility and vesting, under the Corporation 401(k) Plan. The
Corporation agrees to establish under Corporation 401(k) Plan such
arrangements as are necessary to permit any Continuing Employee to provide
for payroll withholding for purposes of repaying any loan under the Century
401(k) Plan that is transferred to the Corporation 401(k) Plan trust.
Coincident with establishment of Corporation 401(k) Plan, Corporation
agrees to enter into a "spin-off agreement", that is reasonably
satisfactory to Corporation, with the plan sponsor and the trustee of the
Century 401(k) Plan and the trustee of the Corporation 401(k) Plan, to
record and effectuate the transfer of plan assets from the Century 401(k)
Plan trust to the Corporation 401(k) Plan trust for the benefit of the
Continuing Employees and their beneficiaries. As soon as administratively
possible following the receipt of a determination letter from the Internal
Revenue Service (to the effect that the Century 401(k) Plan is qualified
under Section 401(a) of the Code and its trust is tax exempt under Section
501(a) of the Code), a copy of that determination letter shall be furnished
to Investor and FSEP IV. In no event will the Corporation 401(k) Plan be
required to accept any assets from the Century 401(k) Plan prior to the
Corporation's receipt of the determination letter.
(c) The Corporation agrees to provide or continue coverage on and
after the Closing Date to Continuing Employees and their dependents who
participate in, or are eligible to participate in, any medical, dental,
vision, short- and long-term disability, life insurance, business, travel,
accident and other employee benefit plans and programs (collectively,
"CORPORATION WELFARE PLANS") on substantially the same terms and conditions
as provided to the Continuing Employees and their dependents immediately
prior to the Closing for a period of one (1) year following the Closing
Date. All waiting periods and pre-existing condition clauses shall be
waived or limited under the Corporation Welfare Plan with respect to such
Continuing Employees and their dependents to the extent they had been
waived or limited under the similar plans of the Corporation immediately
prior to the Closing Date. In addition, the Corporation shall cause the
Corporation Welfare Plans to recognize and credit any out-of-pocket
expenses incurred by such Continuing Employees and their dependents during
the portion of the respective plan year through the Closing Date for
purposes of determining their deductibles, out-of-pocket maximums and other
limits as benefits under the Corporation Welfare Plans; it being the
purpose of this paragraph to provide the Continuing Employees and their
dependents under the Corporation Welfare Plans with substantially the same
rights and benefits that they had under similar plans of the Corporation
immediately prior to the Closing Date. The Corporation will permit
Continuing Employees to schedule and take accrued and earned but unused
vacation days with pay as
24
<PAGE>
of the Closing Date, in accordance with the applicable vacation policies as
in effect on the Closing Date, and the Corporation shall assume that
liability therefor.
(d) The Corporation, the Subsidiaries, the Investor and the Selling
Shareholders shall cooperate with each other in all respects relating
to any actions to be taken pursuant to this Article VII.
SECTION 7.2 Access To, and Information Concerning, Properties and
-----------------------------------------------------
Records.
-------
(a) During the pendency of the transactions contemplated hereby, the
Corporation shall, to the extent permitted by law, give Investor, its legal
counsel, accountants and other representatives access, upon reasonable
request and at reasonable times, throughout the period prior to the
Closing, to all of such Corporation's and the Subsidiaries' properties,
books, contracts and records, permit Investor and such representatives to
make such inspections as they may reasonably require and furnish to
Investor and such representatives during such period all such information
concerning the Corporation and the Subsidiaries and their affairs as they
may reasonably request. The Corporation shall use commercially reasonable
efforts to obtain Ernst & Young's consent to permit Investor to review
Ernst & Young's work papers relating to the financial statements referenced
in Section 4.6.
-----------
(b) Notwithstanding any other provisions of this Agreement, neither
Investor nor any of its respective agents or representatives shall perform
any investigation or study of the real property of the Corporation and the
Subsidiaries which may involve the intrusive or destructive sampling or
analysis or chemical testing of any portion of such property or its
improvements, including without limitation, of any soil, water or
groundwater on, under or about such real property ("PHASE II
INVESTIGATION"), without first (a) submitting to Corporation a detailed
description of (i) the work to be performed as part of the Phase II
Investigation, (ii) the persons to undertake such Phase II Investigation,
and (iii) the types and amount of insurance coverage maintained by such
persons, and (b) obtaining the prior written consent of the Corporation as
to such matters, which shall not be unreasonably withheld. The Corporation
may grant such consent subject to such terms, conditions or restrictions as
the Corporation may reasonably require.
(c) All information disclosed by Corporation to Investor shall be held
strictly confidential by Investor and its representatives and used solely
for purposes of evaluating the transactions contemplated hereby. In the
event this Agreement is terminated pursuant to the provisions of Article IX
of this Agreement, upon the written request of Corporation, Investor agrees
to return to Corporation all copies of such confidential information,
together with all extracts or other reproductions thereof in the possession
of Investor or its representatives. It is understood that confidential
information shall not include the following:
(i) Information that becomes generally available to the public
other than as a result of a disclosure by Investor, its
representatives or its agents;
(ii) Information that was in the possession of Investor or its
representatives prior to disclosure by the Corporation and the
Subsidiaries, or their representatives or agents;
25
<PAGE>
(iii) Information Investor is required to disclose pursuant to
law or order of any court of competent jurisdiction, provided in the
event of any such proposed disclosure, Investor shall give Corporation
prior written notice and opportunity to object to any such disclosure
to the extent permitted by law;
(iv) Information relevant to any legal proceeding between
Investor and the Corporation or Selling Shareholders; or
(v) Information that becomes available to Investor or its
representatives on a non-confidential basis from a source other than
the Corporation and the Subsidiaries, or their representatives or
agents.
(d) In the event this Agreement is terminated pursuant to the
provisions of Article IX of this Agreement, Investor agrees that it will
not hire any officers, directors, branch managers or salespersons of
Corporation and the Subsidiaries for a period of two years after the date
of this Agreement.
SECTION 7.3 Good Faith Efforts. All parties hereto agree that the
------------------
parties will use their reasonable good faith efforts to secure all third-party
or regulatory approvals necessary to consummate the transactions contemplated
hereby and other transactions provided herein and to satisfy the other
conditions to Closing contained herein as soon as reasonably practicable. Each
party agrees to make copies of its respective regulatory filings and related
correspondence to regulatory agencies available to the other parties.
SECTION 7.4 HSR Filing. Within seven days after the execution of this
----------
Agreement, each of Investor and Corporation shall file, or cause to be filed,
the Notification and Report Form pursuant to the applicable provisions of the
HSR Act.
SECTION 7.5 Exclusive Nature of Agreement. Prior to the Closing, or
-----------------------------
such earlier date on which this Agreement is terminated in accordance with its
terms, the Selling Shareholders, the Corporation and the Subsidiaries and their
respective officers, employees, agents, representatives and trustees will not,
directly or indirectly, solicit from any person, or otherwise encourage any
person to make, any inquiries or proposals, or furnish information, relating to
the acquisition, in whole or in part, of the assets or securities of the
Corporation and its Subsidiaries (an "ACQUISITION PROPOSAL") or engage in any
negotiations or enter into any agreement or understanding with any person (other
than Investor) regarding an Acquisition Proposal. The Selling Shareholders will
not furnish any information concerning the Corporation and its Subsidiaries to
any person other than Investor and FSEP IV for the purpose of, or with the
intent of, permitting such person or entity to evaluate a possible Acquisition
Proposal. The Selling Shareholders and/or the Corporation and its Subsidiaries
will notify Investor immediately of any Acquisition Proposal and will disclose
the terms of the Acquisition Proposal and identity of the party making the
Acquisition Proposal.
SECTION 7.6 Accounting Treatment. The Corporation shall use
--------------------
commercially reasonable efforts, and take all reasonably necessary steps
requested by Investor (and at Investor's expense), in order to obtain the
recording of the Merger as a recapitalization for financial reporting purposes,
including, without limitation, to assist Investor and its affiliates with any
presentation to Investor's and the Corporation's accountant or any applicable
regulatory authority with regard to such recording.
26
<PAGE>
SECTION 7.7 Payment Approvals. The Major Shareholder shall cause the
-----------------
shareholders of the Corporation to approve, in accordance with the requirements
of Section 280G(b)(5)(B) of the Code, any payments which are contingent upon, or
related to, the transactions contemplated hereunder and which could be "excess
parachute payments" for Federal income tax purposes under Section 280G of the
Code.
SECTION 7.8 Additional Financial Statements. The Corporation shall
-------------------------------
deliver to Investor (a) the Audited 1997 Financial Statement on or before May 7,
1998, (b) the Final 1997 Pro Formas and the 1996 and 1995 Restated Financial
Statements on or before May 8, 1998, and (c) the March 31, 1998 Financial
Statements on or before May 15, 1998. Prior to the Effective Time, the
Corporation will provide to Investor, as soon as practicable but in any event no
later than 30 calendar days after the end of each month, unaudited financial
statements, which include a consolidated balance sheet of Corporation and the
Subsidiaries as of the end of such month and the related consolidated statements
of income for the month then ended.
SECTION 7.9 Tax Matters.
-----------
(a) Tax Indemnity. Notwithstanding any other provisions of this
Agreement, from and after the Closing, the Major Shareholder, subject to
Section 10.2(a)(i) of this Agreement, but not subject to the limitation in
------------------
Section 10.2(a)(ii), shall indemnify and hold harmless the Corporation and
-------------------
the Subsidiaries (the "IDENTIFIED PARTIES") against the following Taxes,
but only for Taxes in excess of the sum of Taxes paid by the Corporation
and the Subsidiaries prior to December 31, 1997, Taxes accrued as current
Taxes payable on the December 31, 1997 financial balance sheet, and Taxes
accrued or paid after December 31, 1997 in the ordinary course of business,
in accordance with past practice, with respect to business operations for
the period of January 1, 1997 through the Closing Date, and, against any
loss, damage, liability or expense, including, but not limited to,
reasonable fees for attorneys and other outside consultants, incurred in
contesting or otherwise in connection with any such Taxes: (i) Taxes
imposed on the Corporation and the Subsidiaries with respect to taxable
years or periods ending on or before the Closing Date; (ii) with respect to
taxable years or periods beginning before the Closing Date and ending after
the Closing Date, Taxes imposed on the Corporation and the Subsidiaries
which are allocable, pursuant to Section 7.9(d) below, to the portion of
--------------
such taxable year or period ending on the Closing Date an "INTERIM PERIOD")
(Interim Periods and any taxable years or periods that end on or prior to
the Closing Date being referred to collectively hereinafter as "PRE-CLOSING
PERIODS"); (iii) Taxes imposed on any member of any affiliated group with
which the Corporation and the Subsidiaries or any Subsidiary files or has
filed a Tax Return on a consolidated, combined or unitary basis for a
taxable year or period ending on or before the Closing Date; or (iv) Taxes
required to be paid or reimbursed by the Major Shareholder under Section
-------
7.9(d) of this Agreement (to the extent such Taxes have not been paid by
------
Major Shareholder).
(b) Apportionment of Taxes. In order to apportion appropriately any
Taxes relating to any taxable year or period that includes an Interim
Period, the parties hereto shall, to the extent permitted under applicable
law, elect with the relevant Tax authority to treat for all purposes, the
Closing Date as the last day of the taxable year or period of the
Corporation and the Subsidiaries, and such Interim Period shall be treated
as a short taxable year and a Pre-Closing Period for purposes of this
Section 7.9. In any case where applicable law does
-----------
27
<PAGE>
not permit the Corporation and the Subsidiaries to treat the Closing Date
as the last day of the taxable year or period of the Corporation and the
Subsidiaries with respect to Taxes that are payable with respect to an
Interim Period, the portion of any such Tax that is allocable to the
portion of the Interim Period ending on the Closing Date shall be:
(x) in the case of Taxes that are either (1) based upon or
related to income or receipts, or (2) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended on the Closing Date
(except that, solely for purposes of determining the marginal tax rate
applicable to income or receipts during such period in a jurisdiction
in which such tax rate depends upon the level of income or receipts,
annualized income or receipts may be taken into account, if
appropriate, for an equitable sharing of such Taxes); and
(y) in the case of Taxes not described in subparagraph (x) above
that are imposed on a periodic basis and measured by the level of any
item, deemed to be the amount of such Taxes for the entire period (or,
in the case of such Taxes determined on an arrears basis, the amount
of such Taxes for the immediately preceding period) multiplied by a
fraction the numerator of which is the number of calendar days in the
Interim Period ending on the Closing Date and the denominator of which
is the number of calendar days in the entire relevant period.
(c) Preparation of Tax Returns. The Major Shareholder shall cause to
be prepared and filed or otherwise furnish to the appropriate party (or
cause to be prepared and filed or so furnished) in a timely manner, any and
all Tax Returns for, including or required to be filed by the Corporation
and the Subsidiaries for any taxable year or period ending on or before the
Closing Date, or the due date of which (including extensions) is on or
prior to the Closing Date. All such Tax Returns shall be prepared in a
manner consistent with the prior Tax Returns of the Corporation and the
Subsidiaries, unless otherwise required under applicable law. Subject to
their right to indemnification under Section 7.9(a), the Corporation and
--------------
the Subsidiaries shall timely pay (or cause to be timely paid) all Taxes
shown as due and owing on all such Tax Returns. Investor, the Corporation
and the Subsidiaries and the Major Shareholder shall cause to be prepared
and filed, any and all other Tax Returns for, including or required to be
filed by the Corporation and the Subsidiaries for any taxable year or
period ending after the Closing Date or the due date of which (including
extensions) is after the Closing Date. Subject to its right to
indemnification under this Section 7.9, the Corporation and the
-----------
Subsidiaries shall pay (or cause to be paid) all Taxes shown as due and
owing on all such Tax Returns. Investor, the Corporation and the
Subsidiaries and the Major Shareholder shall reasonably cooperate, and
shall cause their respective affiliates, officers, employees, agents,
auditors and other representatives to reasonably cooperate, in preparing
and filing all Tax Returns, including maintaining and making available to
each other all records necessary in connection with Taxes and in resolving
all disputes and audits with respect to all taxable periods relating to
Taxes. Investor and the Major Shareholder recognize that the Major
Shareholder and the Major Shareholder's agents and other representatives
will need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Corporation and the
Subsidiaries to the extent such records and information pertain to events
occurring prior to the Closing Date, therefore, each of Investor and the
Corporation and the
28
<PAGE>
Subsidiaries agrees (i) to use its best efforts to properly retain and
maintain such records until such time as the Major Shareholder agrees that
such retention and maintenance is no longer necessary (but in no event
longer than six years after the Closing Date) and (ii) to allow the Major
Shareholder and the Major Shareholder's agents and other representatives,
at times and dates mutually acceptable to the parties, to inspect, review
and make copies of such records as the Major Shareholder, its agents and
other representatives may deem necessary or appropriate from time to time,
such activities to be conducted during normal business hours and at the
Major Shareholder's expense.
(d) Transfer and Conveyance Taxes. The Selling Shareholders shall be
liable for and shall pay all applicable sales, transfer, recording, deed,
stamp and other similar taxes, including, without limitation, any real
property transfer or gains taxes (if any), resulting from the consummation
of the transactions contemplated by this Agreement.
(e) Contests. The Identified Parties shall promptly notify the Major
Shareholder in writing of any written notice of a proposed assessment or
claim in an audit or administrative or judicial proceeding involving the
Corporation and the Subsidiary which, if determined adversely to the
taxpayer, would be grounds for indemnification under this Section 7.9;
-----------
provided, however, that a failure to give such notice will not affect any
-------- -------
Indemnified Party's right to indemnification hereunder, except to the
extent, if any, that, but for such failure, the Major Shareholder could
have avoided the Tax liability in question. In the case of an audit or
administrative or judicial proceeding that relates to any Pre-Closing
Period, provided that within 30 days after the Major Shareholder receives
--------
the written notice from the Indemnified Parties required under this Section
-------
7.9(e) and prior to taking any action with respect to such audit or
------
administrative or judicial proceeding, the Major Shareholder acknowledges
in writing his liability under this Section 7.9 to hold the Indemnified
-----------
Parties harmless against the full amount of any adjustment which may be
made as a result of such audit or proceeding, the Major Shareholder shall
have the right at its own expense to control the conduct of such audit or
proceeding; provided, however, that the Major Shareholder shall not settle
-------- -------
or otherwise compromise any issue or matter without the Investor's prior
written consent if such issue or matter will have a material effect on the
Tax liability of the Indemnified Parties for a post-Closing taxable year or
period (or for an Interim Period). Investor also may participate in any
such audit or proceeding at its own expense and, if the Major Shareholder
does not assume the defense of any such audit or proceeding, Investor may,
without any effect to its or the right of indemnification by the
Indemnified Parties under this Section 7.9, defend the same in such manner
-----------
as it may deem appropriate, including, but not limited to, settling such
audit or proceeding.
(f) Time of Payment. Payment of any amounts due under this Section
-------
7.9 in respect of Taxes shall be made by the Major Shareholder at least
---
three Business Days before the due date of the applicable estimated final
Tax Return required to be filed by the Indemnified Parties on which is
required to be reported income for an Interim Period for which the Major
Shareholder is responsible under this Section 7.9 of this Agreement without
-----------
regard to whether the Tax Return shows overall net income or loss for such
period, or, with respect to indemnity payments due under this Section 7.9
-----------
of this Agreement, within three Business Days following a settlement or
compromise of an assessment of a Tax by a taxing authority or a
"DETERMINATION" as defined in Section 1313(a) of the Code. If liability
under this Section 7.9 is in respect of costs or expenses other than Taxes,
-----------
payment by the Major
29
<PAGE>
Shareholder of any amounts due under this Section 7.9 shall be made within
-----------
five Business Days after the date that the Major Shareholder has been
notified by Investor that the Major Shareholder has a liability for a
determinable amount under this Section 7.9 and is provided with
-----------
calculations or other materials supporting such liability.
(g) Termination of Indemnity Obligations of the Major Shareholder for
Taxes. Notwithstanding any provision herein to the contrary, the
obligations of the Major Shareholder to indemnify and hold harmless the
Indemnified Parties pursuant to this Section 7.9 shall terminate at the
-----------
close of business on the day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question
(giving effect to any waiver, mitigation or extension thereof).
(h) Tax Elections. From and after the date of this Agreement, the
Corporation, the Subsidiaries and the Major Shareholder shall not, without
the prior written consent of Investor (which may not unreasonably withhold
such consent), make or revoke, or cause or permit to be made or revoked,
any Tax election, or adopt or change any method of accounting, that would
adversely affect the Corporation and the Subsidiaries.
(i) Tax Sharing Agreements. As of the Closing Date, any and all Tax
sharing, indemnity or allocation agreements shall terminate as between the
Corporation and the Subsidiaries on the one hand, and the Major Shareholder
and/or any affiliate of the Major Shareholder, on the other hand, and,
after the date of this Agreement, no Taxes or other amounts shall be paid
or reimbursed by the Corporation and the Subsidiaries under any such
agreement, regardless of the taxable year or period for which such Taxes
are imposed, and the provisions of this Section 7.9 shall govern
-----------
thereafter.
SECTION 7.10 New Stock Option Plan. Promptly after the Effective Time,
---------------------
the Corporation will take all steps reasonably necessary to cause the
Corporation to adopt the 1998 Incentive Stock Plan, and to grant options
thereunder, substantially on the terms attached hereto as Exhibit D. This
---------
provision shall not confer a specific benefit on any employee other than the
Major Stockholder.
SECTION 7.11 Directors' and Officers' Indemnifications.
-----------------------------------------
(a) The indemnification provisions of the Certificate of Incorporation
of the Surviving Corporation as in effect at the Effective Time shall not
be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors or
officers of the Corporation with respect to acts or omissions occurring
prior to the Effective Time, unless such modification is required by law,
provided that such provision shall be amended prior to the Effective Time
to provide that no indemnification shall be made by the Surviving
Corporation with respect to any matter that constitutes a breach of a
representation or warranty or covenant or agreement under this Agreement.
(b) Subject to Section 7.11(a), after the Effective Time, the
---------------
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former
director and officer of the Corporation or any of its subsidiaries (each,
together with such person's heirs, executors or administrators, an
30
<PAGE>
"INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED PARTIES") against
any costs or expenses (including attorneys fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection
with any actual or threatened claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of, relating to or in connection with any action or omission
occurring prior to the Effective Time (including, without limitation, acts
or omissions in connection with such persons serving as an officer,
director or other fiduciary in any entity if such service was at the
request or for the benefit of the Corporation) other than any liability
arising out of or pertaining to any breaches of representations and
warranties made to Investor and FSEP IV or covenants and agreements under
this Agreement. In the event of any such actual or threatened claim,
action, suit, proceeding or investigation (whether arising before or after
the Effective Time), (i) the Corporation shall pay the reasonable fees and
expenses of counsel selected by the indemnified Parties, which counsel
shall be reasonably satisfactory to the Surviving Corporation, promptly
after statements therefor are received and shall pay all other reasonable
expenses in advance of the final disposition of such action, and (ii) the
Surviving Corporation will cooperate and use all reasonable efforts to
assist in the vigorous defense of any such matter. The Surviving
Corporation shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld) and,
provided that if the Surviving Corporation advances or pays any amount to
any person under this paragraph (b) and if it shall thereafter be finally
determined by a court of competent jurisdiction that such person was not
entitled to be indemnified hereunder for all or any portion of such amount,
such person shall repay such amount or such portion thereof, as the case
may be, to the Surviving Corporation. The indemnified Parties as a group
may not retain more than one law firm to represent them with respect to
each matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any
two or more Indemnified Parties.
(c) In the event the Surviving Corporation or its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in each such case, proper provisions shall
be made so that the successors and assigns of the Surviving Corporation
shall assume the obligations set out in this Section 7.11.
------------
(d) Surviving Corporation shall pay all reasonable expenses, including
reasonable attorneys' fees, that may be incurred by any indemnified Person
in enforcing the indemnity and other obligations provided in this Section
-------
7.11.
----
(e) The rights of each Indemnified Party hereunder shall be in
addition to any other rights such indemnified Party may have under the
charter or bylaws of the Corporation or the Surviving Corporation, under
the GCL or otherwise. The provisions of this Section 7.11 shall survive
------------
the consummation of the Merger and expressly are intended to benefit each
of the indemnified Parties.
31
<PAGE>
SECTION 7.12 Option to Purchase. Effective as of the Effective Time,
------------------
CAC grants to FSEP IV the option (the "OPTION") to purchase 72,753 shares of
Corporation Common Stock (the "OPTION SHARES") for a purchase price per share
payable in cash equal to the Cash Merger Consideration, which number of Option
Shares and purchase price per share shall be proportionately adjusted to reflect
the Stock Split immediately after the Effective Time. The Option will be
exercisable by FSEP IV commencing on January 2, 1999 and shall expire and no
longer be in effect at 5:00 p.m., Houston time on March 2, 1999. FSEP IV will
give CAC notice of its exercise of the Option, and a closing of the purchase of
the Option Shares will occur within 5 business days after the date of such
notice. At the closing, FSEP IV will deliver the cash payment by wire transfer
to CAC for the Option Shares against delivery by CAC of certificates
representing the Option Shares, duly endorsed or accompanied by appropriate
stock powers, sufficient to convey title to the Option Shares to FSEP IV free
and clear of all Encumbrances. In addition, at the Closing, CAC will provide a
certificate, signed by its President, confirming that all of the representations
and warranties made by CAC in Article III of this Agreement are true and correct
as of the date of closing of the purchase of the Option Shares. If FSEP IV
exercises this Option, the Option Shares shall be entitled to share in any claim
for Specialty Losses or Indemnity Losses.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Each Party's Obligation. The respective
-------------------------------------
obligations of each party to effect the transactions contemplated hereby are
subject to the satisfaction or waiver of the following conditions:
(a) the receipt of regulatory approval under the HSR Act and the
expiration of any applicable waiting period with respect thereto;
(b) the Closing will not violate any injunction, order or decree of
any court or governmental body having competent jurisdiction;
(c) Dennis C. Bearden and Richard E. Penick shall have entered into
the Employment Agreements on terms and conditions which have been agreed to
by Investor and Dennis C. Bearden and Richard E. Penick, respectively,
prior to the date of this Agreement;
(d) Shareholder Agreement. The Major Shareholder and FSEP IV shall
---------------------
have entered into a Shareholder Agreement substantially on the terms
described in the Shareholder Agreement term sheet (the "SHAREHOLDER
AGREEMENT TERM SHEET") attached hereto as Exhibit E.
---------
(e) Registration Rights Agreement. The Selling Shareholders and FSEP
-----------------------------
IV shall have entered into a Registration Rights Agreement substantially on
the terms described in the Shareholder Agreement Term Sheet;
SECTION 8.2 Conditions to the Obligations of Investor. The obligations
-----------------------------------------
of Investor to effect the transactions contemplated hereby are subject to the
satisfaction or waiver of the following conditions:
32
<PAGE>
(a) all representations and warranties of the Selling Shareholders in
Article III of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and at and as of the Closing,
with the same force and effect as though made on and as of the Closing,
except to the extent that such representations and warranties speak as of
an earlier date, and except for any representations and warranties
qualified by materiality or Material Adverse Effect limitations which will
instead be true and correct in all respects;
(b) the representations and warranties of the Major Shareholder in the
first two sentences of Section 4.1(a), in Sections 4.1(b) and (c), 4.2,
-------------- -----------------------------
4.3, 4.4, Section 4.6, and in Sections 4.10, 4.11, 4.22 and 4.23 of this
----------------------------------------------------------------
Agreement shall be true and correct in all material respects as of the date
of this Agreement and at and as of the Closing, with the same force and
effect as though made on and as of the Closing, except to the extent that
such representations and warranties speak as of an earlier date, provided
that the second sentence of Section 4.6 shall be true and correct in all
-----------
respects;
(c) the representations and warranties of the Major Shareholder in
Article IV other than those described in Section 8.2(b) above which are
--------------
qualified by materiality or Material Adverse Effect limitations shall be
true and correct in all respects as of the date of this Agreement and as of
the Closing, with the same force and effect as though made on the Closing,
except to the extent that such representations and warranties speak as of
an earlier date;
(d) any breaches of the representations and warranties of the Major
Shareholder in Article IV of this Agreement other than those described in
Sections 8.2(a) and (b) above shall, in the aggregate, not constitute a
-----------------------
Material Adverse Effect;
(e) the Selling Shareholders and the Corporation shall have performed
in all material respects all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed or
complied with by them prior to the Closing;
(f) all consents, approvals and waivers from third parties and
Governmental Authorities required to be obtained to consummate the
transactions contemplated by this Agreement shall have been obtained;
(g) the Selling Shareholders shall have delivered to Investor
certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock powers), for transfer and other good and sufficient
instruments of transfer, reasonably satisfactory in form and substance to
Investor, as shall be effective to vest in Investor all of Selling
Shareholders' right, title and interest in and to the Shares;
(h) Opinion of Corporation's Counsel. Investor shall have been
--------------------------------
furnished at the Closing with an opinion of Corporation's counsel dated as
of the Closing Date, on substantially the terms as attached hereto as
Exhibit F;
---------
(i) No Material Adverse Change. There shall not have occurred any
--------------------------
event, circumstance or occurrence which has resulted in or constituted or
could reasonably be expected to result in or constitute a material adverse
change in the business, financial
33
<PAGE>
condition, results of operations, prospects, assets or liabilities of the
Corporation and the Subsidiaries, taken as a whole, except for changes that
effect the regional economy and financial markets in the regions in which
the Corporation and the Subsidiaries operate generally or which effect the
United States economy or the financial markets generally;
(j) Agreement Not to Compete. Dennis C. Bearden, FSEP IV, CAC and the
------------------------
Corporation shall have entered into an agreement not to compete,
substantially in the form attached hereto as Exhibit G;
---------
(k) Closing Certificate. Investor shall have received a closing
-------------------
certificate certifying that the matters referenced in (a), (b), (c), (d),
(e) and (j) above are true and correct as of the Closing;
(l) Lease Amendments. Corporation shall have caused to be made such
----------------
amendments to the affiliated real property leases described on the term
sheet attached hereto as Exhibit H;
---------
(m) Trademark Assignment. The Major Shareholder and CAC shall have
--------------------
provided the Corporation with a trademark assignment relating to certain
trademarks owned by the Major Shareholder and CAC as set out on Schedule
--------
8.2(m) in substantially the form attached hereto as Exhibits I-1 and I-
------ ------------------
1.1. The Corporation shall have entered into a license agreement with CAC
----
in substantially the form attached hereto as Exhibit I-2.
------------
(n) Senior Credit Facilities. The Corporation shall be prepared to
------------------------
perform its obligation to close the $125,000,000 Senior Secured Credit
Facilities on substantially the same terms as set out in a certain
commitment letter (the "COMMITMENT LETTER") by and between Salomon Brothers
Holding Company, Inc., Salomon Brothers, Inc. and Investor (the "NEW CREDIT
FACILITY"); and
(o) 1997 Incentive Stock Plan. The Corporation's 1997 Incentive Stock
-------------------------
Plan shall have been amended to the extent Investor has requested
reasonable amendments thereto, including to ensure that Options will
terminate in certain merger and change of control transactions occurring
after the Merger.
(p) Lease. The Lease between the Corporation and Dennis C. Bearden
-----
or an entity or partnership owned or controlled by Dennis C. Bearden
regarding the new Stafford, Texas facility has been executed in form and
substance agreeable to Investor, and will contain customary mortgagee
protection provisions.
SECTION 8.3 Conditions to the Obligations of Selling Shareholders. The
-----------------------------------------------------
obligations of the Selling Shareholders to effect the transactions contemplated
hereby are subject to the satisfaction or waiver of the following conditions:
(a) all representations and warranties of Investor contained herein
shall be true and correct in all material respects as of the date of this
Agreement and at and as of the Closing, with the same force and effect as
though made on and as of the Closing, except to the extent that such
representations and warranties speak as of an earlier date, and except for
34
<PAGE>
any representations and warranties qualified by materiality or Material
Adverse Effect limitations which will instead be true and correct in all
respects;
(b) Investor and FSEP IV shall have performed in all material respects
all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or complied with by
them prior to the Closing;
(c) Concurrent with the Merger, the Major Shareholder shall be
released from the personal guaranties described in Schedule 8.3(c) hereto;
---------------
(d) Concurrent with the Merger, all indebtedness of the Corporation
and the Subsidiaries set out on Schedule 8.3(d) shall be repaid;
---------------
(e) Concurrent with the Merger, all indebtedness (and accrued but
unpaid interest) of the Corporation and the Subsidiaries to the Major
Shareholder as set out on Schedule 8.3(e) hereto shall be repaid;
----------------
(f) receipt of the Cash Merger Consideration, the Preferred Stock
Merger Consideration and all other amounts payable by the Investor
hereunder;
(g) Opinion of Investor's Counsel. Corporation shall have been
-----------------------------
furnished at the Closing with an opinion of Investor's and FSEP IV's
counsel, dated the Closing Date, on substantially the terms as attached
hereto as Exhibit J;
---------
(h) Capitalization of Investor; Financing. Subject to the terms of
-------------------------------------
the equity investment letter by and between Investor and FSEP IV, dated the
same date as this Agreement, FSEP IV shall have contributed at least
$68,326,186 million to Investor in exchange for common stock of Investor.
The New Preferred Stock shall have been purchased by FSEP IV or by third
party purchasers for gross proceeds of up to $37.5 million in accordance
with the terms of the Preferred Stock Term Sheet.
ARTICLE IX
TERMINATION
SECTION 9.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing Date:
(a) by mutual written consent of Investor, Selling Shareholders and
Corporation;
(b) by Investor, if a material breach or default shall be made by the
Corporation or Selling Shareholders in their representations and warranties
or in their observance or due and timely performance of any of the
covenants, agreements or conditions contained herein, provided that
Investor's right to terminate this Agreement in accordance with this
Section 9.1(b) is subject to the right of Corporation or such Selling
--------------
Shareholders to cure any such breach or inaccuracy that is curable within
10 days after written notice thereof by Investor to such party;
35
<PAGE>
(c) by Corporation and Selling Shareholders, if a material breach or
default shall be made by Investor in their representations and warranties
or in their observance or due and timely performance of any of the
convents, agreements or conditions contained herein, provided that such
right to terminate this Agreement in accordance with this Section 9.1(c) is
--------------
subject to the right of Investor to cure any such breach or inaccuracy that
is curable within 10 days after written notice thereof by Corporation and
Selling Shareholders to Investor;
(d) by Investor, on the one hand, or Corporation and Selling
Shareholders, on the other, if the Closing Date shall not have occurred,
other than through the failure of the party attempting to terminate to
fulfill their obligations hereunder, on or before the expiration of 45 days
from the date of this Agreement or such later date agreed to in writing by
Corporation, Selling Shareholders and Investor; provided, however, that
such 45 day period shall automatically be extended for a period of (i) 60
days if the delay in the Closing Date relates to the Notification and
Report Form filed pursuant to the HSR Act, and (ii) 15 days if the delay in
the Closing Date relates to the closing of the financing contemplated by
the Commitment Letter and/or the sale of the New Preferred Stock
contemplated by Section 8.2(p) of this Agreement;
--------------
(e) by Investor or Corporation and Selling Shareholders if any court
of competent jurisdiction shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby; or
(f) by Investor if the Audited 1997 Financial Statements differ from
the Unaudited 1997 Financial Statements and such difference is adverse in
any respect and Investor gives Corporation notice of such adverse
difference within five days after Investor's receipt of the Audited 1997
Financial Statements.
SECTION 9.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 9.1 of this Agreement, this
-----------
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party or its directors, officers or shareholders, other than
the provisions of this Section 9.2, Section 7.3 and Section 11.1. Nothing
----------- ----------- ------------
contained in this Section 9.2 shall relieve any party from liability for any
-----------
breach or violation of this Agreement, or limit the remedies (including the
remedy of specific performance) of any party to this Agreement relating to such
breach or violation of this Agreement.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnification.
---------------
(a) Subject to the limitations set out in this Article X, (i) the
Selling Shareholders shall, severally but not jointly, indemnify, defend
and hold harmless Investor and FSEP IV and their respective officers,
directors and employees against and with respect to any and all claims,
actions, suits or other proceedings and any and all costs, liabilities,
losses, claims, damages (excluding incidental and consequential damages and
lost profits and excluding the "SPECIAL INDEMNITY LOSSES", as defined
below), penalties, fines and reasonable out-of-pocket costs and expenses
(including reasonable attorney's fees) (collectively, "LOSSES") resulting
from or arising out of any breach of any representation and warranty of the
Selling
36
<PAGE>
Shareholders set out in Article III of this Agreement or the breach or
failure of performance by such Selling Shareholders of any of the covenants
that they or the Corporation and the Subsidiaries are to perform hereunder;
(ii) the Major Shareholder shall indemnify, defend and hold harmless the
Investor and FSEP IV against and with respect to any Losses resulting from
or arising out of any breach of any representation or warranty of the Major
Shareholder set out in Article IV of this Agreement, or the breach or
failure of performance by the Major Shareholder of any of the covenants
that it or the Corporation and the Subsidiaries is to perform hereunder;
and (iii) the Major Shareholder shall indemnify and hold harmless the
Surviving Corporation and FSEP IV for any Special Indemnity Losses and will
not seek indemnification from the Corporation in any capacity with respect
to the Special Indemnity Losses. For purposes of this Agreement, the term
"SPECIAL INDEMNITY LOSSES" shall mean all costs, liabilities, losses,
claims, damages (excluding incidental and consequential damages and lost
profits), penalties, fines and reasonable out-of-pocket costs and expenses
(including reasonable attorney's fees) resulting from or arising out of or
related to (i) the ownership of the real estate formerly owned by the
Corporation as described on Schedule 4.14 attached hereto, including with
-------------
respect to environmental matters; (ii) the termination of employment of
Tony D. Myers and/or the repurchase by the Corporation of his shares of
Corporation Common Stock prior to the Effective Time; (iii) the conduct or
actions of Tony D. Myers while an employee of the Corporation or the
Subsidiaries, including claims, actions, suits or proceeding resulting from
or arising out of or related to the conduct or actions of Tony D. Myers;
(iv) the ownership of the Corporation and/or the Subsidiaries of a general
partnership interest in the general partnerships owning the real estate
described in Schedule 10.1(a) attached hereto; (v) claims, actions, suits
----------------
or other proceedings brought by or on behalf of any Selling Shareholder, or
any option holder, which are related to the Merger or transactions
contemplated by this Agreement; and (vi) claims, actions, suits or other
proceedings brought by or on behalf of Susan Deitiker.
(b) Subject to the limitations set out in this Article X, Investor
shall indemnify, defend and hold harmless the Corporation and the Selling
Shareholders against and with respect to any and all Losses resulting from
or arising out of any breach of any representation and warranty of the
Investor set out in Article V of this Agreement, or the breach or failure
of performance by Investor of any of the covenants that they are to perform
hereunder.
(c) If any party (an "INDEMNIFIED PARTY") becomes aware of a fact,
circumstance, claim or demand or other matter (a "CLAIM") which has or
could result in a liability being owed to the Indemnified Party under this
Article X by another party to this Agreement (an "INDEMNIFYING PARTY"), the
Indemnified Party shall give prompt written notice to the Indemnifying
Party of the Claim, stating the nature and basis of the Claim, and the
amount thereof, together with any supporting information to the Claim. If
the Indemnifying Party does not notify the Indemnified Party within 30 days
from the date such Claim notice is given that it disputes such Claim, the
amount of the Claim shall conclusively be deemed a liability of the
Indemnifying Party. If an Indemnified Party and an Indemnifying Party
cannot reach agreement with respect to the validity or amount of a Claim
within 90 days after notice thereof is first given, the validity and amount
thereof shall be determined by due process of law in a court of competent
jurisdiction or by such other means (including mediation and arbitration)
as the parties shall agree on, subject in all cases to the limitations set
out in Section 10.2 below.
------------
37
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(d) Promptly after receipt by an Indemnified Party hereunder of
written notice of the commencement of any action or proceeding by a third
party (i.e., one who is not a party to this Agreement) with respect to
which a Claim for indemnification may be made pursuant to this Article X,
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any Indemnifying Party, give written notice to the latter of the
commencement of such third party action; provided, however, that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of any obligations hereunder, to the
extent the Indemnifying Party is not materially prejudiced thereby. In
case any such third party action is brought against an Indemnified Party
and indemnification is sought under this Article X, the Indemnifying Party
shall be entitled to participate in and to assume the defense thereof,
jointly with any other Indemnifying Party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such Indemnified
Party, and after such notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof unless the Indemnifying Party has failed to assume
the defense of such Claim and to employ counsel reasonably satisfactory to
such Indemnified Party. An Indemnifying Party who elects not to assume the
defense of a Claim shall not be liable for the fees and expenses of more
than one counsel in any single jurisdiction for all parties indemnified by
such Indemnifying Party with respect to such Claim or with respect to
Claims separate but similar or related in the same jurisdiction arising out
of the same general allegations. Notwithstanding any of the foregoing to
the contrary, the Indemnified Party will be entitled to select its own
counsel and assume the defense of any action brought against it if the
Indemnifying Party fails to select counsel reasonably satisfactory to the
Indemnified Party, the expenses of such defense to be paid by the
Indemnifying Party. No Indemnifying Party shall consent to entry of any
judgment or enter into any settlement with respect to a third party Claim
without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such
third party Claim. No Indemnified Party shall consent to entry of any
judgment or enter into any settlement of any such third party action, the
defense of which has been assumed by an Indemnifying Party, without the
consent of such Indemnifying Party, which consent shall not be unreasonably
withheld.
SECTION 10.2 Limitations on Claims.
---------------------
(a) An Indemnified Party's right to recover Losses under Section 10.1
------------
of this Agreement shall be limited as follows:
(i) Other than with respect (X) to a breach by any Selling
Shareholder or the Major Shareholder of their respective
representations contained in Sections 3.1 through 3.4, Sections 4.1
------------ --- ------------
through 4.4, or Section 4.22 of this Agreement or a breach by the
--- ------------
Major Shareholder or the Corporation or any of its Subsidiaries, of a
covenant or agreement made by them under this Agreement, (Y) a breach
by Investor of its representations and warranties contained in Section
-------
5.1 through Section 5.6 of this Agreement, or a breach by Investor or
--- -----------
FSEP IV of a covenant or agreement made by them under this Agreement,
and (Z) the obligation of the Major Shareholder under Article 10.1 to
pay any Special Indemnity Losses, an Indemnified Party shall make
38
<PAGE>
no claim for any Losses except and only to the extent that the amount
of the Losses, when added to the aggregate amount of all other Losses
recoverable under this Article X by the Indemnified Party, exceeds
$750,000 and only to the extent of such excess; and
(ii) Other than with respect to (X) a breach by any Selling
Shareholder or the Major Shareholder of their respective
representations contained in Sections 3.1 through 3.4, Sections 4.1
------------ --- ------------
through 4.4, or Sections 4.10, 4.11, 4.14 and 4.22 of this Agreement,
----------------------------------
or a breach by the Major Shareholder or the Corporation or any of its
subsidiaries of a covenant or agreement made by them under this
Agreement, (Y) a breach by Investor of its representations and
warranties contained in Sections 5.1 through Section 5.6 of this
------------ -----------
Agreement or a breach by Investor or FSEP IV of any covenant or
agreement made by Investor or FSEP IV under this Agreement, and (Z)
the obligation of the Major Shareholder under Section 10.1 to pay any
------------
Special Indemnity Losses, neither Investor nor FSEP IV, on the one
hand, nor the Corporation and the Selling Shareholders, on the other
hand, shall recover any Losses exceeding the amount of $20,000,000.
(b) Before seeking recovery for Losses or Special Indemnity Losses, an
Indemnified Party shall first pursue recovery under any applicable
insurance policy (including in the case of the Investor, FSEP IV and the
Surviving Corporation insurance policies held by the Corporation and the
Subsidiaries), but notice may be given to the Indemnifying Party to toll
the running of the survival period under this Agreement. Any Losses or
Special Indemnity Losses recoverable hereunder shall be limited to the
amount of the actual Losses sustained by the Indemnified Party, net of any
applicable insurance benefits actually received and any tax benefits
reasonably anticipated to be realized by the Corporation during post-
Closing periods.
(c) An Indemnified Party shall not be entitled to make any Claim for
recovery of Losses or Special Indemnity Losses after the periods specified
in Section 11.2 of this Agreement, unless the Indemnified Party shall
------------
assert such Claim in accordance with this Article X, and shall specify, in
reasonable detail the specific facts constituting the basis for such Claim
prior to the end of such periods, as applicable.
(d) The remedies provided under this Article X shall be the exclusive
monetary remedies available to any party to this Agreement; provided,
however, that the foregoing shall not be interpreted to limit the types of
remedies, including specific performance or other equitable remedies, which
may be sought by an Indemnified Party in connection with the breach of any
covenant or agreement contained herein, and shall not limit any available
remedy for a willful misrepresentation or breach by another party.
39
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses. Upon consummation of the Merger, the Surviving
--------
Corporation shall pay (a) a $4 million fee payable to an affiliate of FSEP IV,
(b) all legal, accounting, advisory and other fees and expenses of Investor in
connection with the transactions contemplated by this Agreement, (c) up to $4.5
million of the legal, accounting, financial advisory and other fees and expenses
incurred by Selling Shareholders in connection with the transactions
contemplated by this Agreement, (d) all costs and expenses, including reasonable
fees and expenses of legal counsel, related to the negotiation and preparation
of documentation of the $125,000,000 Senior Secured Credit Facilities and the
New Preferred Stock issued to FSEP IV or third parties, (e) if payable, a
funding fee to Salomon Smith Barney with respect to the placement of the New
Preferred Stock to third parties or payable to FSEP IV or its affiliate as
provided in the Preferred Stock Term Sheet, and (f) without duplication, and
without regard to whether incurred under Section 11.1 (b) or (d) above, the fees
and expenses of Riordan & McKinzie payable by the Corporation which shall not
exceed $750,000. All other fees and expenses incurred by Selling Shareholders
in connection with the transactions contemplated by this Agreement shall be paid
by such parties. If the Merger is not consummated, each party hereto will bear
its own costs and expenses.
SECTION 11.2 Governing Law; Forum Selection; Consent to Service of
-----------------------------------------------------
Process.
- --------
(a) This Agreement shall be construed and interpreted under and in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of
laws.
(b) The parties hereto agree that any action, suit or proceeding (a
"PROCEEDING") arising out of the transactions contemplated by this
Agreement shall be commenced and litigated exclusively in the United States
District Court for the District of Delaware or in a state court of the
State of Delaware.
(c) Each of the parties hereto hereby irrevocably and unconditionally
(i) consents to submit to the exclusive jurisdiction of the federal and
state courts in the State of Delaware for any Proceeding (and each such
party agrees not to commence any Proceeding, except in such courts), (ii)
waives any objection to the laying of revenue of any Proceeding in the
courts of the State of Delaware, and (iii) waives, and agrees not to plead
or to make, any claim that any Proceeding brought in any court of the State
of Delaware has been brought in an improper or otherwise inconvenient
forum.
(d) Each party hereto (including, without limitation, each Selling
Shareholder) hereby irrevocably designates and appoints RL&F Service Corp.,
with offices on the date of this Agreement at One Rodney Square,
Wilmington, Delaware 19801 (hereinafter called the "AGENT"), as its
attorney-in-fact to receive service of process in such Proceeding, it being
agreed that service upon such attorney-in-fact shall constitute valid
service upon each such party or its successors or assigns, and each party
agrees that (i) the sole responsibilities of the Agent shall be (x) to
receive such process, (y) to send a copy of any such process so received to
such party, by registered airmail, return receipt requested, at the address
set out in Section 11.10 or Schedule 11.10 of this Agreement, or at the
-------------
last address filed in writing by such party with the Agent and (z) to give
prompt telegraphic notice of receipt thereof to
40
<PAGE>
such party at such address, and (ii) the Agent shall have no responsibility
for the receipt or non-receipt by such party of such process, nor for any
performance or non-performance by such party, or any other party to this
Agreement or their successors or assigns. The Corporation hereby agrees to
pay to the Agent such compensation as shall be agreed upon from time to
time for services of the Agent hereunder. Each party hereby agrees that its
submission to jurisdiction and its designation of the Agent set out above
is made for the express benefit of each of the parties hereto. Each party
further covenants and agrees that so long as this Agreement shall be in
effect, such party shall maintain a duly appointed agent for the service of
summonses and other legal processes in Wilmington, Delaware and will notify
the other parties hereto of the name and address of such agent if it is no
longer the Agent.
SECTION 11.3 Survival and Exclusivity of Representations and Warranties.
----------------------------------------------------------
The parties hereto agree that their respective representations and warranties
contained in this Agreement shall survive for a period of eighteen (18) months
after the Closing Date; provide, however, that the representations and
warranties of the Selling Shareholders, the Major Shareholder and the Investor
contained in Sections 3.1 through 3.4, Sections 4.1 through 4.4, and Sections
------------ --- ------------ --- --------
5.1 through 5.6, as well as all covenants and agreements contained herein, shall
- --- ---
survive without limitation, and the representations contained in Section 4.10,
------------
Section 4.11 and Section 4.14 shall survive for the applicable statutes of
- ------------ ------------
limitations. The obligation of the Major Shareholder to pay any Special
Indemnity Losses shall survive until the expiration of the statutes of
limitation applicable to the matters giving rise to the obligation to pay such
Special Indemnity Losses. The Investor and FSEP IV acknowledge that they have
agreed to complete the Merger based solely on the representations and warranties
of the Corporation and the Selling Shareholders expressly set out in this
Agreement (which are the only representations and warranties made by Major
Shareholder and the Selling Shareholders) and the due diligence investigation
made by Investor and FSEP IV. Investor has not relied on, and the Corporation
and the Selling Shareholders shall have no liability arising out of, any other
information provided by or on behalf of the Corporation and the Selling
Shareholders in connection with the Investor's and FSEP IV's decision to
complete the Merger. Without limiting the generality of the foregoing, Investor
acknowledges and agrees that prior to and during the negotiation of this
Agreement, the Corporation prepared various projections, forecasts and budgets
relating to the Corporation and the Subsidiaries and their future revenues,
income, cash flows, and other economic data, including the underlying
assumptions and basis thereof (collectively, the "FORECASTS"). The Forecasts,
together with certain other information pertaining to the investment
considerations, history, operations, and market, industry, and similar data of
or relating to the Corporation and the Subsidiaries were set out in a
Confidential Memorandum delivered to the Investor (the "MEMORANDUM").
The Investor agrees that it has not relied on the Forecasts or the
Memorandum, or the Corporation's and the Selling Shareholders' or their agents'
participation in the preparation thereof, for any purpose, including in the
Investor's determination to enter into this Agreement or to purchase the Shares.
The Corporation and the Selling Shareholders and their respective agents and
representatives shall have no responsibility, liability, or obligation relating
in any way, directly or indirectly, for the Forecasts or the Memorandum, the
participation of the Corporation and the Selling Shareholders or their agents in
their preparation, or the use or distribution thereof by Investor. The
Forecasts and the Memorandum do not constitute representations or warranties of
the Corporation and the Selling Shareholders for purposes of this Agreement.
The Investor further acknowledges that the Forecasts and the Memorandum include
assumptions, estimates, and projections about future
41
<PAGE>
results of operations of the Corporation and the Subsidiaries and general
business conditions that have been prepared by the Corporation and the
Subsidiaries, and as such, the Forecasts and the Memorandum are inherently
uncertain, and the actual results of the business operations of the Corporation
and the Subsidiaries will vary, and may vary by material amounts, from those
contained in the Forecasts and the Memorandum.
SECTION 11.4 Public Announcements. Any public announcement or similar
--------------------
publicity with respect to this Agreement or the transactions contemplated hereby
shall be issued, if at all, at such time and in such manner as the Investor and
Selling Shareholders shall jointly determine. The Investor and Selling
Shareholders will consult with each other concerning the means by which the
Corporation's and the Subsidiaries' employees, customers and suppliers and
others having dealings with the Corporation and the Subsidiaries will be
informed of the transactions contemplated hereby.
SECTION 11.5 Consent to Merger. By execution of this Agreement, each of
-----------------
the Selling Shareholders hereby consents to the Merger, the Stock Split and the
Restated Certificate of Incorporation of the Surviving Corporation contemplated
by Section 2.4 of this Agreement, pursuant to Sections 228 and 251 of the GCL.
-----------
SECTION 11.6 Entire Agreement; Assignment. This Agreement (a) constitutes
----------------------------
the entire agreement among the parties with respect to the subject matter of
this Agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter of this Agreement, and (b) may not prior to the Effective Time,
be assigned by operation of law or otherwise; provided, that the Corporation may
assign its rights under this Agreement to any lender in connection with any
indebtedness incurred by the Corporation, and the Corporation and FSEP IV may
assign their rights to any entity or group which, after the Effective Time,
purchases all or substantially all of the assets or capital stock of the
Corporation, or which acquires all of the capital stock of the Corporation held
by FSEP IV, or which succeeds to the rights of the Corporation by operation of
law.
SECTION 11.7 Amendments; Waiver; Consents. All amendments to this
----------------------------
Agreement must be in writing and signed by all of the parties hereto; provided,
however, that each of the Selling Shareholders other than the Major Shareholder
hereby grants to the Major Shareholder a limited, irrevocable power of attorney
to act as the agent and attorney in fact for such Selling Shareholder, without
power of substitution, for the sole purpose of approving any amendments to or
waivers of this Agreement on behalf of each Selling Shareholder, other than an
amendment to the provisions of Sections 2.7, 2.8, 11.1 and 11.6 and Articles III
--------------------------------
and X of this Agreement or any other amendment or waiver pertaining to this
Agreement which would amend the consideration to be received by Selling
Shareholder in the Merger or the liability of each Selling Shareholder for
breaches of representations and warranties made by such Selling Shareholder
under this Agreement, it being expressly understood and agreed that this
limited, irrevocable power of attorney is coupled with an interest and shall
expire on the earlier to occur of the Effective Time or the termination of this
Agreement in accordance with Article IX of this Agreement. The rights and
remedies of the parties to this Agreement are cumulative and not alternative.
Any failure of a party to comply with any obligation, covenant, agreement or
condition herein may be waived by the party affected thereby only by a written
instrument signed by the party granting such waiver. No waiver, or failure to
insist upon strict compliance, by any party of any condition or any breach of
any obligation, term, covenant, representation, warranty or agreement contained
in this Agreement, in any one or more instances, shall be construed to be a
waiver of, or estoppel with respect to, any other condition or any
42
<PAGE>
other breach of the same or any other obligation, term, covenant,
representation, warranty or agreement. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver.
SECTION 11.8 Further Assurances. From time to time as and when requested
------------------
by Investor, or its successors or assigns, Selling Shareholders and the officers
and directors of the Corporation shall execute and deliver such further
agreements, documents, deeds, certificates and other instruments and shall take
or cause to be taken such other actions as shall be reasonably necessary or
advisable to carry out the purposes of and effect the transactions contemplated
by this Agreement.
SECTION 11.9 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 11.10 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by telecopy or telex, or by registered or
certified mail (postage prepaid, return receipt requested), to the respective
parties as follows:
if to Investor or FSEP IV:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard, Suite 1900
Los Angles, California 90085
Telecopy No.: (310) 444-1870
Attention: J. Frederick Simmons
with a copy to:
Richard J. Welch
Riordan & McKinzie
California Plaza
29th Floor, 300 South Grand Avenue
Los Angeles, California 90071
Telecopy No.: (213) 229-8550
if to the Corporation or the Selling Shareholders:
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attention: Dennis C. Bearden
Telecopy No.: (713) 943-8443
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with a copy to:
Robert G. Reedy
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set out above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 11.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 11.12 Descriptive Headings. The descriptive headings are inserted
--------------------
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 11.13 Parties in Interest; No Third Party Beneficiary. This
-----------------------------------------------
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 11.14 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 11.15 Incorporation by Reference. Any and all schedules,
--------------------------
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set out at the point referred to in the
Agreement.
SECTION 11.16 Guarantee.
---------
(a) FSEP IV hereby unconditionally and irrevocably guarantees to the
Corporation and the Selling Shareholders the due and punctual performance
of each of the obligations and the undertakings of Investor under this
Agreement when and to the extent the same are required to be performed and
subject to all of the terms and conditions of this Agreement; provided,
that FSEP IV shall have no liability whatsoever under this Guaranty after
the Closing, whether based upon events occurring prior to or after the
Closing. If Investor shall fail to perform fully and punctually any
obligation or undertaking of Investor under this Agreement when and to the
extent the same is required to be performed, FSEP IV will upon written
demand from the Selling Shareholders forthwith perform or cause to be
performed such obligation or undertaking, as the case may be. The
obligations of FSEP IV under this guaranty shall constitute an absolute and
unconditional present and continuing
44
<PAGE>
guarantee of performance to the extent provided herein, and shall not be
contingent upon any attempt by the Corporation or the Selling Shareholders
to enforce performance by Investor.
(b) The obligations of FSEP IV under this guaranty are absolute and
unconditional, are not subject to any counterclaim, setoff, deduction,
abatement or defense based upon any claim FSEP IV may have against the
Corporation or the Selling Shareholders (except for any defense Investor or
FSEP IV may have against the Corporation or the Selling Shareholders under
the terms of this Agreement), and shall remain in full force and effect
without regard to (i) any agreement or modification to any of the terms of
this Agreement or any other agreement which may hereafter be made relating
thereto; (ii) any exercise, non-exercise or waiver by the Corporation or
the Selling Shareholders of any right, power, privilege or remedy under or
in respect of this Agreement; (iii) any insolvency, bankruptcy,
dissolution, liquidation, reorganization or the like of Investor at or
prior to the Closing; (iv) absence of any notice to, or knowledge by, FSEP
IV of the existence or occurrence of any of the matters or events set out
in the foregoing clauses (i) through (iii); or (v) any transfer of shares
of capital stock of Investor, or any assignment by Investor of its rights
and obligations under this agreement, to a wholly-owned subsidiary of
Investor or FSEP IV.
(c) FSEP IV unconditionally waives (i) any and all notice of default,
non-performance or non-payment by Investor under this Agreement, (ii) all
notices which may be required by statute, rule of law or otherwise to
preserve intact any rights of the Corporation or the Selling Shareholders
against FSEP IV, including, without limitation, any demand, presentment or
protest, or proof of notice of non-payment under this Agreement, and (iii)
any right to the enforcement, assertion or exercise by the Corporation or
the Selling Shareholders of any right, power, privilege or remedy conferred
in this Agreement or otherwise.
45
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
INVESTOR:
CENTURY ACQUISITION CORPORATION
By: /s/ Jon D. Ralph
----------------------------------
Name: Jon D. Ralph
-------------------------------
Title:
-------------------------------
FSEP IV:
FS EQUITY PARTNERS IV
By: /s/ Jon D. Ralph
----------------------------------
Name: Jon D. Ralph
-------------------------------
Title: Vice President
------------------------------
CORPORATION:
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard E. Penick
----------------------------------
Name: Richard E. Penick
-------------------------------
Title: Vice President
------------------------------
SELLING SHAREHOLDERS:
/s/ Dennis C. Bearden
------------------------------------
Dennis C. Bearden
46
<PAGE>
CENTURY AIR CONDITIONING SUPPLY, INC.
By: /s/ Richard E. Penick
----------------------------------
Name: Richard E. Penick
-------------------------------
Title: Vice President
------------------------------
/s/ Danny N. Errico
------------------------------------
Danny N. Errico
/s/ John M. Morotti
------------------------------------
John M. Morotti
/s/ Daryl D. Morse
------------------------------------
Daryl D. Morse
/s/ Richard E. Penick
------------------------------------
Richard E. Penick
/s/ Charles L. Littlepage
------------------------------------
Charles L. Littlepage
/s/ R. Allan Kea
------------------------------------
R. Allan Kea
/s/ Richard A. Luke
------------------------------------
Richard A. Luke
/s/ Daniel F. Firkus
------------------------------------
Daniel F. Firkus
/s/ Jerry J. Muras
------------------------------------
Jerry J. Muras
/s/ Vicki L. Reynolds
------------------------------------
Vicki L. Reynolds
47
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT") is
entered into as of June 19, 1998 by and among Century Acquisition Corporation, a
Delaware corporation ("INVESTOR"), Century Maintenance Supply, Inc., a Delaware
corporation (the "CORPORATION"), FS Equity Partners IV, L.P., a Delaware limited
partnership ("FSEP IV"), Dennis C. Bearden (the "MAJOR SHAREHOLDER") and the
Selling Shareholders which are signatories to the Merger Agreement. Capitalized
terms used but not defined in this Amendment have the meaning given such terms
in the Merger Agreement (defined below).
RECITALS
--------
A. Investor, Corporation, Major Shareholder, and the other Selling
Shareholders entered into that certain Agreement and Plan of Merger dated as of
May 5, 1998 (the "MERGER AGREEMENT").
B. The parties now desire to amend the Merger Agreement to extend the
termination date.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
undersigned agree as follows:
1. SECTION 2.4 of the Merger Agreement is hereby amended by deleting
clause (ii) thereof in its entirety and replacing with the following:
. . . (ii) authorize preferred stock for issuance, and create and
authorize the preferred stock (the "NEW PREFERRED STOCK"), which will
be authorized as "Blank Check" preferred, with the rights, preferences
and privileges in substantially the form as described in the term
sheet and subject to modification as set out therein (the "PREFERRED
STOCK TERM SHEET") attached as Exhibit B hereto, and . . .
2. SECTION 2.7(C) of the Merger Agreement is hereby amended by replacing,
in each place in SECTION 2.7(C) that it occurs, the number "$7,000,000" with
"$8,000,000".
3. The text of SECTION 2.7(G) of the Merger Agreement is hereby deleted
in its entirety.
4. The text of SECTION 2.7(H) of the Merger Agreement is hereby deleted
in its entirety.
5. SECTION 7.12 of the Merger Agreement is hereby amended by deleting the
last sentence and replacing it with the following:
In addition, at the closing of the purchase of the Option Shares, CAC
will provide a certificate, signed by its President, confirming that all of
the representations and warranties made by CAC in Article III of this
Agreement are true and correct as of the date of closing of the purchase of
the Option Shares. If FSEP IV exercises this Option, the Option Shares
shall be entitled to share in any claim for Specialty Losses or Indemnity
Losses.
6. SECTION 9.1(D) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
(d) by Investor, on the one hand, or Corporation and Selling
Shareholders, on the other, if the Closing Date shall not have
occurred, other than through the failure of the party attempting to
terminate to fulfill their obligations hereunder, on or before the
expiration of 69 days from the date of this Agreement or such later
date agreed to in writing by
<PAGE>
Corporation, Selling Shareholders and Investor; provided, however,
that such 69 day period shall automatically be extended for a period
of 15 days if the delay in the Closing Date relates to the closing of
the financing contemplated by the Commitment Letter and/or the sale of
the New Preferred Stock contemplated by Section 8.2(p) of this
--------------
Agreement;
7. EXHIBIT A (Certificate of Merger) to the Merger Agreement is hereby
deleted and replaced with the EXHIBIT A to this Amendment.
8. EXHIBIT B (Term Sheet for Preferred Stock) to the Merger Agreement is
hereby amended by deleting "Century Acquisition Corporation" as the Issuer and
replacing it with "Century Maintenance Supply, Inc."
9. EXHIBIT C (Term Sheet for Warrants) to the Merger Agreement is hereby
deleted in its entirety.
10. EXHIBIT E (Term Sheet for Shareholders Agreements) to the Merger
Agreement is hereby amended by amending the "REGISTRATION RIGHTS" section to add
the following additional sentence at the end of that section:
The rights described in this paragraph shall apply to the common stock of
the Company held by FSEP IV or by Bearden. The registration rights
applicable to any preferred stock of the Company held by FSEP IV or by
Bearden will be governed by a separately negotiated agreement acceptable to
them.
11. EXHIBIT K (Amended and Restated Certificate of Incorporation) to the
Merger Agreement is hereby deleted and replaced with the EXHIBIT K to this
Amendment.
12. Conditions. This Amendment shall not be effective until it has been
----------
signed by or on behalf of Investor, Corporation, FSEP IV, Major Shareholder, and
Selling Shareholders.
13. Amendment. Except as affected by this Amendment, the Merger Agreement
---------
is unchanged and continues in full force and effect. All references to the
Merger Agreement shall refer to the Merger Agreement as amended by this
Amendment. This Amendment shall be binding upon and inure to the benefit of
each of the undersigned and their respective successors and permitted assigns.
14. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same amendment.
15. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
16. Power of Attorney. Under Section 11.7 of the Merger Agreement, the
-----------------
Major Shareholder has a limited, irrevocable power of attorney to act as the
agent and attorney-in-fact for the Selling Shareholders for the sole purpose of
approving any amendments to, or waivers, of the Merger Agreement on behalf of
the Selling Shareholders, subject to the limitations set out in Section 11.7.
[SIGNATURES ON IMMEDIATELY FOLLOWING PAGES]
2
<PAGE>
The Amendment is executed as of the date set out in the preamble to this
Amendment.
CENTURY ACQUISITION CORPORATION
By: /s/ Mark J. Doran
---------------------------------------------
Name: Mark J. Doran
-------------------------------------
Title: Vice President
------------------------------------
FS EQUITY PARTNERS IV, L.P., a Delaware limited
partnership
By: FS CAPITAL PARTNERS, L.L.C., its general
partner
By: /s/ Mark J. Doran
---------------------------------------
Name: Mark J. Doran
--------------------------------
Title: Managing Member
-------------------------------
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard E. Penick
---------------------------------------------
Name: Richard E. Penick
-------------------------------------
Title: Vice President
------------------------------------
CENTURY AIRCONDITIONING SUPPLY, INC.
By: /s/ Richard E. Penick
---------------------------------------------
Name: Richard E. Penick
-------------------------------------
Title: Vice President
------------------------------------
3
<PAGE>
SELLING SHAREHOLDERS
Danny N. Errico
John M. Morotti
Daryl D. Morse
Richard E. Penick
Charles L. Littlepage
R. Allan Kea
Richard A. Luke
Daniel F. Firkus
Jerry J. Muras
Vicki L. Reynolds
Dennis C. Bearden
/s/ Dennis C. Bearden
--------------------------------------------------
Dennis C. Bearden, as Major Shareholder and on
behalf of each Selling Shareholder under the power
of attorney granted him by Section 11.7 of the
Merger Agreement
4
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CENTURY MAINTENANCE SUPPLY, INC.
CENTURY MAINTENANCE SUPPLY, INC. ("CORPORATION"), a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
(1) The name of the Corporation is Century Maintenance Supply, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State was June 30, 1997.
(2) This Amended and Restated Certificate of Incorporation is being filed
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware in order to restate the Certificate of Incorporation of the Corporation
and to amend the Certificate of Incorporation to (i) increase the number of
authorized shares of capital stock of the Corporation, (ii) authorize the
issuance of preferred stock and enumerate certain rights, preferences and
privileges thereto and (iii) enumerate certain rights and privileges respecting
the Common Stock (as hereinafter defined).
(3) This Amended and Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation having duly adopted resolutions setting forth and declaring
advisable this Amended and Restated Certificate of Incorporation, and in lieu of
a meeting of the stockholders, written consent to this Amended and Restated
Certificate of Incorporation having been given by the holders of a majority of
the outstanding stock of the Corporation in accordance with Section 228 of the
General Corporation Law of the State of Delaware.
(4) The Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Century Maintenance Supply, Inc. (the
"CORPORATION").
<PAGE>
ARTICLE II
REGISTERED OFFICE/AGENT
The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware, New Castle County 19801. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (as from time to time
in effect, the "DGCL").
ARTICLE IV
AUTHORIZED CAPITAL STOCK
a. Authorization. The aggregate number of shares of all classes of stock
which the Corporation shall have authority to issue is 17,000,000 shares,
consisting of: (i) 15,000,000 shares of common stock, par value $.001 per share
(the "COMMON STOCK"), and (ii) 2,000,000 shares of preferred stock, par value
$.001 per share (the "PREFERRED STOCK"). Shares of any class of capital stock
of the Corporation may be issued for such consideration and for such corporate
purposes as the Board of Directors of the Corporation (the "BOARD OF DIRECTORS")
may from time to time determine.
b. Preferred Stock. The Preferred Stock may be divided into and issued
from time to time in one or more series as may be fixed and determined by the
Board of Directors. The relative rights and preferences of the Preferred Stock
of each series shall be such as shall be stated in any resolution or resolutions
adopted by the Board of Directors setting forth the designation of the series
and fixing and determining the relative rights and preferences thereof (a
"DIRECTORS' RESOLUTION"). The Board of Directors is hereby authorized to fix and
determine the powers, designations, preferences, and relative, participating,
optional or other rights, including, without limitation, voting powers, full or
limited, preferential rights to receive dividends or assets upon liquidation,
rights of conversion or exchange into Common Stock, Preferred Stock of any
series or other securities, any right of the Corporation to exchange or convert
shares into Common Stock, Preferred Stock of any series or other securities, or
redemption provision or sinking fund provisions, as between series and as
between the Preferred Stock or any series thereof and the Common Stock, and the
qualifications, limitations or restrictions thereof, if any, all as shall be
stated in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or limited voting powers, or be without voting
powers, all as shall be stated in a Directors' Resolution. Except where
otherwise set forth in the Directors' Resolution providing for the issuance of
any series of Preferred Stock, the number of shares comprising such series may
be increased or decreased (but not below the number of shares
2
<PAGE>
then outstanding) from time to time by like action of the Board of Directors.
The shares of Preferred Stock of any one series shall be identical with the
other shares in the same series in all respects except as to the dates from and
after which dividends thereon shall cumulate, if cumulative.
c. Reacquired Shares of Preferred Stock. Shares of any series of any
Preferred Stock that have been redeemed (whether through the operation of a
sinking fund or otherwise), purchased by the Corporation, or which, if
convertible or exchangeable, have been converted into, or exchanged for, shares
of stock of any other class or classes or any evidences of indebtedness shall
have the status of authorized and unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock or as part
of any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the Directors' Resolution providing for
the issuance of any series of Preferred Stock and to any filing required by law.
d. Increase in Authorized Preferred Stock. The number of authorized
shares of Preferred Stock may be increased or decreased by the affirmative vote
of the holders of a majority of the stock of the Corporation entitled to vote
without the separate vote of holders of Preferred Stock as a class.
e. Common Stock.
i. Dividends. Subject to the preferred rights of the holders of
shares of any class or series of Preferred Stock as provided for by the Board of
Directors with respect to any such class or series of Preferred Stock, the
holders of the Common Stock shall be entitled to receive, as and when declared
by the Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time determine, payable to stockholders of record on
such dates, not exceeding 60 days preceding the dividend payment dates, as shall
be fixed for such purpose by the Board of Directors in advance of payment of
each particular dividend.
ii. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after the
distribution or payment to the holders of shares of any class or series of
Preferred Stock as provided by the Board of Directors with respect to any such
class or series of Preferred Stock, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among and paid
to the holders of Common Stock in proportion to the number of shares of Common
Stock held by them respectively.
iii. Voting Rights. Except as otherwise required by law, each holder
of shares of Common Stock shall be entitled to one vote for each share of Common
Stock standing in such holder's name of the books and records of the
Corporation.
3
<PAGE>
ARTICLE V
EXISTENCE
The existence of the Corporation is to be perpetual.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No stockholder shall be entitled, as a matter of right, to subscribe
for or acquire additional, unissued or treasury shares of any class of capital
stock of the Corporation whether now or hereafter authorized, or any bonds,
debentures or other securities convertible into, or carrying a right to
subscribe to or acquire such shares, but any shares or other securities
convertible into, or carrying a right to subscribe to or acquire such shares may
be issued or disposed of by the Board of Directors to such persons and on such
terms as in its discretion it shall deem advisable.
ARTICLE VII
NO CUMULATIVE VOTING
At each election of directors, every stockholder entitled to vote at such
election shall have the right to vote in person or by proxy the number of shares
owned by him for as many persons as there are directors to be elected and for
whose election he has a right to vote. No stockholder shall have the right to
cumulate his votes in any election of directors.
ARTICLE VIII
STOCKHOLDER ACTION
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of such 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, is signed by the holders of a majority of the
outstanding stock that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Except as otherwise required by law, special meetings of the stockholders
of the Corporation may be called only by the Chairman of the Board, the Chief
Executive Officer or the Board of Directors by the written order of a majority
of the entire Board of Directors, or upon the written request of stockholders
owning at least 20% of the entire capital stock of the Corporation issued and
outstanding and entitled to vote, stating the purpose of such meeting delivered
to the Chairman of the Board, the President or the Secretary. Such request will
state the purpose or purposes of the proposed meeting; provided, however, that
from and after the first date as of which the Corporation has a class or series
of capital stock registered under the Securities Exchange Act of 1934 (the
4
<PAGE>
"EXCHANGE ACT"), special meetings may not be called by the stockholders of the
Corporation except as otherwise required by law.
ARTICLE IX
BOARD OF DIRECTORS
The number of directors constituting the Board of Directors shall be fixed
by, or in the manner provided in, the Corporation's bylaws. None of the
directors need be a stockholder or a resident of the State of Delaware.
Elections of directors need not be by written ballot unless the Corporation's
bylaws provide otherwise. Except as otherwise provided by law, the business and
affairs of the Corporation shall be managed by, or under the direction of, its
Board of Directors.
ARTICLE X
INDEMNIFICATION
a. Mandatory Indemnification. Each person who at any time is or was a
director or officer of the Corporation, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"PROCEEDING"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, whether the basis of
a Proceeding is an alleged action in such person's official capacity or in
another capacity while holding such office, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the DGCL, or any
other applicable law as may from time to time be in effect (but, in the case of
any such amendment or enactment, only to the extent that such amendment or law
permits the Corporation to provide broader indemnification rights than such law
prior to such amendment or enactment permitted the Corporation to provide),
against all expense, liability and loss (including, without limitation, court
costs and attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection with a Proceeding, and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise, and shall inure to the benefit of such person's heirs, executors and
administrators. The Corporation's obligations under this Section A include, but
are not limited to, the convening of any meeting, and the consideration of any
matter thereby, required by statute in order to determine the eligibility of any
person for indemnification. Notwithstanding this Section A to the contrary, the
Corporation will not indemnify and hold harmless any officer or director with
respect to any matter that constitutes a breach of a representation or warranty
or a breach of any covenant or agreement under that certain Agreement and Plan
of Merger dated May 5, 1998 (as amended), among the Corporation, Century
Acquisition Corp. and the shareholders of the Corporation.
5
<PAGE>
b. Prepayment of Expenses. Expenses incurred by a director or officer of
the Corporation in defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding to the fullest extent
permitted by, and only in compliance with, the DGCL or any other applicable laws
as may from time to time be in effect, including, without limitation, any
provision of the DGCL which requires, as a condition precedent to such expense
advancement, the delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under Section A of this Article X or otherwise. Repayments of all
amounts so advanced shall be upon such terms and conditions, if any, as the
Corporation's Board of Directors deems appropriate.
c. Vesting. The Corporation's obligation to indemnify and to prepay
expenses under Sections a. and b. of this Article X shall arise, and all rights
granted to the Corporation's directors and officers hereunder shall vest, at the
time of the occurrence of the transaction or event to which a Proceeding
relates, or at the time that the action or conduct to which such Proceeding
relates was first taken or engaged in (or omitted to be taken or engaged in),
regardless of when such Proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
bylaws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the bylaws of the Corporation
or otherwise, shall diminish or adversely affect any rights to indemnification
or prepayment of expenses granted under Sections a. and b. of this Article X
which shall have become vested as aforesaid prior to the date that such
amendment or other corporate action is effective or taken, whichever is later.
d. Enforcement. If a claim under Section a. or Section b. or both
Sections a. and b. of this Article X is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit in a court of
competent jurisdiction against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. It shall be a
defense to any such suit (other than a suit brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the DGCL or other applicable law to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. The failure of the Corporation (including
its Board of Directors, independent legal counsel, or stockholders) to have made
a determination prior to the commencement of such suit as to whether
indemnification is proper in the circumstances based upon the applicable
standard of conduct set forth in the DGCL or other applicable law shall neither
be a defense to the action nor create a presumption that the claimant has not
met the applicable standard of conduct. The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal Proceeding, had reasonable cause to believe that his conduct was
unlawful.
e. Nonexclusive. The indemnification provided by this Article X shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any
6
<PAGE>
statute, bylaw, other provisions of this Certificate of Incorporation,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
f. Permissive Indemnification. The rights to indemnification and
prepayment of expenses which are conferred to the Corporation's directors and
officers by Sections a. and b. of this Article X may be conferred upon any
employee or agent of the Corporation if, and to the extent, authorized by the
Board of Directors.
g. Insurance. The Corporation shall have power to purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
provisions of this Article X, the Corporation's bylaws, the DGCL or other
applicable law.
h. Implementing Arrangements. Without limiting the power of the
Corporation to procure or maintain insurance or other arrangement on behalf of
any of the persons as described in paragraph g. of this Article X, the
Corporation may, for the benefit of persons eligible for indemnification by the
Corporation, (1) create a trust fund, (2) establish any form of self-insurance,
(3) secure its indemnity obligation by grant of a security interest or other
lien on the assets of the Corporation, or (4) establish a letter of credit,
guaranty or surety arrangement.
ARTICLE XI
LIMITED DIRECTOR LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article XI shall not eliminate or limit
the liability of a director:
i. for any breach of the director's duty of loyalty to the Corporation or
its stockholders,
ii. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
iii under Section 174 of the DGCL, as it may hereafter be amended from
time to time, for any unlawful payment of a dividend or unlawful stock
purchase or redemption, or
iv. for any transaction from which the director derived an improper
personal benefit.
7
<PAGE>
If the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. No amendment to or repeal of this Article
XI will apply to, or have any effect on, the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions of
the director occurring prior to such amendment or repeal.
ARTICLE XII
AMENDMENTS
The Board of Directors shall have the power to make, alter, amend and
repeal the bylaws. Any bylaws made by the Board of Directors under the powers
conferred hereby may be altered, amended or repealed by the directors or by the
stockholders; provided, however, that the bylaws shall not be altered, amended
or repealed and no provision inconsistent therewith shall be adopted by
stockholder action without the affirmative vote of at least a majority of the
voting power of the then outstanding shares entitled to vote generally in the
election of directors, voting together as a single class.
ARTICLE XIII
ARRANGEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If the majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
ARTICLE XIV
SECTION 203 ELECTION
The Corporation expressly elects not to be governed by Section 203 of the
DGCL.
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ARTICLE XV
EFFECTIVE TIME
Pursuant to Section 103(d) of the DGCL, this Amended and Restated
Certificate of Incorporation shall be effective as of 4:01 p.m. Eastern Standard
Time on the date of filing hereof.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
of Century Maintenance Supply, Inc. is executed as of July 7 , 1998.
----
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Dennis Bearden
-------------------
Name: Dennis Bearden
----------------
Title: President
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
CENTURY MAINTENANCE SUPPLY, INC.
(a Delaware Corporation)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office will be in Houston,
----------------
Texas.
Section 2. Other Offices. The Corporation may also have offices at
-------------
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders will be
-----------------
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as may be determined by the board of directors
and stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. An annual meeting of Stockholders shall
---------------
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the board of directors from time to time; provided that each successive annual
meeting shall be held on a date within 13 months after the date of the preceding
annual meeting. Only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder of the Corporation. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, no
less than 60 days nor more than 180 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 60 days later than the anniversary
date of the immediately preceding annual meeting, notice by the stockholder to
be timely must be received not later than the close of business on the tenth day
following the earlier of the date on which a written statement setting forth
the date of the annual meeting was mailed to stockholders or the date on which
it is first disclosed to the public. A stockholder's notice to the
<PAGE>
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such proposal, (c) the
class and number of shares of the Corporation that are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
In addition, if the stockholder's ownership of shares of the Corporation, as set
forth in the notice, is solely beneficial, documentary evidence of such
ownership must accompany the notice. Notwithstanding anything else in these
bylaws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 2. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that any business that was not properly brought
before the meeting is out of order and shall not be transacted at the meeting.
Section 3. Notice of Annual Meeting. Written or printed notice of the
------------------------
annual meeting, stating the place, day and hour thereof, will be served upon or
mailed to each stockholder entitled to vote thereat at such address as appears
on the books of the Corporation, not less than ten days nor more than sixty days
before the date of the meeting.
Section 4. Special Meeting. Special meetings of the stockholders, for
---------------
any purpose or purposes, unless otherwise prescribed by statute or the
Certificate of Incorporation, may be called by the Chairman of the Board, the
Chief Executive Officer or by not less than a quorum of the board of directors,
and shall be called by the President or Secretary at the request in writing of
stockholders owning not less than 20% of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at such meeting. Such
request will state the purpose or purposes of the proposed meeting; provided,
however, that from and after the first date as of which the Corporation has a
class or series of capital stock registered under the Securities Exchange Act of
1934 (the "EXCHANGE ACT"), special meetings may not be called by the
stockholders of the Corporation except as otherwise required by law.
Section 5. Notice of Special Meeting. Written notice of a special
-------------------------
meeting of stockholders, stating the place, day and hour and purpose or purposes
thereof, will be served upon or mailed to each stockholder entitled to vote
thereat at such address as appears on the books of the Corporation, not less
than ten days nor more than sixty days before the date of the meeting.
Section 6. Business at Special Meeting. Business transacted at all
---------------------------
special meetings will be confined to the purpose or purposes stated in the
notice.
Section 7. Stockholder List. At least ten days before each meeting of
----------------
stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, will be prepared by the
Secretary. Such list, for a period of ten days prior to such meeting, will be
kept on file at the registered office of the Corporation and will be subject to
inspection by any stockholder at any time during usual business hours. Such
list will also be produced and kept open at the time
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and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting.
Section 8. Quorum. The holders of at least one-half of the shares of
------
capital stock issued and outstanding and entitled to vote thereat, represented
in person or by proxy, will constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, the Certificate of Incorporation or these bylaws. If, however, such
quorum is not present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, represented in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any such adjourned meeting at which a quorum is represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. Majority Vote. When a quorum is present at any meeting, the
-------------
vote of the holders of a majority of the shares having voting power represented
in person or by proxy will decide any question brought before such meeting,
unless the question is one upon which, by express provision of statute, the
Certificate of Incorporation or these bylaws, a different vote is required, in
which case such express provision will govern and control the decision of such
question.
Section 10. Proxies. At any meeting of the stockholders every
-------
stockholder having the right to vote will be entitled to vote in person, or by
proxy appointed by an instrument in writing subscribed by such stockholder or
his duly authorized attorney in fact and bearing a date not more than eleven
months prior to said meeting.
Section 11. Voting. Unless otherwise provided by statute, the
------
Certificate of Incorporation or these bylaws, each stockholder will have one
vote for each share of stock having voting power, registered in his name on the
books of the Corporation.
Section 12. Written Consent. Any action required to be taken at any
----------------
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such 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, is signed by the
holders 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
all shares entitled to vote thereon were present and voted.
3
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation will be
------
managed by a board of directors. The board may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute, by the
Certificate of Incorporation or these bylaws directed or required to be
exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors which
-------------------
constitute the whole board will be at least one and no more than twelve, as such
number shall be determined by resolution of the board of directors from time to
time; provided that no decrease in the number of directors shall have the effect
of shortening the term of any incumbent director. As of the date of the initial
adoption of these bylaws, the number of directors constituting the board of
directors shall be one.
Section 3. Nomination. Only persons who are nominated in accordance
----------
with the procedures set forth in these bylaws shall be eligible to serve as
Directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of stockholders (a) by or at the direction
of the board of directors or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 3, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section 3.
Nominations by stockholders shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an annual meeting, not less than
60 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is changed by more than 30 days from such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was made, and
(b) in the case of a special meeting at which directors are to be elected, not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder and also
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<PAGE>
which are owned of record by such stockholder; and (c) as to the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such person and (ii) the class and number of shares of the Corporation which
are beneficially owned by such person. At the request of the board of
directors, any person nominated by the board of directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
The presiding officer of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 3, and he shall so declare to the meeting
and the defective nomination shall be disregarded.
Section 4. Election and Term. The directors shall be elected at the
-----------------
annual meeting of stockholders, except as provided in Section 5, and each
director elected shall hold office until his successor shall be elected and
shall qualify. Directors need not be residents of Delaware or stockholders of
the Corporation.
Section 5. Vacancies. If any vacancy occurs in the Board of Directors
---------
caused by death, resignation, retirement, disqualification, or removal from
office of any director, or otherwise, or if any new directorship is created by
an increase in the authorized number of directors, a majority of the directors
then in office, though less than a quorum, or a sole remaining director, may
choose a successor or fill the newly created directorship; and a director so
chosen shall hold office until the next election and until his successor shall
be duly elected and shall qualify, unless sooner displaced. Any director may be
removed either for or without cause at any special meeting of stockholders duly
called and held for such purpose.
Section 6. Resignation; Removal. Any director may resign at any time.
--------------------
Any director may be removed from office only for cause and only by the
affirmative vote of the holders of a majority or more of the voting power of the
then outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class. Except as may otherwise be
provided by law, cause for removal shall be construed to exist only if during a
director's term as director of the Corporation: (a) such director has been
convicted of a felony involving moral turpitude by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (b)
there is proof beyond a reasonable doubt that the director whose removal is
proposed has committed grossly negligent or wilful conduct resulting in a
material detriment to the Corporation; or (c) such director has committed a
material breach of fiduciary duty to the Corporation resulting in a material
detriment to the Corporation.
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<PAGE>
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. 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 the stockholders, and no notice of such meeting shall be
necessary; or the board may meet at such place and time as is fixed by the
consent in writing of all the directors.
Section 2. Regular Meetings. Regular meetings of the board may be held
----------------
at such time and place either within or without the State of Delaware and with
such notice or without notice as is determined from time to time by the board.
Section 3. Special Meetings. Special meetings of the board may be
----------------
called by the President or the Chairman of the Board of directors on one day's
notice to each director, either personally or by mail or telegram. Special
meetings will be called by the President or the Secretary in like manner and on
like notice upon the written request of any director.
Section 4. Quorum and Voting. At all meetings of the board, a majority
-----------------
of the directors will be necessary and sufficient to constitute a quorum for the
transaction of business; and the act of a majority of the directors present at
any meeting at which there is a quorum will be the act of the board of
directors, except as may be otherwise specifically provided by statute, the
Certificate of Incorporation or these bylaws. If a quorum is not present at any
meeting of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present.
Section 5. Telephone Meetings. The directors may hold their meetings
------------------
in any manner permitted by law. Without limitation, at any meeting of the
board, a member may attend by telephone, radio, television, interactive media or
similar means of communication by means of which all participants can hear each
other which permits him to participate in the meeting, and a director so
attending will be deemed present at the meeting for all purposes including the
determination of whether a quorum is present.
ARTICLE V
COMMITTEES
Section 1. Committees of Directors. The board of directors may
-----------------------
establish an Audit Committee and a Compensation Committee, and may establish an
Executive Committee and such other committees as may be established by
resolution of a majority of the whole Board. Each of such committees shall
consist of one or more members of the Board. Members of committees of the board
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<PAGE>
of directors shall be elected annually by vote of a majority of the board. The
Chief Executive Officer shall be an ex-officio nonvoting member of each
committee (except the Audit and Compensation Committees) of which he is not an
official voting member. With respect to any committee (including the Audit and
Compensation Committees) of which the Chief Executive Officer is not an official
voting member, the Chief Executive Officer shall be given notice of all
committee meetings at the same time notice is given to committee members, and
the Chief Executive Officer shall be afforded the opportunity to speak at the
committee meeting. Presence of a majority of the committee members (not
counting any ex-officio nonvoting members) shall constitute a quorum.
Committees may act by majority vote of the voting members present at a meeting.
Each of such committees shall have and may exercise such of the powers of the
board of directors in the management of the business and affairs of the
Corporation as may be provided in these bylaws or by resolution of the board of
directors. Each of such committees may authorize the seal of the Corporation to
be affixed to any document or instrument. The board of directors may designate
one or more directors as alternate members of any such committee, who may
replace any absent or disqualified member at any meeting of such committee.
Meetings of committees may be called by any member of a committee by written,
telegraphic or telephonic notice to all members of the committee and the Chief
Executive Officer and shall be at such time and place as shall be stated in the
notice of such meeting. Any member of a committee may participate in any
meeting by means of conference telephone or similar communications equipment.
In the absence or disqualification of a member of any committee the member or
members thereof present at any meeting and not disqualified from voting, whether
or not constituting a quorum may, if deemed advisable, unanimously appoint
another member of the board to act at the meeting in the place of the
disqualified or absent member. Each committee may fix such other rules and
procedures governing conduct of meetings as it shall deem appropriate.
Section 2. Executive Committee. The board of directors, by resolution
-------------------
adopted by a majority of the whole board, may designate two or more directors to
constitute an executive committee, which committee, to the extent provided in
such resolution, will have and may exercise all of the authority of the board of
directors in the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it, except where action by the board of directors is specified by
statute. The executive committee will keep regular minutes of its proceedings
and report the same to the board when required.
Section 3. Audit Committee. The Audit Committee shall consist of not
---------------
less than two members of the board of directors. The Audit Committee shall be
responsible for recommending to the entire board engagement and discharge of
independent auditors of the financial statements of the Corporation, shall
review the professional service provided by the independent auditors, shall
review the independence of independent auditors, shall review with the auditors
the plan and results of the auditing engagement, shall consider the range of
audit and non-audit fees, shall review the adequacy of the Corporation's system
of internal audit controls, shall review the results of procedures for internal
auditing and shall consult with the internal auditor of the Corporation with
respect to all aspects of the Corporation's internal auditing program. In
addition, the Audit Committee shall direct and supervise special investigations
as deemed necessary by the Audit Committee.
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Section 4. Compensation Committee. The Compensation Committee shall
----------------------
consist of not less than two members of the board of directors. The
Compensation Committee shall recommend to the board the compensation to be paid
to officers and key employees of the Corporation and the compensation of the
board of directors. Except as otherwise provided in any specific plan adopted
by the board of directors, the Compensation Committee shall be responsible for
administration of executive compensation plans, stock option plans and other
forms of direct or indirect compensation of officers and key employees, and each
member of the Compensation Committee shall have the power and authority to
execute and bind the Corporation to such documents, agreements and instruments
related to such plans and compensation as are approved by the Compensation
Committee. In the alternative, the Compensation Committee may authorize any
officer of the Corporation to execute such documents, agreements and instruments
on behalf of the Corporation. In addition, the Compensation Committee shall
review levels of pension benefits and insurance programs for officers and key
employees.
Section 5. Other Committees. The board of directors may similarly
----------------
create other committees for such terms and with such powers and duties as the
board deems appropriate.
Section 6. Advisory Directors. The board of directors may, by majority
------------------
vote, appoint one or more advisory directors. Advisory directors shall serve at
the board's convenience solely to advise the board of directors, and shall have
no formal responsibilities. No advisory director shall be entitled to vote at
meetings of the board, nor shall any advisory director be counted when
determining whether there is a quorum at directors' meetings. Advisory
directors shall not be, by virtue of their position as advisory directors,
agents of the Corporation, and they shall not have the power to bind the
Corporation.
ARTICLE VI
COMPENSATION OF DIRECTORS
Section 1. Attendance Fees. Directors, as such, will not receive any
---------------
stated salary for their services, but by resolution of the board a fixed sum and
expenses of attendance may be allowed for attendance at each regular or special
meeting of the board; however, this provision will not preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of committees may be allowed like compensation for attending
committee meetings.
ARTICLE VII
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NOTICES
Section 1. Methods of Notice. Whenever any notice is required to be
-----------------
given to any stockholder or director under the provisions of any statute, the
Certificate of Incorporation or these bylaws, it will not be construed to
require personal notice, but such notice may be given in writing by mail
addressed to such stockholder or director at such address as appears on the
books of the Corporation, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail with postage
thereon prepaid. Notice to directors may also be given by telegram, and notice
given by such means shall be deemed given at the time it is delivered to the
telegraph office.
Section 2. Waiver of Notice. Whenever any notice is required to be
----------------
given to any stockholder or director under the provisions of any statute, the
Certificate of Incorporation or these bylaws, a waiver thereof in writing signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, will be deemed equivalent to the giving of such notice.
Attendance at any meeting will constitute a waiver of notice thereof except as
otherwise provided by statute.
ARTICLE VII
OFFICERS
Section 1. Executive Officers. The officers of the Corporation will
------------------
consist of a Chief Executive Officer, and/or a President, Vice President,
Treasurer, and Secretary, each of whom shall be elected by the board of
directors. The board of directors may also elect a chairman of the board, a
chief executive officer, additional vice presidents, and one or more assistant
secretaries and assistant treasurers. Any two or more offices may be held by
the same person.
Section 2. Election and Qualification. The board of directors at its
--------------------------
first meeting after each annual meeting of stockholders will elect the
President, one or more Vice Presidents, a Secretary and a Treasurer, none of
whom need be a member of the board.
Section 3. Other Officers and Agents. The board may elect or appoint
-------------------------
such other officers, assistant officers and agents as it deems necessary, who
will hold their offices for such terms and shall exercise such powers and
perform such duties as determined from time to time by the board.
Section 4. Salaries. The salaries of all officers of the Corporation
--------
will be fixed by the board of directors except as otherwise directed by the
board.
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Section 5. Term, Removal and Vacancies. The officers of the
---------------------------
Corporation will hold office until their termination or resignation or their
successors are chosen and qualify. Any officer, agent or member of the
executive committee elected or appointed by the board of directors may be
removed at any time by the board of directors; provided, that such removal shall
be without prejudice to the contract rights, if any, of such removed party. If
any such office becomes vacant for any reason, the vacancy will be filled by the
board of directors.
Section 6. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside at meetings of the board of directors and stockholders
and shall have such other powers and duties as may from time to time be
prescribed by duly adopted resolutions of the board of directors.
Section 7. Chief Executive Officer. The Chief Executive Officer, if
-----------------------
one is elected, shall preside at meetings of the board of directors and
stockholders if there is no chairman of the board, and shall supervise and have
overall responsibility for the business, administration and operations of the
Corporation. In general, he shall perform all duties as from time to time may
be assigned to him by the board. He shall from time to time make such reports
of the affairs of the Corporation as the board may require.
Section 8. President. The President shall, subject to the board of
---------
directors, 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 responsibilities including
the powers of general manager; and the president shall see that all orders and
resolutions of the board of directors are carried into effect. The President
shall have such other powers and duties as may from time to time be prescribed
by duly adopted resolution of the board of directors.
Section 9. Vice President. The Vice Presidents in the order determined
--------------
by the board of directors will, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and will perform
such other duties as the board of directors and President may prescribe.
Section 10. Secretary. The Secretary will attend all meetings of the
---------
board of directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and will
perform like duties for the standing committees when required. He will give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and will perform such other duties as may be
prescribed by the board of directors and President. He will keep in safe
custody the seal of the Corporation and, when authorized by the board, affix the
same to any instrument requiring it, and when so affixed it shall be attested by
his signature or by the signature of an assistant secretary.
Section 11. Assistant Secretaries. The Assistant Secretaries in the
---------------------
order determined by the board of directors will perform, in the absence or
disability of the Secretary, the duties and exercise the powers of the Secretary
and will perform such other duties as the board of directors and President may
prescribe.
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Section 12. Treasurer. The Treasurer will have the custody of the
---------
corporate funds and securities and will keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and will
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors. He will disburse the funds of the Corporation as may be ordered by
the board, taking proper vouchers for such disbursements, and will render to the
board of directors and President, whenever they may require it, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation.
Section 13. Assistant Treasurers. The Assistant Treasurers in the order
--------------------
determined by the board of directors, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and will
perform such other duties as the board of directors and President may prescribe.
Section 14. Officer's Bond. If required by the board of directors, any
--------------
officer will give the Corporation a bond (to be renewed as the board may
require) in such sum and with such surety or sureties as is satisfactory to the
board for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
ARTICLE IX
SHARES AND STOCKHOLDERS
Section 1. Certificates Representing Shares. The certificates
--------------------------------
representing shares of the Corporation will be numbered and entered in the books
of the Corporation as they are issued. They will exhibit the holder's name and
number of shares and will be signed by the President or Vice-President and the
Secretary or an Assistant Secretary, and will be sealed with the seal of the
Corporation or a facsimile thereof. The signature of any such officer may be
facsimile if the certifi cate is countersigned by a transfer agent or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate has ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of its issuance.
Section 2. Transfer of Shares. Upon surrender to the Corporation of a
------------------
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it will be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. Notwithstanding
the foregoing, no transfer will be recognized by the Corporation if such
transfer would violate federal or state securities laws, the Certificate of
Incorporation, or any stockholders agreements which may be in
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effect at the time of the purported transfer. The Corporation may, prior to any
such transfer, require an opinion of counsel to the effect that any such
transfer does not violate applicable securities laws requiring registration or
an exemption from registration prior to any such transfer.
Section 3. Fixing Record Date. 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 payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose, the
board of directors may provide that the stock transfer books be closed for a
stated period but not to exceed, in any case, sixty days. If the stock transfer
books are closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, such books must be closed for at
least ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the board of directors may fix in advance a date as the record
date for any such determination of stockholders, such date, in any case, to be
not more than sixty days and, in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, will be the record date
for such determination of stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as herein
provided, such determination will apply to any adjournment thereof except where
the determination has been made through the closing of stock transfer books and
the stated period of closing has expired.
Section 4. Registered Stockholders. The Corporation is entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of the share to receive dividends, and to vote as such owner, and for all other
purposes as such owner; and the Corporation is not 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 has express or other notice thereof, except
as otherwise provided by the laws of Delaware.
Section 5. Lost Certificate. The board of directors may direct a new
----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock 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
representatives, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
ARTICLE X
12
<PAGE>
GENERAL
Section 1. Dividends. The board of directors may from time to time
---------
declare, and the Corporation pay, dividends on its outstanding shares of capital
stock in cash, in property, or in its own shares, except when the declaration or
payment thereof would be contrary to statute or the Certificate of
Incorporation. Such dividends may be declared at any regular or special meeting
of the board, and the declaration and payment will be subject to all applicable
provisions of laws, the Certificate of Incorporation and these bylaws.
Section 2. Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, deem
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors may think conducive to the interest of the Corporation,
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 3. Directors' Annual Statement. The board of directors will
---------------------------
present at each annual meeting and when called for by vote of the stockholders
at any special meeting of the stockholders, a full and clear statement of the
business and condition of the Corporation.
Section 4. Checks. All checks or demands for money and notes of the
------
Corporation will be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 5. Corporate Records. The Corporation will 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 shares held by each.
All other books and records of the Corporation may be kept at such place or
places within or without the State of Delaware as the board of directors may
from time to time determine.
Section 6. Seal. The corporate seal will have inscribed thereon the
----
name of the Corporation. The seal may be used by causing it or a facsimile
thereof to be impressed, affixed or reproduced.
Section 7. Amendment. The board of directors shall have the power to
---------
make, alter, amend and repeal the bylaws. Any bylaws made by the board of
directors under the powers conferred hereby may be altered, amended or repealed
by the directors or by the stockholders; provided, however, that the bylaws
shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted by stockholder action without the affirmative vote of
at least a majority of the voting power of the then outstanding shares entitled
to vote generally in the election of directors, voting together as a single
class.
13
<PAGE>
Section 8. Indemnification. Each director, officer and former director
---------------
or officer of the Corporation, and any person who may have served or who may
hereafter serve at the request of the Corporation as a director or officer of
another corporation in which it owns shares of capital stock or of which it is a
creditor, is hereby indemnified by the Corporation against expenses actually and
necessarily incurred by him in connection with the defense of any action, suit
or proceeding in which he is made a party by reason of being or having been such
director or officer, except in relation to matters as to which he shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of duty and except as otherwise provided by law.
Such indemnification will not be deemed exclusive of any other rights to which
such director, officer or other person may be entitled under any agreement, vote
of stockholders, or otherwise. Without limitation, nothing in this section
shall limit any indemnification provisions in the Certificate of Incorporation.
Adopted this 8 day of July , 1998.
----- --------
/s/ Richard E. Penick
-------------------------------------------------
Name: Richard E. Penick
--------------------------------------------
Title: Vice President
-------------------------------------------
14
<PAGE>
EXHIBIT 3.3
CENTURY MAINTENANCE SUPPLY, INC.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF 13 1/4% SERIES A SENIOR
EXCHANGEABLE PIK PREFERRED STOCK DUE 2010, 13 1/4% SERIES B SENIOR EXCHANGEABLE
PIK PREFERRED STOCK DUE 2010 AND 13 1/4% SERIES C SENIOR EXCHANGEABLE PIK
PREFERRED STOCK DUE 2010 AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
Century Maintenance Supply, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that (i) pursuant to authority conferred upon the board of directors of the
Company (the "Board of Directors") by its Certificate of Incorporation
(hereinafter referred to as the "Certificate of Incorporation"), and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors is authorized to issue Preferred Stock of the
Company in one or more series and (ii) the Board of Directors has duly approved
and adopted the following resolution on July 7, 1998 (the "Resolution"):
RESOLVED that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors does
hereby create, authorize and provide for the issuance of 13 1/4% Series A
Senior Exchangeable PIK Preferred Stock Due 2010, par value $0.001 per
share, initially consisting of up to 560,000 shares, 13 1/4% Series B
Senior Exchangeable PIK Preferred Due 2010, par value $.001 per share,
initially consisting of up to 240,000 shares and 13 1/4% Series C Senior
Exchangeable PIK Preferred Stock Due 2010, par value $0.001 per share,
initially consisting of up to 800,000 shares (collectively, the "Preferred
Stock"), having the designations, preferences, relative, participating,
optional and other special rights and the qualifications, limitations and
restrictions thereof that are set forth
<PAGE>
2
in the Certificate of Incorporation and in this Resolution as follows:
(a) Designation. There is hereby created out of the authorized and
------------
unissued shares of preferred stock of the Company (i) a series of preferred
stock designated as the "13 1/4% Series A Senior Exchangeable PIK Preferred
Stock Due 2010" (the "Series A Preferred Stock"), (ii) a series of preferred
stock designated as the "13 1/4% Series B Senior Exchangeable PIK Preferred
Stock Due 2010" (the Series B Preferred Stock" and, together with the Series A
Preferred Stock the "Initial Preferred Stock") and (iii) a series of preferred
stock designated as the"13 1/4% Series C Senior Exchangeable Preferred Stock Due
2010" (the "Series C Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be 560,000, the number of shares constituting the
Series B Preferred Stock shall be 240,000 and the number of shares constituting
the Series C Preferred Stock shall be 800,000. Except as explicitly provided
herein, the designations, preferences, relative, participating, optional and
other special rights and the qualifications, limitations and restrictions of the
Series A Preferred Stock, the Series B Preferred Stock and Series C Preferred
Stock shall be identical. The Initial Preferred Stock and the Series C Stock
are referred to as the "Preferred Stock". The liquidation preference of the
Preferred Stock shall be $100 per share (the "Liquidation Preference").
(b) Ranking. The Initial Preferred Stock and the Series C Preferred
--------
Stock will each rank on a parity with the other in all respects. The Preferred
Stock will, with respect to dividend rights and rights on liquidation, winding
up and dissolution, rank (i) senior to all classes of common stock of the
Company and to each other class of Capital Stock or series of preferred stock
established hereafter by the Board of Directors the terms of which do not
expressly provide that it ranks senior to, or on a parity with, the Preferred
Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of common stock of the Company, as "Junior Stock") and (ii) on a parity with
each other class of Capital Stock or series of preferred stock established
hereafter by the Board of Directors, the terms of which expressly provide that
such class or series will rank on a parity with the Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Stock").
<PAGE>
3
(c) Dividends. (i) Holders of the outstanding shares of Preferred
----------
Stock will be entitled to receive, when, as and if declared by the Board of
Directors of the Company, out of funds of the Company legally available
therefor, cumulative preferential dividends from the Issue Date of the Preferred
Stock accruing at the rate per share of 13 1/4% per annum of the Liquidation
Preference of such share, payable semi-annually in arrears (each such semi-
annual period being herein called a "Dividend Period") in the manner set forth
below. In addition to the dividends described in the preceding sentence,
holders of outstanding shares of the Series A Preferred Stock will be entitled
to additional dividends (the "Additional Dividends"), when, as and if declared
by the Board of Directors of the Company, out of funds of the Company legally
available therefor, with respect to the shares of the Series A Preferred Stock,
which Additional Dividends shall accrue as follows if any of the following
events occur (each such event in clauses (A), (B), (C), and (D) below being
herein called a "Registration Default"): (A) if on or prior to September 6,
1998, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Securities and Exchange
Commission (the "SEC"); (B) if on or prior to January 4, 1999, neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement has
been declared effective by the SEC; (C) if on or prior to February 3, 1999,
neither the Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective; or (D) after either the
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective, such Registration Statement thereafter ceases to be
effective or usable (in each case except as permitted below) in connection with
resales of Series A Preferred Stock in accordance with and during the periods
specified herein.
Additional Dividends shall accrue on the shares of Series A Preferred
Stock from and including the date on which any such Registration Default shall
occur, to but excluding the date on which all such Registration Defaults have
been cured. Such Additional Dividends will accrue at a rate of 0.25% per annum
during the 90-day period immediately following the occurrence of such
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period, but in no event shall the amount of such Additional
Dividends exceed 1.00% per annum.
A Registration Default referred to in clause (C) of this paragraph
(c)(i) shall be deemed not to have occurred and be continuing in relation to a
Registration Statement or the related prospectus if (i) such Registration
<PAGE>
4
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Registration Statement to incorporate annual audited financial
information with respect to the Company where such post-effective amendment is
not yet effective and needs to be declared effective to permit Holders to use
the related prospectus or (y) other material events with respect to the Company
that would need to be described in the Registration Statement or the related
prospectus and (ii) in the case of clause (y), the Company proceeds promptly and
in good faith to amend or supplement the Registration Statement and related
prospectus to describe such events unless the Company has determined in good
faith that there are material legal or commercial impediments in doing so;
provided, however, that in any case if such Registration Default occurs for a
- -------- -------
continuous period in excess of 45 days, Additional Dividends shall be payable in
accordance with the immediately preceding paragraphs of this paragraph (c)(i)
from the day such Registration Default initially occurs to but excluding the
date on which such Registration Default is cured and provided, further, that not
-------- -------
more than one Registration Default shall be deemed to have occurred pursuant to
clause (y) of this paragraph during any 365-day period.
Any amounts of Additional Dividends due pursuant to clauses (A), (B),
(C) or (D) of this paragraph (c)(i) or pursuant to the proviso contained in the
preceding sentence will be payable on the regular dividend payment dates with
respect to the Series A Preferred Stock and on the same terms and conditions and
subject to the same limitations as pertain at such time for the payment of
regular dividends. The amount of Additional Dividends will be determined by
multiplying the applicable Additional Dividends rate by the aggregate
Liquidation Preference of the outstanding shares of Series A Preferred Stock,
multiplied by a fraction, the numerator of which is the number of days such
Additional Dividend rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
All dividends on the Preferred Stock, including Additional Dividends,
to the extent accrued, shall be cumulative, whether or not the Company has
earnings or profits, whether or not there are funds legally available for the
payments of such dividends and whether or not dividends are declared, on a daily
basis from the Issue Date or, in the case of additional shares of Preferred
Stock issued in payment of a dividend, from the date of issuance of such
additional shares of Preferred Stock, and shall be payable semi-annually in
arrears on each January 1 and July 1 (each, a "Dividend Payment Date"),
commencing on
<PAGE>
5
January 1, 1999, to holders of record on the December 15 and June 15 immediately
preceding the relevant Dividend Payment Date. Any dividend on the Preferred
Stock payable pursuant to this paragraph (c)(i) on or prior to July 1, 2003,
shall be, at the option of the Company, payable (1) in cash or (2) through the
issuance of a number of additional shares (including fractional shares) of
Preferred Stock of the same series of Preferred Stock as to which such dividends
relate (the "Additional Shares") equal to the dividend amount divided by the
Liquidation Preference of such Additional Shares. With respect to dividends
payable after July 1, 2003, all dividends shall be payable solely in cash.
(ii) All dividends paid with respect to shares of the Preferred Stock
pursuant to this paragraph (c) shall be paid pro rata to the Holders entitled
thereto.
(iii) No dividend whatsoever may be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Preferred Stock with respect to any Dividend Period unless all dividends for all
preceding Dividend Periods have been declared and paid or declared and, if
payable in cash, a sufficient sum in cash set apart for the payment of such
dividend, upon all outstanding shares of Preferred Stock.
(iv) No full dividends may be declared or paid or funds set apart for
the payment of dividends by the Company on any Parity Stock for any period
unless full cumulative dividends in respect of each Dividend Period ending on or
before such period shall have been or contemporaneously are declared and paid in
full or declared and, if payable in cash, a sufficient sum in cash set apart for
such payment on the Preferred Stock. If full dividends are not so paid, the
Preferred Stock will share dividends pro rata with the Parity Stock.
(v) The Company will not (A) declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to any Junior Stock
or (B) repurchase, redeem or otherwise retire any Junior Stock or Parity Stock,
nor may funds be set apart for payment with respect thereto, unless all accrued
and unpaid dividends with respect to the Preferred Stock at the time such
dividends are payable have been paid or funds have been set apart for payment of
such dividends, if payable in cash. As used herein, the term "dividend" does
not include dividends payable solely in shares of Junior Stock on Junior Stock.
(vi) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any
<PAGE>
6
optional redemption or any mandatory repurchase may be declared and paid at any
time, without reference to any regular Dividend Payment Date, to holders of
record on such date, not more than 45 days prior to the payment thereof, as may
be fixed by the Board of Directors of the Company.
(vii) Dividends payable on the Preferred Stock for any period other
than a Dividend Period shall be computed on the basis of a 360-day year
comprised of twelve 30-day months and the actual number of days elapsed in the
period for which payable and will be deemed to accrue on a daily basis.
Dividends payable on the Preferred Stock for a full Dividend Period will be
computed by dividing the per annum dividend rate by two.
(viii) The Company shall take all actions required or permitted under
applicable law to permit the payment of dividends on the Preferred Stock
including, without limitation, through the revaluation of its assets in
accordance with the General Corporation Law of the State of Delaware, to make or
keep funds legally available for the payment of dividends.
(d) Liquidation Preference. (i) Upon any voluntary or involuntary
-----------------------
liquidation, dissolution or winding-up of the Company, each Holder of Preferred
Stock will be entitled to be paid, out of the assets of the Company available
for distribution to its stockholders, an amount equal to the Liquidation
Preference per share of Preferred Stock held by such Holder, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
(whether or not declared and including Additional Dividends, if any) thereon to
the date fixed for liquidation, dissolution or winding-up (including, without
duplication, an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or winding
up that would have been payable had the Preferred Stock been the subject of an
Optional Redemption (as defined below) on such date) before any distribution is
made on any Junior Stock, including, without limitation, common stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the holders of
the Preferred Stock and all Parity Stock are not paid in full, the holders of
the Preferred Stock and the Parity Stock will share equally and ratably (in
proportion to the full liquidation preference and accumulated and unpaid
dividends that would be payable on such shares of Preferred Stock and the Parity
Stock, respectively, if all amounts payable thereon had been paid in full) in
any distribution of assets of the Company to
<PAGE>
7
which each is entitled. After payment of the full amount of the Liquidation
Preference of the outstanding shares of Preferred Stock (plus all accumulated
and unpaid dividends), the Holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
other entities shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
(e) Redemption. (i) Optional Redemption. (A) Except as set forth
----------- --------------------
in clause (B) below, the Preferred Stock shall not be redeemable at the option
of the Company prior to July 1, 2003. On or after July 1, 2003, each share of
the Preferred Stock may be redeemed at any time or from time to time, in whole
or in part, at the option of the Company, at the redemption prices (expressed as
a percentage of the Liquidation Preference of such share) set forth below, plus,
without duplication, an amount in cash equal to all accrued and unpaid dividends
(whether or not declared and including Additional Dividends, if any) to the date
fixed for redemption (an "Optional Redemption Date") (including, without
duplication, an amount in cash equal to a prorated dividend for the period from
the Dividend Payment Date immediately prior to such Optional Redemption Date)
(the "Optional Redemption Price"), if redeemed during the 12-month period
beginning July 1 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR IN WHICH
REDEMPTION OCCURS PERCENTAGE
------------------- ----------
<S> <C>
2003...................... 106.625%
2004...................... 105.300%
2005...................... 103.975%
2006...................... 102.650%
2007...................... 101.325%
2008 and thereafter....... 100.0%
</TABLE>
(B) At any time prior to January 1, 2001, the Company may redeem at
its option (i) up to 50% or (ii) all but not less than all of the outstanding
shares of Preferred Stock with the net proceeds of any Public Equity Offering by
the Company at a redemption price (expressed as a percentage of the Liquidation
Preference per share thereof) of 113.250% plus accumulated and unpaid dividends
(whether or not declared and including Additional Dividends, if any) (including,
without duplication, an amount in cash equal to
<PAGE>
8
a prorated dividend for any partial dividend period). Any such redemption shall
be made for a period of 90 days following the consummation of such Public Equity
Offering upon not less than 30 nor more than 60 days' notice.
(C) In the event of a redemption of only a portion of the then
outstanding shares of Preferred Stock, the Company shall effect such redemption
on a pro rata basis, without regard to Series except that the Company may redeem
all of the shares held by Holders of fewer than 100 shares (or all of the shares
held by Holders who would hold less than 100 shares as a result of such
redemption), as may be determined by the Company.
(D) Any redemption effected pursuant to this Section (e)(i) shall be
referred to herein as an "Optional Redemption".
(ii) Mandatory Redemption. Each share of the Preferred Stock (if not
---------------------
earlier redeemed or exchanged) shall be subject to mandatory redemption in whole
(to the extent of lawfully available funds therefor) on July 1, 2010 (the
"Mandatory Redemption Date"), at a price equal to 100% of the Liquidation
Preference of such share, plus an amount equal to all accrued and unpaid
dividends (whether or not declared and including Additional Dividends, if any)
thereon (including, without duplication, an amount equal to a prorated dividend
thereon from the immediately preceding Dividend Payment Date to the Mandatory
Redemption Date), if any, to the Mandatory Redemption Date (the "Mandatory
Redemption Price"). The Company shall take all actions required or permitted
under applicable law to permit the redemption of the Preferred Stock including,
without limitation, through the revaluation of its assets in accordance with the
General Corporation Law of the State of Delaware, to make or keep funds legally
available for such redemption.
(iii) Procedure for Redemption. (A) On and after any Optional
-------------------------
Redemption Date or the Mandatory Redemption Date, as the case may be (the
"Redemption Date"), unless the Company defaults in the payment of the applicable
redemption price, dividends will cease to accumulate on shares of Preferred
Stock called for redemption and all rights of Holders of such shares will
terminate except for the right to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest; provided,
--------
however, that if a notice of redemption shall have been given as provided in
- -------
subparagraph (iii)(B) and the funds necessary for redemption (including an
amount in respect of all dividends that will accrue to the Redemption
<PAGE>
9
Date) shall have been segregated and irrevocably set apart by the Company, in
trust for the benefit of the Holders of the shares called for redemption, then
dividends shall cease to accumulate on the Redemption Date on the shares to be
redeemed and, at the close of business on the day on which such funds are
segregated and set apart, the Holders of the shares to be redeemed shall, with
respect to the shares to be redeemed, cease to be stockholders of the Company
and shall be entitled only to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, for such shares without interest
from the Redemption Date.
(B) With respect to a redemption pursuant to paragraph (e)(i) or
(e)(ii), the Company will send a written notice of redemption by first class
mail to each holder of record of shares of the Preferred Stock at its registered
address, not fewer than 30 days nor more than 60 days prior to the Redemption
Date (the "Redemption Notice"), and notice, if mailed in the manner herein
provided, shall conclusively be presumed to have been given, whether or not the
Holder receives such notice; provided, however, that no failure to give such
-------- -------
notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Preferred Stock to be redeemed except as to the
Holder or Holders to whom the Company has failed to give said notice or except
as to the Holder or Holders whose notice was defective. The Redemption Notice
shall state:
(1) whether the redemption is pursuant to paragraph (e)(i) or (e)(ii)
hereof;
(2) the Optional Redemption Price or the Mandatory Redemption Price,
as the case may be;
(3) whether all or less than all the outstanding shares of Preferred
Stock are to be redeemed and the total number of shares of Preferred Stock
being redeemed;
(4) the Redemption Date;
(5) that the Holder is to surrender to the Company, in the manner, at
the place or places and at the price designated, his certificate or
certificates representing the shares of Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Preferred Stock to be redeemed
shall cease to accumulate on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption Price or the
<PAGE>
10
Mandatory Redemption Price, as the case may be, to Holders of the Preferred
Stock who have duly surrendered their certificates for redemption in
accordance with clause (C) below on or before the Redemption Date.
(C) Each Holder of Preferred Stock shall surrender the certificate or
certificates representing such shares of Preferred Stock to the Company, duly
endorsed (or otherwise in proper form for transfer, as determined by the
Company), in the manner and at the place designated in the Redemption Notice,
and on the Redemption Date the full Optional Redemption Price or Mandatory
Redemption Price, as the case may be, for such shares shall be payable in cash
to the Person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and retired.
In the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(f) Voting Rights. (i) The Holders of Preferred Stock, except as
--------------
otherwise required under Delaware law or as set forth in paragraphs (ii) and
(iii) below, shall not be entitled to vote on any matter required or permitted
to be voted upon by the stockholders of the Company.
(ii) (A) If (1) dividends on the Preferred Stock are in arrears and
unpaid and, in the case of dividends payable after July 1, 2003, are not paid in
cash for six or more Dividend Periods (whether or not consecutive) (a "Dividend
Default"); (2) the Company fails for any reason to redeem the Preferred Stock on
July 1, 2010, or fails to otherwise discharge any redemption obligation with
respect to the Preferred Stock; (3) the Company fails to make an offer to redeem
all of the outstanding shares of Preferred Stock following a Change of Control
(whether or not the Company is permitted to do so by the terms of the Exchange
Indenture, the Credit Facility or any other obligation of the Company); (4) a
breach or violation of any of the provisions set forth under paragraph (l)
(Certain Additional Provisions) occurs and (except with respect to a breach or
violation of paragraph (l)(ii)), the breach or violation continues for a period
of 30 days or more after the Company receives notice thereof specifying the
default from the Holders of at least 25% of the shares of Preferred Stock then
outstanding; or (5) the Company fails to pay at final maturity (giving effect to
any applicable grace period) the principal amount of any Debt of the Company or
any Subsidiary of the Company or the Stated Maturity of any such Debt of the
Company or any Subsidiary of the Company is
<PAGE>
11
accelerated because of a default and the total amount of such Debt unpaid or
accelerated exceeds $7.5 million, then the number of directors constituting the
Board of Directors of the Company will, subject to paragraph (f)(ii)(E), be
increased by two and the Holders of the then outstanding shares of Preferred
Stock (together with the holders of any other series of preferred stock upon
which like rights have been conferred and are exercisable), voting together as a
class, shall have the right and power to elect such two additional directors.
Each such event described in clauses (1), (2), (3), (4) or (5) above is a
"Voting Rights Triggering Event".
(B) The voting rights set forth in paragraph (f)(ii)(A) above will
continue until such time as (x) in the case of a Dividend Default, all dividends
in arrears on the Preferred Stock are paid in full in cash and (y) in all other
cases, any failure, breach or default giving rise to such Voting Rights
Triggering Event is remedied or waived by the Holders of at least a majority of
the shares of Preferred Stock then outstanding, at which time the term of any
directors elected pursuant to the provisions of paragraph (f)(ii)(A) above
(subject to the right of holders of any other preferred stock to elect such
directors) shall terminate forthwith and the number of directors constituting
the Board of Directors shall be decreased by two (until the occurrence of any
subsequent Voting Rights Triggering Event). At any time voting power to elect
directors shall have become vested and be continuing in the Holders of Preferred
Stock (together with the holders of any other series of preferred stock upon
which like rights have been conferred and are exercisable) or if vacancies shall
exist in the offices of directors elected by such Holders, any officer empowered
to call such meetings by the Certificate of Incorporation of the Company may,
and upon the written request of the Holders of record of at least 25% of the
shares of Preferred Stock then outstanding or the holders of 25% of the shares
of any other series of preferred stock then outstanding upon which like rights
have been conferred and are exercisable addressed to the Secretary of the
Company shall, call a special meeting of the Holders of Preferred Stock and the
holders of such preferred stock for the purpose of electing the directors which
such holders are entitled to elect pursuant to the terms hereof; provided,
--------
however, that no such special meeting shall be called if the next annual meeting
- -------
of stockholders of the Company is to be held within 60 days after the voting
power to elect directors shall have become vested, in which case such meeting
shall be deemed to have been called for such next annual meeting. If such
meeting shall not be called within 20 days after personal service to
<PAGE>
12
the Secretary of the Company at its principal executive offices, then the
Holders of record of the outstanding shares of Preferred Stock or the holders of
the shares of any other series of preferred stock upon which like rights have
been conferred and are exercisable may act by written consent to elect the
additional directors provided for in this section (f). Any Holder of Preferred
Stock or such preferred stock shall have, and the Company shall provide, access
to the lists of Holders of Preferred Stock and the holders of such preferred
stock entitled to elect directors pursuant to the provisions hereof. If no
special meeting of the Holders of Preferred Stock and the holders of other such
preferred stock is called as provided in this paragraph (f)(ii) and no action by
written consent to elect the additional directors has become effective, then a
special meeting shall be deemed to have been called for the next annual meeting
of stockholders of the Company or special meeting of the holders of any other
Capital Stock of the Company.
(C) At any meeting held for the purpose of electing directors at
which the Holders of Preferred Stock (together with the holders of any other
series of preferred stock upon which like rights have been conferred and are
exercisable) shall have the right, voting together as a single class, to elect
directors as aforesaid, the presence in person or by proxy of the Holders of at
least a majority in voting power of the outstanding shares of Preferred Stock
(and holders of such other preferred stock) shall be required to constitute a
quorum thereof. In the event that such election of directors is effected by
written consent, such election shall be a valid action of the shareholders and
such directors shall be duly and validly elected if (i) a majority of the
Holders of Preferred Stock and holders of preferred stock entitled to elect
additional directors pursuant to this section (f) have tendered written consents
pursuant to such election and (ii) the directors so elected have received votes
indicated by a majority of the consents so tendered.
(D) Any vacancy occurring in the office of a director elected by the
Holders of Preferred Stock (and holders of such other preferred stock) may be
filled by the remaining director elected by the Holders of Preferred Stock (and
holders of such other preferred stock) unless and until such vacancy shall be
filled by the Holders of Preferred Stock (and holders of such other preferred
stock).
(E) In the event that an event occurs at any time which results in
the holders of any Parity Stock having voting rights to elect directors to the
Board of Directors,
<PAGE>
13
Holders of Preferred Stock shall, whether or not such event otherwise
constitutes a Voting Rights Triggering Event pursuant to paragraph (f)(ii)(A),
have the voting rights set forth in paragraphs (f)(ii)(A) and (f)(ii)(B), and
such event shall be deemed (for purposes of this paragraph (f) only) to
constitute a Voting Rights Triggering Event. In addition, in the event that
during a time in which directors elected by the Holders of Preferred Stock
pursuant to this paragraph (f)(ii) are serving on the Board of Directors
("Previously-Elected Directors") an event occurs which results in holders of
other preferred stock having voting rights to elect (voting together with the
Holders of Preferred Stock) at least two directors to the Board of Directors,
the Holders of Preferred Stock shall vote together, as a single class, with the
holders of such other preferred stock to elect such new directors, and upon the
election of the new directors the term of office of the Previously-Elected
Directors shall (unless such Previously-Elected Directors are elected as new
directors) automatically terminate.
(iii) (A) So long as any shares of Preferred Stock are outstanding,
the Company will not authorize, create or increase the authorized amount of any
class or series of Capital Stock or preferred stock, the terms of which
expressly provide that such class or series will rank senior to the Preferred
Stock as to dividend rights and rights upon liquidation, winding-up and
dissolution of the Company (collectively referred to as "Senior Stock") or
Parity Stock without the affirmative vote or consent of Holders of at least 66-
2/3% of the shares of Preferred Stock then outstanding, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in writing or
by resolution adopted at an annual or special meeting; provided, however, that
-------- -------
for the purposes of calculating such percentage of shares of Preferred Stock,
any shares of Preferred Stock held by the Company or any Affiliate thereof shall
not be counted to determine the number of shares of Preferred Stock that have
voted or consented.
(B) In addition to any other vote required by law, so long as any
shares of the Preferred Stock are outstanding, the affirmative vote or consent
of Holders of at least a majority of the issued and then outstanding shares of
Preferred Stock, voting or consenting, as the case may be, as one class, given
in person or by proxy, either in writing or by resolution adopted at an annual
or special meeting shall be required to amend this Certificate of Designation so
as to affect adversely the specified rights, preferences, privileges or voting
rights of Holders of shares of Preferred Stock or to authorize the issuance of
<PAGE>
14
any additional shares of Preferred Stock (except to authorize the issuance of
additional shares of Preferred Stock to be paid as dividends on the Preferred
Stock, for which no vote or consent shall be necessary).
(C) Except as set forth in paragraph (f)(iii)(A) or (B) above, (x)
the creation, authorization or issuance of any shares of any Junior Stock,
Parity Stock or Senior Stock, including the designation of a series thereof
within the existing class of Preferred Stock, or (y) the increase or decrease in
the amount of authorized Capital Stock of any class, including any Preferred
Stock, shall not require the consent of Holders of Preferred Stock and shall not
be deemed to affect adversely the rights, preferences, privileges or voting
rights of shares of Preferred Stock.
(D) Prior to the exchange of Preferred Stock for Exchange Debentures,
the Company shall not amend or modify the Exchange Indenture (except as
expressly provided therein in respect of amendments which may be effected
without the consent of holders of the Exchange Debentures) without the
affirmative vote or consent of Holders of at least a majority of the shares of
Preferred Stock then outstanding, voting or consenting, as the case may be, as
one class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting; provided that this paragraph shall not
--------
prohibit the merger of the Company and a Wholly Owned Subsidiary of the Company
incorporated in another state of the United States solely for the purpose of
reincorporating the Company to the extent that the surviving corporation adopts
a series of preferred stock and executes an indenture relating to debt
securities having, in each case, terms and provisions substantially similar to
those set forth in this Certificate of Designation of the Preferred Stock and
the Exchange Indenture, which preferred stock and debt securities shall be
issuable in exchange for the Preferred Stock on the terms set forth in paragraph
(g).
(iv) In any case in which the Holders of Preferred Stock shall be
entitled to vote pursuant to this paragraph (f) or pursuant to law, each Holder
of Preferred Stock entitled to vote with respect to such matters shall be
entitled to one vote for each share of Preferred Stock held.
(g) Exchange. (i) Exchange for Exchange Debentures. (A) The
--------- ---------------------------------
Company may, at its option, exchange the Preferred Stock, in whole but not in
part (including in conjunction with, and after giving effect to, a redemption of
up to 50% of the outstanding shares of Preferred Stock with the proceeds of a
Public Equity Offering by the Company
<PAGE>
15
pursuant to clause (B) of paragraph (e)(i) above), at any time, for Exchange
Debentures; provided, however, that (i) on the date of such exchange there are
-------- -------
no accumulated and unpaid dividends on the Preferred Stock (including the
dividend payable on such date) that are not paid contemporaneously with such
exchange or other contractual impediments to such exchange; (ii) such exchange
is permitted under applicable law; (iii) immediately after giving effect to such
exchange, no Default (as defined in the Exchange Indenture) or Voting Rights
Triggering Event, as applicable, shall have occurred and be continuing; and (iv)
the Company shall have delivered to the Trustee under the Exchange Indenture, an
opinion of counsel with respect to the due authorization and issuance of the
Exchange Debentures.
(B) Upon any exchange of Preferred Stock for Exchange Debentures
pursuant to this paragraph (g)(i), each Holder of Preferred Stock will be
entitled to receive, subject to the second succeeding sentence, $1.00 principal
amount of Exchange Debentures for each $1.00 Liquidation Preference of Preferred
Stock so exchanged, and an amount in cash equal to a prorated dividend for any
partial dividend period. The Exchange Debentures will be issued in registered
form without coupons. Exchange Debentures issued in exchange for Preferred
Stock will be issued in principal amounts of $1,000 and integral multiples
thereof to the extent possible, and will also be issued in principal amounts
less than $1,000 so that each Holder of Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which such
Holder's shares of Preferred Stock entitle such Holder; provided, however, that
-------- -------
the Company may pay cash in lieu of issuing a Exchange Debenture in a principal
amount less than $1,000.
(ii) Procedures. (A) The Company will send a written notice of
-----------
exchange (the "Exchange Notice") by first-class mail to each Holder of record of
shares of Preferred Stock not fewer than 30 days nor more than 60 days before
the date fixed for any exchange (the "Exchange Date") at its registered address
and notice, if mailed in the manner herein provided, shall conclusively be
presumed to have been given, whether or not the Holder receives such notice;
provided, however, that no failure to give such notice nor any deficiency
- -------- -------
therein shall affect the validity of the procedure for the redemption of any
shares of Preferred Stock to be exchanged except as to the Holder or Holders to
whom the Company has failed to give said notice or except as to the Holder or
Holders whose notice was defective; provided further that, in the event of any
----------------
exchange which is intended to occur in conjunction with a Public Equity
<PAGE>
16
Offering by the Company, (i) the Company may provide for an Exchange Date which
relates to the consummation of such Public Equity Offering and (ii) the Company
shall have the right to revoke such written notice in the event that such
related Public Equity Offering is terminated by sending by first-class mail a
subsequent written notice to such Holders within two Business Days following
such termination.
The Exchange Notice shall state:
(1) the Exchange Date;
(2) that the Holder is to surrender to the Company, in the manner and
at the place or places designated, his certificate or certificates
representing the shares of Preferred Stock to be exchanged;
(3) that dividends on the shares of Preferred Stock to be exchanged
shall cease to accrue on such Exchange Date whether or not certificates
representing shares of Preferred Stock are surrendered for exchange on such
Exchange Date unless the Company shall default in the delivery of the
Exchange Debentures to Holders of the Preferred Stock who have duly
surrendered their certificates for exchange in accordance with clause
(g)(ii)(C) on or before the Exchange Date; and
(4) that interest on the Exchange Debentures shall accrue from the
Exchange Date whether or not certificates for shares of Preferred Stock are
surrendered for exchange on such Exchange Date.
(B) On and after the Exchange Date, dividends will cease to accrue on
the outstanding shares of Preferred Stock, and all rights of the Holders of
Preferred Stock (except the right to receive the Exchange Debentures or an
amount in cash, to the extent applicable, equal to the accumulated and unpaid
dividends to the Exchange Date and, if the Company so elects, cash in lieu of
any Exchange Debenture that is in a principal amount that is not an integral
multiple of $1,000) will terminate. Subject to clause (g)(ii)(D) below, from
and after the Exchange Date, the Person entitled to receive the Exchange
Debentures issuable upon such exchange will be treated for all purposes as the
registered holder of such Exchange Debentures.
(C) On or before the Exchange Date, each Holder of Preferred Stock
shall surrender the certificate or certificates representing such shares of
Preferred Stock, in the manner and at the place designated in the Exchange
<PAGE>
17
Notice. Upon surrender in accordance with the Exchange Notice of the
certificates representing any shares of Preferred Stock so exchanged, duly
endorsed (or otherwise in proper form for transfer, as determined by the
Company), such shares shall be exchanged by the Company for Exchange Debentures
in accordance with clause (g)(i)(B). Subject to clause (g)(ii)(D) below, the
Company shall pay interest on the Exchange Debentures at the rate and on the
dates specified therein from the Exchange Date.
(D) Anything contained herein to the contrary notwithstanding, no
Holder of Preferred Stock will be entitled to receive any payment of interest on
Exchange Debentures, or exercise any other right or privilege in respect
thereof, until such Holder has surrendered the certificate or certificates
evidencing such Holder's Preferred Stock in accordance with clause (g)(ii)(C).
The Company shall pay all interest, which would have accrued on a Holder's
Exchange Debentures, without additional interest, had such Holder surrendered
the certificate or certificates evidencing such Holder's Preferred Stock on the
Exchange Date at the time such certificate or certificates are duly surrendered.
(iii) No Exchange in Certain Cases. Notwithstanding the foregoing
-----------------------------
provisions of this paragraph (g), the Company shall not be entitled to exchange
the Preferred Stock for Exchange Debentures if such exchange, or any term or
provision of the Exchange Indenture or the Exchange Debentures, or the
performance of the Company's obligations under this Certificate of Designation,
the Preferred Stock, the Exchange Indenture or the Exchange Debentures, shall
violate or conflict with any applicable law or agreement or instrument then
binding on the Company or if, at the time of such exchange, the Company is
insolvent or would be rendered insolvent by such exchange.
(iv) Exchange of Initial Preferred Stock for Series C Stock. The
-------------------------------------------------------
Series C Stock will be issued by the Company in exchange for shares of Initial
Preferred Stock only upon the circumstances described in paragraph (m)(ii). Each
share of Series C Stock issued in exchange for a share of Initial Preferred
Stock will be deemed to have the same Liquidation Preference and accrued and
unpaid dividends as the share of Initial Preferred Stock so exchanged.
(h) Redemption at the Option of Holders Upon a Change of Control.
-------------------------------------------------------------
(i) Upon the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), each Holder of Preferred Stock shall have
the right to require the Company to redeem all or any part
<PAGE>
18
of such Holder's Preferred Stock pursuant to the offer described in paragraph
(h)(ii) below (the "Change of Control Offer") at a cash redemption price (the
"Change of Control Redemption Price") equal to 101% of the Liquidation
Preference thereof, plus payment in cash of accrued and unpaid dividends
thereon, if any, to the redemption date (including an amount in cash equal to a
prorated dividend for any partial dividend period).
(ii) Within 30 days following the date on which the Company knows or
reasonably should have known a Change of Control has occurred, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the Transfer Agent, to each
Holder of Preferred Stock, at such Holder's address appearing in the security
register, a notice stating: (A) that a Change of Control has occurred and a
Change of Control Offer is being made pursuant to this paragraph (h) and that
all Preferred Stock timely tendered will be accepted for payment; (B) the Change
of Control Redemption Price and the purchase date (the "Change of Control
Redemption Date"), which shall be, subject to any contrary requirements of
applicable law, a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (C) the circumstances and relevant facts
regarding the Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to the
Change of Control); (D) that any shares of Preferred Stock not tendered will
continue to accrue dividends; (E) that, unless the Company defaults in making
payment therefor, any share of Preferred Stock accepted for payment pursuant to
the Change of Control Offer shall cease to accrue dividends after the Change of
Control Redemption Date; (F) that Holders electing to have any shares of
Preferred Stock redeemed pursuant to a Change of Control Offer will be required
to surrender stock certificates representing such shares of Preferred Stock,
properly endorsed for transfer, together with such other customary documents as
the Company and the Transfer Agent may reasonably request, to the Transfer Agent
and registrar for the Preferred Stock at the address specified in the notice
prior to the close of business on the Business Day prior to the Change of
Control Redemption Date; (G) that Holders will be entitled to withdraw their
election if the Company receives, not later than five Business Days prior to the
Change of Control Redemption Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the number of shares of Preferred
Stock the Holder delivered for redemption and a statement that such
<PAGE>
19
Holder is withdrawing his election to have such shares of Preferred Stock
redemption; and (H) that Holders whose shares of Preferred Stock are redeemed
only in part will be issued a new certificate representing the unredeemed shares
of Preferred Stock.
(iii) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the redemption of Preferred Stock pursuant to
a Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Certificate of Designation,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this Certificate of
Designation by virtue of such compliance.
(iv) On the Change of Control Redemption Date the Company shall (A)
accept for payment the shares of Preferred Stock validly tendered pursuant to
the Change of Control Offer, (B) pay to the Holders of shares so accepted the
redemption price therefor in cash and (C) cancel each surrendered certificate
and retire the shares represented thereby. Unless the Company defaults in the
payment for the shares of Preferred Stock duly tendered pursuant to the Change
of Control Offer, dividends will cease to accrue with respect to the shares of
Preferred Stock tendered and all rights of Holders of such tendered shares will
terminate, except for the right to receive payment therefor, on the Change of
Control Redemption Date.
(v) To accept the Change of Control Offer, the Holder of a share of
Preferred Stock shall deliver, on or before the 10th day prior to the Change of
Control Redemption Date, written notice to the Company (or an agent designated
by the Company for such purpose) of such Holder's acceptance, together with
certificates evidencing the shares of Preferred Stock with respect to which the
Change of Control Offer is being accepted, duly endorsed for transfer.
(i) Conversion or Exchange. The Holders of shares of Preferred Stock
-----------------------
shall not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of Capital Stock of the Company.
(j) Reissuance of Preferred Stock. Shares of Preferred Stock that
------------------------------
have been issued and reacquired in any manner, including shares purchased or
redeemed or exchanged,
<PAGE>
20
shall not be reissued as shares of Preferred Stock and shall (upon compliance
with any applicable provisions of the laws of Delaware) have the status of
authorized and unissued shares of preferred stock undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock;
provided, however, that so long as any shares of Preferred Stock are
- -------- -------
outstanding, any issuance of such shares must be in compliance with the terms
hereof.
(k) Business Day. If any payment, redemption or exchange shall be
-------------
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(l) Certain Additional Provisions. The sole remedy to Holders of
------------------------------
Preferred Stock in the event of the Company's failure to comply with the
provisions of paragraph (f)(iii)(D) or (g)(i)(B) or any of the following
provisions, and the sole consequence of any such failure, shall be the voting
rights described in paragraph (f)(ii):
(i) SEC Reports. Commencing 60 days after the Issue Date
------------
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide the Holders and, upon request, security analysts of
prospective holders of the Preferred Stock with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections; provided, however, that the Company shall not
-------- -------
be so obligated to file such information, documents and reports with the SEC if
the SEC does not permit such filings.
(ii) Limitation on Debt. The Company shall not, and shall not permit
-------------------
any Restricted Subsidiary to, Incur, directly, any Debt unless, after giving pro
forma effect to the application of the proceeds thereof, either (a) after giving
effect to the Incurrence of such Debt and the application of the proceeds
thereof, the Consolidated Interest Coverage Ratio would be greater than 2.00 to
1.00 or (b) such Debt is Permitted Debt.
(iii) Limitation on Restricted Payments. The Company shall not make,
----------------------------------
and shall not permit any Restricted Subsidiary to make, directly or indirectly,
any Restricted
<PAGE>
21
Payment if at the time of, and after giving pro forma effect to, such proposed
Restricted Payment,
(a) a Voting Rights Triggering Event shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of covenant (l)(ii) above or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt for Parity Stock
or Junior Stock (other than Disqualified Stock) of the Company (less
the amount of any cash or other Property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange),
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, to the extent such dividends,
repayments or transfers do not increase the amount of Permitted
Investments permitted to be made pursuant to clause (i) of the
definition thereof
<PAGE>
22
and (B) the portion (proportionate to the Company's equity interest in
such Unrestricted Subsidiary) of the Fair Market Value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however,
-------- -------
that the foregoing sum shall not exceed, in the case of any Person,
the amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Person,
and
(v) $5.0 million.
Notwithstanding the foregoing limitations, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this covenant; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Voting Rights Triggering
Event shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of, Parity
Stock or Junior Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees); provided, however,
-------- -------
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above; and
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value shares of, or options to purchase shares of, common stock of the
Company from employees or former employees of the Company or its
Subsidiaries (or their estates or beneficiaries thereof) (1) in connection
with the Recapitalization in
<PAGE>
23
an amount not to exceed $4,000,000 in the aggregate representing the
repurchase of outstanding options from employees of the Company and its
Subsidiaries within 30 days of the consummation of the Recapitalization,
and (2) upon death, disability, retirement or termination pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell, or are granted the option to purchase or
sell, shares of such common stock; provided, however, that (i) the
-------- -------
aggregate amount of such purchases, repurchases, redemptions, defeasances,
acquisitions or retirements pursuant to clause (2) hereof shall not exceed
$2.5 million in any year or $5.0 million during the term of the Preferred
Stock, except that (x) such amounts shall be increased by the aggregate net
amount of cash received by the Company after the Issue Date from the sale
of such shares to, or the exercise of options to purchase such shares by,
employees of the Company or its Subsidiaries and (y) the Company may
forgive or return Employee Notes without regard to the limitation set forth
in clause (c)(i) above and such forgiveness or return shall not be treated
as a Restricted Payment for purposes of determining compliance with such
clause (c)(i) and (ii) such purchases, repurchases, defeasances,
acquisitions or retirements (but not forgiveness or return of Employee
Notes) pursuant to clause (2) hereof shall be included in the calculation
of the amount of Restricted Payments.
(iv) Limitation on Issuance or Sale of Capital Stock of Restricted
-------------------------------------------------------------
Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or otherwise
- -------------
dispose of any shares of Capital Stock of a Restricted Subsidiary or (b) permit
any Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock, other than (i) directors' qualifying
shares and (ii) to the Company or a Wholly Owned Subsidiary. Notwithstanding the
foregoing, the Company may dispose of 100% of the shares of Capital Stock of
another Restricted Subsidiary; provided that (A) the Net Available Cash received
--------
by the Company from any such transaction is applied within twelve months from
the date of the receipt of such Net Available Cash to prepay, repay, legally
defease or purchase Debt of the Company or any Restricted Subsidiary (excluding,
in any such case, Disqualified Stock and Debt owed to the Company or an
Affiliate of the Company) or to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by the Company or a Restricted
Subsidiary with Net Available Cash received by
<PAGE>
24
the Company); and (B) the Company receives consideration at the time of such
disposition at least equal to the Fair Market Value of such Restricted
Subsidiary and at least 75% of the consideration received by the Company in
connection with such disposition is in the form of cash, cash equivalents or
Additional Assets or the assumption by the purchaser of liabilities of the
Company or any other Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Preferred Stock) as a result of which the
Company and the other Restricted Subsidiaries are no longer obligated with
respect to such liabilities.
(v) Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries. The Company shall not, and shall not permit any Restricted
- -------------
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any Restricted Subsidiary (except, with respect to restrictions
on dividends of non-cash Property, as permitted pursuant to clause (ii) of the
next sentence), (b) make any loans or advances to the Company or any Restricted
Subsidiary or (c) transfer any of its Property to the Company or any Restricted
Subsidiary. The foregoing limitations will not apply (i) with respect to
clauses (a), (b) and (c), to restrictions (A) in effect on the Issue Date, (B)
pursuant to the Credit Facility, (C) relating to Debt of a Restricted Subsidiary
and existing at the time it became a Restricted Subsidiary if such restriction
was not created in connection with or in anticipation of the transaction or
series of transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company or (D) which result from
the Refinancing of Debt Incurred pursuant to an agreement referred to in clause
(i)(A) or (C) above or in clause (ii)(A) or (B) below; provided such restriction
--------
is no less favorable to the Holders of the Preferred Stock than those under the
agreement evidencing the Debt so Refinanced, and (ii) with respect to clause (c)
only, to restrictions (A) encumbering Property at the time such Property was
acquired by the Company or any Restricted Subsidiary, so long as such
restriction relates solely to the Property so acquired and was not created in
connection with or in anticipation of such acquisition, (B) resulting from
customary provisions restricting subletting or assignment of leases or customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder or (C) customary restrictions contained in asset sale
<PAGE>
25
agreements limiting the transfer of such Property pending the closing of such
sale.
(vi) Limitation on Transactions with Affiliates. The Company shall
-------------------------------------------
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any transaction or series
of transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing,
(ii) in the interest of the Company or such Restricted Subsidiary, as the case
may be, and (iii) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2.5 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clauses (a)(ii) and (iii) of this paragraph as
evidenced by a Board Resolution and (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $5.0 million, the Company obtains a
written opinion from an Independent Appraiser to the effect that the
consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(1) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(2) any Restricted Payment permitted to be made pursuant to the
covenant described in paragraph(l)(iii) above;
<PAGE>
26
(3) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(4) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or any
Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(5) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(6) the sale of common stock of the Company for cash; provided that
--------
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
(7) the payment of dividends in kind in respect of any preferred stock
issued in compliance with this covenant;
(8) a proportionate split of, or a common stock dividend payable on,
the common stock of the Company;
(9) payments under any real or personal property lease with an
Affiliate of the Company existing at the Issue Date and any other real or
personal property lease with an Affiliate of the Company that is approved
by a majority of the disinterested members of the Board of Directors of the
Company; and
(10) sales of inventory at a price no less than the price the Company
paid to purchase such inventory and in customary volumes to CAC, purchases
of inventory at cost from CAC, and the provision of administrative services
to CAC.
(vii) Designation of Restricted and Unrestricted Subsidiaries. The
--------------------------------------------------------
Board of Directors may designate any Subsidiary to be an Unrestricted Subsidiary
if (a) the Subsidiary to be so designated does not own any Capital Stock or Debt
of, or own or hold any Lien on any Property of, the Company or any other
Restricted Subsidiary, (b) the
<PAGE>
27
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
-------- -------
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if the requirement set
forth in the immediately following paragraph will not be satisfied after giving
pro forma effect to such classification. Except as provided in the first
sentence of this paragraph, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, the Company could Incur at least $1.00 of additional Debt pursuant
to clause (a) of covenant (l)(ii) above.
Any such designation or redesignation by the Board of Directors will
be evidenced by a Board Resolution giving effect to such designation or
redesignation.
(viii) Limitation on the Company's Business. The Company shall not,
-------------------------------------
directly or indirectly, engage in any business or activity other than the
business currently conducted by it and its Restricted Subsidiaries, and Related
Businesses.
(ix) Merger, Consolidation and Sale of Property. The Company shall
-------------------------------------------
not merge, consolidate or amalgamate with or into any other Person (other than a
merger of a Wholly Owned Subsidiary into the Company) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all its Property in
any one transaction or series of transactions unless: (a) the Company shall be
the surviving Person (the "Surviving Person") or the Surviving Person (if other
than the Company) formed by such merger, consolidation or amalgamation or to
which such sale, transfer, assignment, lease, conveyance or disposition is made
shall be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia; (b) the
Surviving Person (if other than the Company) expressly assumes all obligations
of the
<PAGE>
28
Company under the Preferred Stock and this Certificate of Designation; (c) in
the case of a sale, transfer, assignment, lease, conveyance or other disposition
of all or substantially all the Property of the Company, such Property shall
have been transferred as an entirety or virtually as an entirety to one Person;
(d) immediately before and after giving effect to such transaction or series of
transactions on a pro forma basis (and treating, for purposes of this clause (d)
and clauses (e) and (f) below, any Debt which becomes, or is anticipated to
become, an obligation of the Surviving Person or any Restricted Subsidiary as a
result of such transaction or series of transactions as having been Incurred by
the Surviving Person or such Restricted Subsidiary at the time of such
transaction or series of transactions), no Voting Rights Triggering Event shall
have occurred and be continuing; (e) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Company or the
Surviving Person, as the case may be, would be able to Incur at least $1.00 of
additional Debt under clause (a) of the first paragraph of covenant (l)(ii)
above, determining compliance thereunder for this purpose based upon the
Consolidated Interest Expense, Consolidated Net Income and EBITDA of the Company
or the Surviving Person, as the case may be, and its Restricted Subsidiaries;
provided, however, that this clause (e) shall not apply to a merger between the
- -------- -------
Company and a Wholly Owned Subsidiary of the Company solely for the purpose of
reincorporating the Company in another state of the United States so long as the
total amount of Debt of the Company and its Restricted Subsidiaries is not
increased as a result thereof; and (f) the Board of Directors shall adopt a
Board Resolution and obtain an Opinion of Counsel, each stating that such
transaction complies with this covenant and that all conditions precedent herein
provided for relating to such transaction have been satisfied.
(m) Certificates. (i) Form and Dating. The Preferred Stock
------------- ----------------
certificates and the Transfer Agent's countersignature shall be substantially in
the form of Exhibit A, B or C, as applicable which are hereby incorporated in
and expressly made a part of this Certificate of Designation. The Preferred
Stock certificates may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). Each Preferred Stock certificate shall be dated the
date of its countersignature. The terms of the Preferred Stock certificates set
forth in Exhibits A, B and C are part of the terms of this Certificate of
Designation.
<PAGE>
29
(A) Global Preferred Stock. Rule 144A Preferred Stock shall be
-----------------------
issued initially in the form of one or more permanent global securities in
definitive, fully registered form (collectively, the "Rule 144A Global Preferred
Stock") and Regulation S Preferred Stock shall be issued initially in the form
of one or more temporary global securities (collectively, the "Temporary
Regulation S Global Preferred Stock"), in each case without coupons with the
global securities legend and restricted securities legend set forth in Exhibit A
hereto, which shall be deposited on behalf of the purchasers of the Initial
Preferred Stock represented thereby with the Transfer Agent, at its New York
office, as custodian for DTC (or with such other custodian as DTC may direct),
and registered in the name of DTC or a nominee of DTC, duly executed by the
Company and countersigned by the Transfer Agent as hereinafter provided.
Beneficial ownership interests in the Temporary Regulation S Global Preferred
Stock will not be exchangeable for interests in the Rule 144A Global Preferred
Stock, a permanent Regulation S global security (the "Permanent Regulation S
Global Preferred Stock"), or any other security without a legend containing
restrictions on transfer until the expiration of the Restricted Period and then
only upon certification in form reasonably satisfactory to the Transfer Agent
that beneficial ownership interests in such Temporary Regulation S Global
Preferred Stock are owned either by non-U.S. persons or U.S. persons who
purchased such interests in a transaction that did not require registration
under the Securities Act. The Rule 144A Global Preferred Stock, Temporary
Regulation S Global Preferred Stock and Permanent Regulation S Global Preferred
Stock are collectively referred to herein as "Global Preferred Stock." Subject
to the terms hereof and to the requirements of applicable law, the number of
shares of Preferred Stock represented by Global Preferred Stock may from time to
time be increased or decreased by adjustments made on the records of the
Transfer Agent and DTC or its nominee as hereinafter provided. The Transfer
Agent shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Certificate of
Designation or under applicable law with respect to any transfer of any interest
in the Preferred Stock (including any transfers between or among DTC
participants, members or beneficial owners in any Global Preferred Stock) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by the terms of this Certificate of
Designation, and to examine the same to determine substantial compliance as to
form with the express requirements hereof.
<PAGE>
30
(B) Certificated Preferred Stock. The Series B Preferred Stock shall
-----------------------------
be issued in the form of individual definitive Preferred Stock Certificates in
fully registered form without distribution coupons and with the appropriate
restrictive legends included in Exhibit C hereto.
(C) Book-Entry Provisions. In the event Global Preferred Stock is
----------------------
deposited with or on behalf of DTC, the Company shall execute and the Transfer
Agent shall countersign and deliver initially one or more Global Preferred Stock
certificates that (a) shall be registered in the name of DTC for such Global
Preferred Stock or the nominee of DTC and (b) shall be delivered by the Transfer
Agent to DTC or pursuant to DTC's instructions or held by the Transfer Agent as
custodian for DTC.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Certificate of Designation with respect to any Global
Preferred Stock held on their behalf by DTC or by the Transfer Agent as the
custodian of DTC or under such Global Preferred Stock, and DTC may be treated by
the Company, the Transfer Agent and any agent of the Company or the Transfer
Agent as the absolute owner of such Global Preferred Stock for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Transfer Agent or any agent of the Company or the Transfer Agent
from giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Agent Members, the operation
of customary practices of DTC governing the exercise of the rights of a holder
of a beneficial interest in any Global Preferred Stock.
(D) Definitive Securities. Except as provided by applicable law or
----------------------
as provided in this paragraph (m)(i) or in paragraph (m)(iii), owners of
beneficial interests in Global Preferred Stock will not be entitled to receive
physical delivery of certificated Preferred Stock.
(ii) Execution and Countersignature. Two Officers shall sign the
-------------------------------
certificates representing Preferred Stock for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Preferred Stock and may be in facsimile form.
If an Officer whose signature is on certificates representing
Preferred Stock no longer holds that office at the time the Transfer Agent
countersigns the Preferred Stock evidenced thereby, the shares of Preferred
Stock evidenced thereby shall be valid nevertheless.
<PAGE>
31
A certificate representing Preferred Stock shall not be valid until an
authorized signatory of the Transfer Agent manually countersigns the Preferred
Stock. The signature shall be conclusive evidence that the Preferred Stock has
been countersigned under this Certificate of Designation.
The Transfer Agent shall countersign and deliver: (1) up to 280,000
shares of Series A Preferred Stock for original issue, (2) 120,000 shares of
Series B Preferred Stock for original issue (3) up to 280,000 shares of Series A
Preferred Stock to pay dividends in kind from time to time, (4) up to 120,000
shares of Series B Preferred Stock to pay dividends in kind from time to time
and (5) up to 800,000 shares of Series C Stock for issue:
(I) in exchange for Series A Preferred Stock or Series B Preferred
Stock only when (i) a registration statement covering such securities has
been declared effective by the SEC, (ii) such securities are sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or such
securities may be sold pursuant to Rule 144(k) under such Act or (iii) such
securities have been otherwise transferred, the Company has delivered a new
certificate on other evidence of ownership for such securities not bearing
a restrictive legend under the Securities Act and such securities may be
resold without subsequent registration under the Securities Act; or
(II) to pay dividends in kind from time to time.
In each instance provided herein when Series C Preferred Stock is to
be originally issued, the Transfer Agent will do so upon a written order of the
Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. In addition, the Transfer
Agent shall countersign and deliver, from time to time, Additional Shares for
original issue upon a written order of the Company signed by two Officers or by
an Officer or either an Assistant Treasurer or Assistant Secretary of the
Company. Such orders shall specify the number of shares of Preferred Stock to
be countersigned and the date on which the original issue of Preferred Stock is
to be countersigned and whether the Preferred Stock is to be Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
<PAGE>
32
The Transfer Agent may appoint a countersigning agent reasonably
acceptable to the Company to countersign the Preferred Stock. Unless limited by
the terms of such appointment, a countersigning agent may countersign Preferred
Stock whenever the Transfer Agent may do so. Each reference in this Certificate
of Designation to countersign by the Transfer Agent includes countersign by such
agent. A countersigning agent has the same rights as the Transfer Agent or
agent for service of notices and demands.
(iii) Transfer and Exchange. (A) Transfer and Exchange of
---------------------- ------------------------
Definitive Preferred Stock. When Definitive Preferred Stock is presented to the
- ---------------------------
Transfer Agent with a request to register the transfer of such Definitive
Preferred Stock or to exchange such Definitive Preferred Stock for an equal
number of shares of Definitive Preferred Stock of other authorized
denominations, the Transfer Agent shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; provided, however, that the Definitive Preferred Stock surrendered for
-------- -------
registration of transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Transfer
Agent, duly executed by the Holder thereof or its attorney duly authorized
in writing; and
(2) is being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause (I)
or (II) below, and are accompanied by the following additional information
and documents, as applicable:
(I) if such Definitive Preferred Stock is being delivered to the
Transfer Agent by a Holder for registration in the name of such
Holder, with out transfer, a certification from such Holder to that
effect in such form as the Company or the Transfer Agent may require;
or
(II) if such Definitive Preferred Stock is being transferred to
the Company or to a "qualified institutional buyer" ("QIB") in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 or Regulation
S under the Securities Act, a certification to that effect (in the
form of the Certificate of Transfer attached to the Definitive
Preferred Stock certificate and,
<PAGE>
33
if required by said Certificate of Transfer, a letter in the form of
Exhibit B hereto).
(B) Restrictions on Transfer of Definitive Preferred Stock for a
------------------------------------------------------------
Beneficial Interest in Global Preferred Stock. Definitive Preferred Stock may
- ----------------------------------------------
not be exchanged for a beneficial interest in Global Preferred Stock except upon
satisfaction of the requirements set forth below. Series B Preferred Stock may
not, under any circumstances, be exchanged for a beneficial interest in Global
Preferred Stock. Upon receipt by the Transfer Agent of Definitive Preferred
Stock, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Transfer Agent, together with:
(1) certification that such Definitive Preferred Stock is being
transferred (A) to a QIB in accordance with Rule 144A, (B) to an
institution that is an "accredited investor" as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act that has furnished
to the Transfer Agent a signed letter substantially in the form of Exhibit
B hereto or (C) outside the United States in an offshore transaction within
the meaning of Regulation S and in compliance with Rule 904 under the
Securities Act; and
(2) written instructions directing the Transfer Agent to make, or to
direct DTC to make, an adjustment on its books and records with respect to
such Global Preferred Stock to reflect an increase in the number of shares
of Preferred Stock represented by the applicable certificates for Global
Preferred Stock,
then the Transfer Agent shall cancel such Definitive Preferred Stock and cause,
or direct DTC to cause, in accordance with the standing instructions and
procedures existing between DTC and the Transfer Agent, the number of shares of
Preferred Stock represented by the applicable certificates for Global Preferred
Stock to be increased accordingly. If no Global Preferred Stock is then
outstanding, the Company shall issue and the Transfer Agent shall countersign,
upon written order of The Company in the form of an Officers' Certificate, a new
Global Preferred Stock representing the appropriate number of shares.
(C) Transfer and Exchange of Interests in Global Preferred Stock.
-------------------------------------------------------------
The transfer and exchange of beneficial interests in Global Preferred Stock or
beneficial interests therein shall be effected through DTC, in accordance with
this Certificate of Designation (including applicable
<PAGE>
34
restrictions on transfer set forth herein, if any) and the procedures of DTC
therefor.
(D) Transfer of a Beneficial Interest in Temporary Regulation S
-----------------------------------------------------------
Global Preferred Stock for interests in other Preferred Stock.
- --------------------------------------------------------------
During the Restricted Period, beneficial ownership interests in
Temporary Regulation S Global Preferred Stock may not be exchanged for interests
in any other Global Preferred Stock or Definitive Preferred Stock. Thereafter,
such beneficial ownership interests may be so exchanged only upon delivery to
the Company and the Transfer Agent of a certificate in form and substance
satisfactory to them certifying that the beneficial owner of the Temporary
Regulation S Global Preferred Stock is either a non-U.S. person or a U.S. person
who purchased such beneficial ownership interests in a transaction that did not
require registration under the Securities Act, as provided in paragraph
(C)(3)(ii)(B) of Rule 903 under Regulation S under the Securities Act.
(E) (i) Restrictions on Transfer and Exchange of Global Preferred
---------------------------------------------------------
Stock. Notwithstanding any other provisions of this Certificate of Designation,
- ------
Global Preferred Stock may not be transferred as a whole except by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor depository or a nominee of such successor
depository.
(ii) Restrictions on Transfer of Temporary Regulation S Global
---------------------------------------------------------
Preferred Stock Interests. During the Restricted Period, beneficial ownership
- --------------------------
interests in Temporary Regulation S Global Preferred Stock may only be sold,
pledged or transferred through Euroclear or Cedel in accordance with the
Applicable Procedures and only (i) to the Company, (ii) so long as such security
is eligible for resale pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a Person whom the selling Holder reasonably believes is a "qualified
institutional buyer" ("QIB") as defined in Rule 144A that purchases for its own
account or for the account of a QIB to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A, (iii) in an offshore
transaction in accordance with Regulation S, (iv) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 (if applicable) under
the Securities Act, or (v) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United
<PAGE>
35
States. During the Restricted Period, interests in the Temporary Regulation S
Global Preferred Stock may not be transferred to institutions that are
"Accredited Investors" (but not QIBs) as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
(F) Countersignature of Definitive Preferred Stock. If at any time:
-----------------------------------------------
(1) DTC notifies the Company that DTC is unwilling or unable to
continue as depository for the Global Preferred Stock and a successor
depository for the Global Preferred Stock is not appointed by the Company
within 90 days after delivery of such notice;
(2) DTC ceases to be a clearing agency registered under the Exchange
Act;
(3) The Company, in its sole discretion, notifies the Transfer Agent
in writing that it elects to cause the issuance of Definitive Preferred
Stock under this Certificate of Designation,
then the Company will execute, and the Transfer Agent, upon receipt of a written
order of the Company signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary of the Company requesting the
Transfer Agent to countersign and deliver Definitive Preferred Stock to the
Persons designated by DTC, will countersign and deliver Definitive Preferred
Stock equal to the number of shares of Preferred Stock represented by the Global
Preferred Stock, in exchange for such Global Preferred Stock. Definitive
Preferred Stock issued in exchange for a beneficial interest in a Global
Preferred Stock shall be registered in such names and in such authorized
denominations as DTC, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Transfer Agent. The Transfer
Agent shall mail or deliver such Definitive Preferred Stock to the Persons in
whose names such Preferred Stock are so registered in accordance with the
instructions of DTC.
(G) Legend. (1) Except as permitted by the following paragraph (3),
-------
each certificate evidencing the Series A Preferred Stock (and all Preferred
Stock issued in exchange therefor or substitution thereof) shall bear a legend
in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY,
<PAGE>
36
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE HEREOF (OR OF A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
ISSUER, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY PROVIDED THAT A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE ISSUER IS DELIVERED BY CERTAIN TRANSFEREES TO THE ISSUER), (4) TO
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE WHICH
MAY BE OBTAINED FROM THE ISSUER OR THE TRANSFER AGENT IS DELIVERED BY THE
TRANSFEREE TO THE ISSUER AND THE TRANSFER AGENT(PROVIDED THAT CERTAIN
HOLDERS MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO
THE EXPIRATION OF THE "ONE YEAR RESTRICTED PERIOD" (WITHIN THE MEANING OF
RULE 903(C)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES
IT WILL FURNISH TO THE ISSUER AND THE TRANSFER AGENT SUCH CERTIFICATES AND
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS.
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR
THE BENEFIT OF THE ISSUER THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER
<PAGE>
37
WITHIN THE MEANING OF RULE 144A OR (2) PURCHASING FROM A PERSON NOT
PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS SECURITY (OR ANY
PREDECESSOR SECURITY), IT IS AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) OF REGULATION D
UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING
THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER
THE SECURITIES ACT."
(2) Except as permitted by the following para graph (3), each
certificate evidencing the Series B Preferred Stock (and all Preferred Stock
issued in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND
ANNIVERSARY OF THE ISSUANCE HEREOF (OR OF A PREDECESSOR SECURITY HERETO) OR
(Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING
THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER
THAN (1) TO THE ISSUER, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY PROVIDED THAT A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE ISSUER IS DELIVERED BY CERTAIN TRANSFEREES TO THE ISSUER), (4) TO
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE WHICH
MAY BE
<PAGE>
38
OBTAINED FROM THE ISSUER OR THE TRANSFER AGENT IS DELIVERED BY THE
TRANSFEREE TO THE ISSUER AND THE TRANSFER AGENT(PROVIDED THAT CERTAIN
HOLDERS MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO
THE EXPIRATION OF THE "ONE YEAR RESTRICTED PERIOD" (WITHIN THE MEANING OF
RULE 903(C)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 (IF APPLICABLE) UNDER THE SECURITIES ACT, (6) TO AN INDIVIDUAL WHO BOTH
IS AN AFFILIATE OF THE COMPANY AND AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) OF REGULATION D UNDER THE SECURITIES ACT OR (7) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES
IT WILL FURNISH TO THE ISSUER AND THE TRANSFER AGENT SUCH CERTIFICATES AND
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS.
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR
THE BENEFIT OF THE ISSUER THAT SUCH PURCHASER IS (1) A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) PURCHASING FROM
A PERSON NOT PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS SECURITY (OR
ANY PREDECESSOR SECURITY) OR (3) AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) OF REGULATION D
UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (4) AN INDIVIDUAL WHO IS
BOTH AN AFFILIATE OF THE COMPANY AND AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)OF REGULATION D UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS SECURITY FOR INVESTMENT PURPOSES AND NOT DISTRIBUTION OR (5) A NON-
U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT
SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."
(3) Upon any sale, transfer or exchange of a Transfer Restricted
Security (including any Transfer Restricted Security represented by Global
Preferred Stock) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:
(I) in the case of any Transfer Restricted Security that is a
Definitive Preferred Stock, the Transfer Agent shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
<PAGE>
39
Definitive Preferred Stock that does not bear the legend set forth
above and rescind any restriction on the transfer of such Transfer
Restricted Security;
(II) in the case of any Transfer Restricted Security that is
represented by a Global Preferred Stock, the Transfer Agent shall
permit the Holder thereof to exchange such Transfer Restricted
Security for interests in an Unrestricted Global Preferred Stock
Security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security, if
the Holder's request for such exchange was made in reliance on Rule
144 and the Holder certifies to that effect in writing to the Transfer
Agent (such certification to be in the form and substance satisfactory
to the Transfer Agent); and
(III) in the case of any Transfer Restricted Security that is
Certificated Preferred Stock, the Transfer Agent shall permit the
Holder thereof to exchange such Transfer Restricted Security for
Certificated Preferred Stock that does not bear the legend set forth
above and rescind any restriction of such Transfer Restricted
Security.
(H) Cancelation or Adjustment of Global Preferred Stock. At such
----------------------------------------------------
time as all beneficial interests in Global Preferred Stock have either been
exchanged for Definitive Preferred Stock, redeemed, repurchased or canceled,
such Global Preferred Stock shall be canceled by the Transfer Agent. At any
time prior to such cancelation, if any beneficial interest in Global Preferred
Stock is exchanged for Definitive Preferred Stock, redeemed, repurchased or
canceled, the number of shares of Preferred Stock represented by such Global
Preferred Stock shall be reduced and an adjustment shall be made on the books
and records of the Transfer Agent with respect to such Global Preferred Stock,
by the Transfer Agent or DTC, to reflect such reduction.
(I) Obligations with Respect to Transfers and Exchanges of Preferred
----------------------------------------------------------------
Stock. (1) To permit registrations of transfers and exchanges, the Company
- ------
shall execute and the Transfer Agent shall countersign Definitive Preferred
Stock and Global Preferred Stock as required pursuant to the provisions of this
paragraph (iii).
<PAGE>
40
(2) All Definitive Preferred Stock and Global Preferred Stock issued
upon any registration of transfer or exchange of Definitive Preferred Stock or
Global Preferred Stock shall be the valid obligations of the Company, entitled
to the same benefits under this Certificate of Designation as the Definitive
Preferred Stock or Global Preferred Stock surrendered upon such registration of
transfer or exchange.
(3) Prior to due presentment for registration of transfer of any
shares of Preferred Stock, the Transfer Agent and the Company may deem and treat
the Person in whose name such shares of Preferred Stock are registered as the
absolute owner of such Preferred Stock and neither the Transfer Agent nor the
Company shall be affected by notice to the contrary.
(4) No service charge shall be made to a Holder for any registration
of transfer or exchange upon surrender of any Preferred Stock certificate at the
office of the Transfer Agent maintained for that purpose. However, the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Preferred Stock certificates.
(5) Upon any sale, transfer or exchange of shares of Preferred Stock
(including any Preferred Stock represented by a Global Preferred Stock
certificate) pursuant to an effective registration statement under the
Securities Act, pursuant to Rule 144 under the Securities Act or pursuant to an
opinion of counsel reasonably satisfactory to the Company that no legend is
required:
(A) in the case of any Definitive Preferred Stock, the Transfer Agent
shall permit the Holder thereof to exchange such Preferred Stock for
Definitive Preferred Stock that does not bear the legend set forth in
paragraph (m)(iii)(G)(1)above and rescind any restriction on the
transfer of such Preferred Stock;
(B) in the case of any Global Preferred Stock, such Preferred Stock shall
not be required to bear the legend set forth in paragraph
(m)(iii)(G)(1)above but shall continue to be subject to the provisions
of paragraph (m)(iii)(D) hereof; and
(C) in the case of any Certificated Preferred Stock, the Transfer Agent
shall permit the Holder thereof to exchange such Preferred Stock for
Certificated
<PAGE>
41
Preferred Stock that does not bear the legend set forth in paragraph
(m)(iii)(G)(2) above and rescind and restriction on the transfer of
such Preferred Stock G.
(iv) Replacement Certificates. If a mutilated Preferred Stock
-------------------------
certificate is surrendered to the Transfer Agent or if the Holder of a Preferred
Stock certificate claims that the Preferred Stock certificate has been lost,
destroyed or wrongfully taken, the Company shall issue and the Transfer Agent
shall countersign a replacement Preferred Stock certificate if the reasonable
requirements of the Transfer Agent, the Company and of Section 8-405 of the
Uniform Commercial Code as in effect in the State of New York are met. If
required by the Transfer Agent or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Transfer Agent
to protect the Company and the Transfer Agent from any loss which either of them
may suffer if a Preferred Stock certificate is replaced. The Company and the
Transfer Agent may charge the Holder for their expenses in replacing a Preferred
Stock certificate.
(v) Temporary Certificates. Until definitive Preferred Stock
-----------------------
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Preferred Stock certificates. Temporary
Preferred Stock certificates shall be substantially in the form of definitive
Preferred Stock certificates but may have variations that the Company considers
appropriate for temporary Preferred Stock certificates. Without unreasonable
delay, the Company shall prepare and the Transfer Agent shall countersign
definitive Preferred Stock certificates and deliver them in exchange for
temporary Preferred Stock certificates.
(vi) Cancelation. (A) In the event the Company shall purchase or
------------
otherwise acquire (including pursuant to exchanges contemplated by paragraph (g)
hereof) Definitive Preferred Stock, the same shall thereupon be delivered to the
Transfer Agent for cancelation.
(B) At such time as all beneficial interests in Global Preferred
Stock have been exchanged for Definitive Preferred Stock, redeemed, repurchased
or canceled, such Global Preferred Stock shall thereupon be delivered to the
Transfer Agent for cancelation.
(C) The Transfer Agent and no one else shall cancel and, subject to
the record retention requirements under the Exchange Act, destroy all Preferred
Stock
<PAGE>
42
certificates surrendered for registration of transfer, exchange, replacement or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Transfer Agent to deliver canceled Preferred Stock
certificates to the Company. The Company may not issue new Preferred Stock
certificates to replace Preferred Stock certificates to the extent they evidence
Preferred Stock which the Company has purchased or otherwise acquired.
(n) Additional Rights of Holders. In addition to the rights provided
-----------------------------
to Holders under this Certificate of Designation, Holders shall have the rights
set forth in the Registration Agreement.
(o) Certain Definitions. As used in this Certificate of Designation,
--------------------
the following terms shall have the following meanings (and (1) terms defined in
the singular have comparable meanings when used in the plural and vice versa,
(2) "including" means including without limitation, (3) "or" is not exclusive
and (4) an accounting term not otherwise defined has the meaning assigned to it
in accordance with United States generally accepted accounting principles as in
effect on the Issue Date and all accounting calculations will be determined in
accordance with such principles), unless the context otherwise requires:
"Accounts Receivable" means, with respect to any Person, all accounts
receivable of such Person net of allowances for uncollectible accounts,
discounts, refunds and all other allowances as determined in accordance with
GAAP.
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
-------- -------
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this
<PAGE>
43
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) any disposition
effected in compliance with the first paragraph of the covenant described under
paragraph (l)(ix), (iii) any Sale and Leaseback Transaction completed within 180
days following the original acquisition of the subject assets where such Sale
and Leaseback Transaction represents the intended financing of Property acquired
after the Issue Date and (iv) any disposition or series of related dispositions
of assets having a Fair Market Value and sale price of less than $500,000.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or preferred stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such preferred stock multiplied by the amount of such payment by (b) the sum of
all such payments.
<PAGE>
44
"Board of Directors" means the Board of Directors of the Company, or
any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means each day which is not a Legal Holiday.
"CAC" means Century Airconditioning Supply, Inc., a Texas corporation.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including preferred stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries for the benefit of their employees) by the
Company of any class of its Parity Stock and Junior Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Certificated Preferred Stock" means certificated Series B Preferred
Stock, bearing, if required, the
<PAGE>
45
restricted securities legend set forth in clause (G)(2) of paragraph (m)(iii).
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering of common stock of the
Company, the Initial Control Group cease to be the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of a majority of
the voting power of the Voting Stock of the Company, whether as a result of
the issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company, any direct or indirect transfer
of securities by the Initial Control Group or otherwise (for purposes of
this clause (a), the Initial Control Group will be deemed to beneficially
own any Voting Stock of a corporation (the "specified corporation") held by
any other corporation (the "parent corporation") so long as the Initial
Control Group beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of such parent
corporation); or
(b) after the first Public Equity Offering of common stock of the
Company, any "Person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 35% or more of the voting
power of the Voting Stock of the Company; provided, however, that the
-------- -------
Permitted Holders are the "beneficial owners" (as defined in Rule 13d-3
under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, in the aggregate of a
<PAGE>
46
lesser percentage of the total voting power of all classes of the Voting
Stock of the Company than such other Person or group (for purposes of this
clause (b), such Person or group shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation so
long as such Person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the Holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election or appointment by the
applicable board or whose nomination for election by the shareholders of
the Company was approved by a vote of 66-2/3% of the applicable directors
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of
such board then in office; or
<PAGE>
47
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange
Commission.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
-------- -------
Subsidiary has Incurred any Debt (other than Debt incurred in the ordinary
course of business pursuant to revolving credit facilities) since the beginning
of such period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated Interest Coverage Ratio is an Incurrence of
Debt, or both, Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Debt as if such discharge had occurred on the first day of such period, (ii)
if since the beginning of such period the Company or any Restricted Subsidiary
shall have repaid, repurchased, legally defeased or otherwise discharged any
Debt with Capital Stock Sale Proceeds, Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
discharge as if such discharge had occurred on the first day of such period,
(iii) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Sale or if the transaction giving rise to
the need to calculate the Consolidated Interest Coverage Ratio is an Asset Sale,
or both, EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the Property which is the subject
of such Asset Sale for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period, in either
case as if such Asset Sale had occurred on the first day of such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its
<PAGE>
48
continuing Restricted Subsidiaries in connection with such Asset Sale, as if
such Asset Sale had occurred on the first day of such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, by an amount equal to the
Consolidated Interest Expense for such period directly attributable to the Debt
of such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Debt after such sale),
(iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Debt) as if
such Investment or acquisition occurred on the first day of such period, (v) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
Investment or acquisition of Property that would have required an adjustment
pursuant to clause (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such period,
and (vi) if since the beginning of such period the Company or any Restricted
Subsidiary shall have permanently reduced or repaid the amount owing under the
New Credit Facility or shall have reduced or repaid Debt with a maturity in
excess of one year, Consolidated Interest Expense for such period shall be
calculated after giving effect to such reduction or repayment on a pro forma
basis as if such reduction or repayment had occurred on the first day of such
period. For purposes of this definition, pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company and as further contemplated by the definition of the term "pro forma".
If any Debt bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Debt shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such Debt
if such Interest Rate Agreement has a remaining term in excess of 12 months).
<PAGE>
49
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent Incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, other than with respect to Debt
Incurred in connection with the Recapitalization, (c) capitalized interest, (d)
non-cash interest expense (other than interest, if any, that is paid in kind on
the Exchange Debentures, if issued), (e) commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) Disqualified Dividends other than Disqualified
Dividends paid with shares of Parity Stock or Junior Stock of the Company which
is not Disqualified Stock, (h) preferred stock dividends in respect of all
preferred stock of the Company or Restricted Subsidiaries held by Persons other
than the Company or a Wholly Owned Subsidiary (to the extent paid in cash), (i)
interest Incurred in connection with Investments in discontinued operations, (j)
interest accruing on any Debt of any other Person to the extent such Debt is
Guaranteed by the Company or any Restricted Subsidiary and (k) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Debt Incurred by such
plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
-------- -------
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of (l)(iii) only, any net income (loss) of any Person acquired by
the Company or any of its consolidated Subsidiaries in a pooling of interests
<PAGE>
50
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to consensual restrictions, directly or indirectly, on the payment of
dividends or the making of distributions, directly or indirectly, to the
Company, except that subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another Restricted
Subsidiary, to the limitation contained in this clause), (d) any gain (or, for
purposes of paragraphs (l)(ii) and (l)(ix) only, loss) realized upon the sale or
other disposition of any Property of the Company or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business; provided
--------
that any tax benefit or tax liability resulting therefrom shall be excluded from
such Consolidated Net Income, (e) any extraordinary gain or loss or nonrecurring
cost or expense relating to the Recapitalization; provided that any tax benefit
--------
or tax liability resulting therefrom shall be excluded from such Consolidated
Net Income, (f) the cumulative effect of a change in accounting principles, (g)
any non-cash compensation expense realized as a result of the grant, vesting or
exercise of performance shares, stock options or other stock awards to officers,
directors and employees of the Company or any Restricted Subsidiary, (h)
compensation expense attributable to bonuses paid to employees in connection
with the Recapitalization up to $1.0 million in aggregate and (i) compensation
expense attributable to the repurchase within 30 days of the date of the
Recapitalization of outstanding options from employees of the Company and its
Subsidiaries in an amount not to exceed $4,020,000 in the aggregate.
Notwithstanding the foregoing, for the purposes of paragraph (l)(iii) only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (c)(iv) thereof.
"Continuing Stockholders" means the holders of record of the Company's
Capital Stock immediately prior to the Issue Date.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility)
<PAGE>
51
providing for revolving credit loans, term loans, receivables or inventory
financing (including through the sale of receivables or inventory to such
lenders or to special purpose, bankruptcy remote entities formed to borrow from
such lenders against such receivables or inventory) or trade letters of credit,
in each case together with any amendments, supplements, modifications (including
by any extension of the maturity thereof), refinancings or replacements thereof
by a lender or syndicate of lenders in one or more successive transactions
(including any such transaction that changes the amount available thereunder,
replaces such agreement or document, or provides for other agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any preferred stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is
<PAGE>
52
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such Property or the amount of the obligation so secured;
and (h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Debt of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date; provided that the amount outstanding at any time of any Debt issued with
--------
original issue discount is the face amount of such Debt less the remaining
unamortized portion of the original issue discount of such Debt at such time as
determined in accordance with GAAP.
"Definitive Preferred Stock" means, certificated Series A Preferred
Stock bearing, if required, the restricted securities legend set forth in clause
(G)(1) of paragraph (m)(iii).
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
Stock of such Person (other than the Preferred Stock) as to which (i) the
maturity, (ii) mandatory redemption or (iii) redemption, repurchase, conversion
or exchange at the option of the holder thereof occurs, or may occur, on or
prior to the first anniversary of the Stated Maturity of the Preferred Stock;
provided, however, that Redeemable Stock of such Person that would not otherwise
- -------- -------
be characterized as Disqualified Stock under this definition shall not
constitute Disqualified Stock (a) if such Redeemable Stock is convertible or
exchangeable into Debt or Disqualified Stock solely at the option of the issuer
thereof or (b) solely as a result of provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Redeemable Stock
upon the occurrence of a "change of control" occurring prior to the first
anniversary of the Stated Maturity of the Preferred Stock, if (x) such
repurchase obligation may not be triggered in respect of such Redeemable Stock
unless a corresponding obligation also arises with respect to the Preferred
Stock and (y) no such repurchase or redemption is permitted to be consummated
unless and until such Person shall have satisfied all repurchase or redemption
obligations with respect to any required purchase offer made with respect to the
Preferred Stock.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such
<PAGE>
53
period: (i) the provision for taxes based on income or profits or utilized in
computing net loss, (ii) Consolidated Interest Expense, (iii) depreciation, (iv)
amortization expense and (v) any other non-cash items (other than any such non-
cash item to the extent that it represents an accrual of or reserve for cash
expenditures in any future period), minus (b) all non-cash items increasing
Consolidated Net Income for such period (other than any such non-cash item to
the extent that it will result in the receipt of cash payments in any future
period). Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would not be prohibited at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of any consensual
restriction applicable to such Restricted Subsidiary.
"Employee Notes" means promissory notes of employees of the Company or
any of its Subsidiaries payable to the Company and received in connection with
the substantially concurrent purchase of common stock of the Company by such
employees.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Debentures" means the 13 1/4% Subordinated Exchange
Debentures due 2010 of the Company, issuable in exchange for the Preferred
Stock.
"Exchange Indenture" means the indenture dated as of July 8, 1998,
between the Company and the trustee to be named therein, governing the Exchange
Debentures.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Securities Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchange Securities" means the Series C Stock issued in exchange for
the Initial Preferred Stock and, if applicable, new exchange debentures of the
Company issued in exchange for the Exchange Debentures pursuant to the Exchange
Offer Registration Statement.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length
<PAGE>
54
free market transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair Market Value will be determined, except as otherwise provided,
(a) if such Property has a Fair Market Value equal to or less than $2.5 million,
by any Officer of the Company or (b) if such Property has a Fair Market Value in
excess of $2.5 million, by a majority of the Board of Directors and evidenced by
a Board Resolution, dated within 30 days of the relevant transaction.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
- -------- -------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Holder" means the Person in whose name a share of Preferred Stock is
registered on the Transfer Agent's books.
"IAI" means an institution that is an "accredited investor" as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
<PAGE>
55
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
---------------- -------
solely for purposes of determining compliance with paragraph (l)(ii),
amortization of debt discount shall not be deemed to be the Incurrence of Debt;
provided that in the case of Debt sold at a discount, the amount of such Debt
- --------
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing; provided that such
--------
firm or appraiser is not an Affiliate of the Company.
"Initial Control Group" means Dennis Bearden (or his heirs or trusts
for the benefit of his heirs), the members of the Board of Directors of the
Company immediately following the consummation of the Recapitalization and
Freeman Spogli & Co. LLC or any successor entity thereof controlled by the
principals of Freeman Spogli & Co. Incorporated or any entity controlled by, or
under common control with, Freeman Spogli & Co. LLC.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of paragraphs (l)(iii) and (l)(vii) and the definition of "Restricted Payment",
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
-------- -------
Subsidiary as a Restricted
<PAGE>
56
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (a) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (b) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation. In determining the amount of any
Investment made by transfer of any Property other than cash, such Property shall
be valued at its Fair Market Value at the time of such Investment.
"Issue Date" means the date on which the Preferred Stock is initially
issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York or Houston,
Texas.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Merger Agreement" means the Amended and Restated Merger Agreement
among Century Acquisition Corp., the Company and shareholders of the Company
dated as of May 5, 1998, as in effect on the Issue Date.
"Merger" means the merger of Century Acquisition Corp. with and into
the Company pursuant to the Merger Agreement.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from any Asset Sale or other transaction subject
to paragraph (l)(iv) means cash payments received therefrom (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property that is
the subject of such transaction or received in any other non-cash form), in each
case net of (a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to
<PAGE>
57
be accrued as a liability under GAAP, as a consequence of such transaction, (b)
all payments made on any Debt which is secured by any Property subject to such
transaction, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such Property, or which must by its terms,
or in order to obtain a necessary consent to such transaction, or by applicable
law, be repaid out of the proceeds from such transaction, (c) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such transaction and (d) the
deduction of appropriate amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the Property
disposed in such transaction and retained by the Company or any Restricted
Subsidiary after such transaction.
"New Credit Facility" means the agreement, dated as of the Issue Date,
among the Company, certain lenders named therein, Salomon Brothers Inc, as
arranger, and CitiCorp (USA), Inc., as administrative agent, providing for
$100.0 million secured term loan facilities, and a $25.0 million revolving loan
facility.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Transfer Agent.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or counsel
to the Company.
"Permitted Debt" means: (a) Debt of the Company evidenced by the
Exchange Debentures; (b)(i) Debt under the Credit Facility; provided that the
--------
aggregate principal amount of all such Debt under the Credit Facility comprised
of (A) term loans at any one time outstanding shall not exceed $100.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans or obligations at any one time outstanding shall not
exceed the greater of (x) $25.0 million and (y) the sum of the amounts equal to
(1) 60% of the net book value of the inventory of the Company and the Restricted
Subsidiaries and (2) 85% of the net book value of the accounts receivable of the
Company and the Restricted Subsidiaries, in each case as of the most recent
fiscal quarter ending at least 45 days prior to the date of determination and
(ii) Guarantees of Debt under the Credit Facility; (c) Debt in respect of
Capital Lease Obligations and Purchase Money Debt; provided that (i) the
aggregate principal amount of such Debt does not exceed the Fair Market Value
(on the date of the Incurrence thereof) of the Property acquired, constructed or
leased (including costs of installation,
<PAGE>
58
taxes and delivery charges with respect to such acquisition, construction or
lease) and (ii) the aggregate principal amount of all Debt Incurred and then
outstanding pursuant to this clause (c) (together with all Permitted Refinancing
Debt Incurred in respect of Debt previously Incurred pursuant to this clause (c)
and then outstanding) does not exceed $ 10.0 million; (d) Debt of the Company
owing to and held by any Wholly Owned Subsidiary and Debt of a Wholly Owned
Subsidiary owing to and held by the Company or any Wholly Owned Subsidiary;
provided, however, that any subsequent issue or transfer of Capital Stock or
- -------- -------
other event that results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of any such Debt (except to
the Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Debt by the issuer thereof; (e) Debt of a
Wholly Owned Subsidiary Incurred and outstanding on or prior to the date on
which such Wholly Owned Subsidiary was acquired by the Company or otherwise
became a Restricted Subsidiary (other than Debt Incurred as consideration in, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of transactions pursuant to which such
Wholly Owned Subsidiary became a Subsidiary of the Company or was otherwise
acquired by the Company); provided that at the time such Wholly Owned Subsidiary
--------
was acquired by the Company or otherwise became a Restricted Subsidiary and
after giving pro forma effect to the Incurrence of such Debt, the Company would
have been able to Incur $1.00 of additional Debt pursuant to clause (a) in the
first paragraph of covenant (l)(ii); (f) Debt under Interest Rate Agreements
entered into by the Company or a Restricted Subsidiary for the purpose of
limiting interest rate risk in the ordinary course of the financial management
of the Company or such Restricted Subsidiary and not for speculative purposes,
provided that the obligations under such agreements are directly related to
payment obligations on Debt otherwise permitted by the terms of covenant
(l)(iv); (g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the Company
or such Restricted Subsidiary in the ordinary course of business and not for
speculative purposes; (h) Debt in connection with one or more standby letters of
credit or performance bonds issued for the account of the Company or a
Restricted Subsidiary in the ordinary course of business or pursuant to self-
insurance obligations and not in connection with the borrowing of money or the
obtaining of advances; (i) Debt outstanding on the Issue Date not otherwise
described in clauses (b) through (h) above; (j) Debt not otherwise described in
clauses (a) through (i) above in an aggregate principal amount outstanding at
any one time not to exceed $15.0 million; and (k) Permitted Refinancing Debt
Incurred in respect of Debt Incurred pursuant to clause (a) of the first
paragraph of covenant (l)(ii) and clauses (a), (c), (e) and (i) above,
<PAGE>
59
subject, in the case of clause (c) above, to the limitations set forth in the
proviso thereto.
"Permitted Holders" means the Continuing Stockholders, any member of
the senior management of the Company(or trusts for the benefit of his or her
immediate family), and Freeman Spogli & Co. LLC or any successor entity thereof
controlled by the principals of Freeman Spogli & Co. LLC or any entity
controlled by, or under common control with, Freeman Spogli & Co. LLC.
"Permitted Investment" means any Investment by the Company or a
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided
--------
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; provided that such Person's
--------
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
-------- -------
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) (i) loans and advances to employees made
in the ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary, as the case may be; provided that such loans and
--------
advances do not exceed $1.0 million at any one time outstanding and (ii) loans
and advances to, or the receipt of Employee Notes from, employees of the Company
or any of its Subsidiaries made or received in connection with the substantially
concurrent purchase of common stock of the Company by such employees; provided
--------
that the aggregate principal amount of such loans, advances and notes payable
shall not exceed $1.0 million at any one time outstanding; (g) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or a Restricted Subsidiary
or in satisfaction of judgments; (h) any Person to the extent such Investment
represents the non-cash portion of the consideration received in connection with
a disposition of assets; and (i) Persons engaged in a Related Business; provided
--------
such Investments do not exceed $20.0 million at any one time outstanding (it
being agreed that an Investment shall cease to be outstanding to the extent of
dividends, repayments of loans or advances or other transfers of Property
received by the Company or any Restricted Subsidiary from such Persons; and
provided further that such amounts do not increase the amount of Restricted
- ----------------
Payments which the Company and the
<PAGE>
60
Restricted Subsidiaries may make pursuant to clause (c)(iv)(A) of paragraph
(l)(iii)).
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
-------- -------
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"preferred stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
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61
"Purchase Money Debt" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed, or
(b) Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
-------- -------
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Recapitalization" means the recapitalization of the Company on July
8, 1998, effected pursuant to the Merger Agreement, the New Credit Facility and
the issuance of the Preferred Stock.
"Redeemable Stock" means, with respect to any Person, any Capital
Stock (other than the Preferred Stock) that by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable, in either
case at the option of the holder thereof) or otherwise (a) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (b)
is or may become redeemable or repurchaseable at the option of the holder
thereof, in whole or in part, or (c) is convertible or exchangeable, in either
case at the option of the holder thereof, for Debt of Disqualified Stock.
"Refinance" means, in respect of any Debt, to finance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Initial Preferred Stock
(or, if the Initial Preferred Stock has been exchanged therefor, the Exchange
Debentures), a like principal amount or liquidation preference of Exchange
Securities.
"Registration Agreement" means the Registration Agreement, dated as of
July 8, 1998, between the Company and Salomon Brothers Inc as purchaser.
"Regulation S Preferred Stock" means any Series A Preferred Stock
offered and sold outside the United States in reliance on Regulation S under the
Securities Act.
<PAGE>
62
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Parity Stock or Junior Stock of the Company or any Capital
Stock of any Restricted Subsidiary (including any payment in connection with any
merger or consolidation with or into the Company or any Restricted Subsidiary),
except for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
---
rata basis or on a basis that results in the receipt by the Company or a
- ----
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividend or distribution payable
solely in shares of Junior Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of
any Parity Stock or Junior Stock of the Company or any Capital Stock of any
Affiliate of the Company (other than from the Company or a Restricted
Subsidiary) or any securities exchangeable for or convertible into any such
Parity Stock, Junior Stock or Capital Stock, including the exercise of any
option to exchange any such Parity Stock, Junior Stock or Capital Stock (other
than for or into Capital Stock that is not Disqualified Stock); or (c) any
Investment (other than Permitted Investments) in any Person.
"Restricted Period" means the one year restricted period imposed by
Section 903(C) of Regulation S on securities sold pursuant to Regulation S.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vii) and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to paragraph (l)(vii).
"Rule 144A Preferred Stock" means the Series A Preferred Stock
purchased by the Purchaser from the Company pursuant to the Purchase Agreement,
other than the Regulation S Preferred Stock.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to
<PAGE>
63
another Person and the Company or a Restricted Subsidiary leases if from such
Person.
"Securities Act" means the Securities Act of 1933.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company which covers the Initial Preferred Stock (or if the Initial
Preferred Stock has been exchanged therefor, the Exchange Debentures, as
applicable), and the Exchange Securities, as applicable, on an appropriate form
under Rule 415 under the Securities Act, or any similar rule that may be adopted
by the SEC, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subsidiary" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (a)
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
days of the date of acquisition thereof issued by a bank or trust company which
is organized under the laws of the United States of America or any state thereof
having capital, surplus and undivided profits aggregating in excess of $500.0
million and whose long-term debt rating is "A-3 or "A-" or higher according to
Moody's or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (a) entered into
with a bank meeting the qualifications described in clause (b) above; (d)
Investments in commercial paper, maturing not more than
<PAGE>
64
90 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)): (e) direct obligations (or certificates representing an
ownership interest in such obligations) of any state of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of such state is pledged and which are not
callable or redeemable at the issuer's option; provided that (i) the long-term
--------
debt of such state is rated "A-3" or "A-" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to paragraph (l)(vii) and not thereafter
redesignated as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
<PAGE>
65
IN WITNESS WHEREOF, Century Maintenance Supply, Inc., has caused this
Certificate of Designation to be signed by Richard E. Penick, its Vice
President, and Terri Garcia, its Assistant Secretary, this 8th day of July,
1998.
CENTURY MAINTENANCE SUPPLY, INC.,
by /s/ Richard E. Penick
---------------------------------------------------
Name: Richard E. Penick
Title: Vice President
by /s/ Terri Garcia
---------------------------------------------------
Name: Terri Garcia
Title: Assistant Secretary
<PAGE>
EXHIBIT 4.1
================================================================================
CENTURY MAINTENANCE SUPPLY, INC.
13 1/4% Subordinated Exchange Debentures due 2010
-------------------------------------------
EXCHANGE INDENTURE
Dated as of July 8, 1998
------------------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.................................................. 1
SECTION 1.02. Other Definitions............................................ 30
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.............................................. 30
SECTION 1.04. Rules of Construction........................................ 31
ARTICLE 2
The Securities
--------------
SECTION 2.01. Amount of Securities......................................... 32
SECTION 2.02. Form and Dating.............................................. 32
SECTION 2.03. Execution and Authentication................................. 33
SECTION 2.04. Registrar and Paying Agent................................... 34
SECTION 2.05. Paying Agent To Hold Money in Trust.......................... 35
SECTION 2.06. Securityholder Lists......................................... 35
SECTION 2.07. Replacement Securities....................................... 35
SECTION 2.08. Outstanding Securities....................................... 36
SECTION 2.09. Temporary Securities......................................... 37
SECTION 2.10. Cancelation.................................................. 37
SECTION 2.11. Defaulted Interest........................................... 37
SECTION 2.12. CUSIP Numbers................................................ 38
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee........................................... 38
SECTION 3.02. Selection of Securities To Be Redeemed....................... 38
SECTION 3.03. Notice of Redemption......................................... 39
SECTION 3.04. Effect of Notice of Redemption............................... 40
SECTION 3.05. Deposit of Redemption Price.................................. 40
SECTION 3.06. Securities Redeemed in Part.................................. 41
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities........................................ 41
SECTION 4.02. SEC Reports.................................................. 41
</TABLE>
<PAGE>
Contents, p. 2
<TABLE>
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<S> <C>
SECTION 4.03. Limitation on Debt........................................... 42
SECTION 4.04. Limitation on Restricted Payments............................ 42
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries............................................... 46
SECTION 4.06. Limitation on Asset Sales.................................... 47
SECTION 4.07. Limitation on Transactions with
Affiliates................................................. 50
SECTION 4.08. Limitation on Issuance or Sale of
Capital Stock of Restricted
Subsidiaries............................................... 52
SECTION 4.09. Repurchase at the Option of Holders
Upon a Change of Control................................... 52
SECTION 4.10. Limitation on Liens.......................................... 54
SECTION 4.11. Compliance Certificate....................................... 54
SECTION 4.12. Further Instruments and Acts................................. 55
SECTION 4.13. Designation of Restricted and
Unrestricted Subsidiaries.................................. 55
SECTION 4.14. Limitation on the Company's Business......................... 56
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or
Transfer Assets............................................ 56
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default............................................ 57
SECTION 6.02. Acceleration................................................. 59
SECTION 6.03. Other Remedies............................................... 60
SECTION 6.04. Waiver of Defaults........................................... 60
SECTION 6.05. Control by Majority.......................................... 61
SECTION 6.06. Limitation on Suits.......................................... 61
SECTION 6.07. Rights of Holders To Receive Payment......................... 62
SECTION 6.08. Collection Suit by Trustee................................... 62
SECTION 6.09. Trustee May File Proofs of Claim............................. 62
SECTION 6.10. Priorities................................................... 63
SECTION 6.11. Undertaking for Costs........................................ 63
SECTION 6.12. Waiver of Stay or Extension Laws............................. 63
</TABLE>
<PAGE>
Contents, p. 3
<TABLE>
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ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee............................................ 64
SECTION 7.02. Rights of Trustee............................................ 65
SECTION 7.03. Individual Rights of Trustee................................. 67
SECTION 7.04. Trustee's Disclaimer......................................... 67
SECTION 7.05. Notice of Defaults........................................... 67
SECTION 7.06. Reports by Trustee to Holders................................ 68
SECTION 7.07. Compensation and Indemnity................................... 68
SECTION 7.08. Replacement of Trustee....................................... 69
SECTION 7.09. Successor Trustee by Merger.................................. 70
SECTION 7.10. Eligibility; Disqualification................................ 71
SECTION 7.11. Preferential Collection of
Claims Against Company..................................... 71
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on
Securities; Defeasance..................................... 71
SECTION 8.02. Conditions to Defeasance..................................... 72
SECTION 8.03. Application of Trust Money................................... 74
SECTION 8.04. Repayment to Company......................................... 74
SECTION 8.05. Indemnity for Government Obligations......................... 74
SECTION 8.06. Reinstatement................................................ 74
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders................................... 75
SECTION 9.02. With Consent of Holders...................................... 76
SECTION 9.03. Compliance with Trust Indenture Act.......................... 77
SECTION 9.04. Revocation and Effect of
Consents and Waivers....................................... 78
SECTION 9.05. Notation on or Exchange of Securities........................ 78
SECTION 9.06. Trustee To Sign Amendments................................... 78
SECTION 9.07. Payment for Consent.......................................... 79
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate..................................... 79
SECTION 10.02. Liquidation, Dissolution, Bankruptcy......................... 79
SECTION 10.03. Default on Senior Debt....................................... 80
</TABLE>
<PAGE>
Contents, p. 4
<TABLE>
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<S> <C>
SECTION 10.04. Acceleration of Payment of Securities........................ 81
SECTION 10.05. When Distribution Must Be Paid Over.......................... 81
SECTION 10.06. Subrogation.................................................. 81
SECTION 10.07. Relative Rights.............................................. 81
SECTION 10.08. Subordination May Not Be
Impaired by Company........................................ 82
SECTION 10.09. Rights of Trustee and Paying Agent........................... 82
SECTION 10.10. Distribution or Notice to
Representative............................................. 82
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit Right To
Accelerate................................................. 82
SECTION 10.12. Trust Moneys Not Subordinated................................ 82
SECTION 10.13. Trustee Entitled To Rely..................................... 83
SECTION 10.14. Trustee To Effectuate Subordination.......................... 83
SECTION 10.15. Trustee Not Fiduciary for
Holders of Senior Debt..................................... 84
SECTION 10.16. Reliance by Holders of Senior Debt
on Subordination Provisions................................ 84
ARTICLE 11
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls................................. 84
SECTION 11.02. Notices...................................................... 84
SECTION 11.03. Communication by Holders with
Other Holders.............................................. 86
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent....................................... 86
SECTION 11.05. Statements Required in Certificate
or Opinion................................................. 86
SECTION 11.06. When Securities Disregarded;
Acts of Holder............................................. 87
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar.................................................. 87
SECTION 11.08. Legal Holidays............................................... 88
SECTION 11.09. Governing Law................................................ 88
SECTION 11.10. No Recourse Against Others................................... 88
SECTION 11.11. Successors................................................... 88
SECTION 11.12. Multiple Originals........................................... 88
SECTION 11.13. Table of Contents; Headings.................................. 88
SECTION 11.14. Separability Clause.......................................... 88
SECTION 11.15. Benefits of Indenture........................................ 88
Appendix A Provisions Relating to Initial
Securities and Exchange Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
</TABLE>
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)..................................................... 7.10
(a)(2)........................................................ 7.10
(a)(3)........................................................ N.A.
(a)(4)........................................................ N.A.
(b)........................................................... 7.08; 7.10
(c)........................................................... N.A.
311(a)........................................................ 7.11
(b)........................................................... 7.11
(c)........................................................... N.A.
312(a)........................................................ 2.06
(b)........................................................... 11.03
(c)........................................................... 11.03
313(a)........................................................ 7.06
(b)(1)........................................................ N.A.
(b)(2)........................................................ 7.06
(c)........................................................... 11.02
(d)........................................................... 7.06
314(a)........................................................ 4.02; 4.11;
11.02
(b)........................................................... N.A.
(c)(1)........................................................ 11.04
(c)(2)........................................................ 11.04
(c)(3)........................................................ N.A.
(d)........................................................... N.A.
(e)........................................................... 11.05
(f)........................................................... 4.11
315(a)........................................................ 7.01
(b)........................................................... 7.05; 13.02
(c)........................................................... 7.01
(d)........................................................... 7.01
(e)........................................................... 6.11
316(a)
(last
sentence)..................................................... 11.06
(a)(1)(A)..................................................... 6.05
(a)(1)(B)..................................................... 6.04
(a)(2)........................................................ N.A.
(b)........................................................... 6.07
317(a)(1)..................................................... 6.08
(a)(2)........................................................ 6.09
(b)........................................................... 2.05
318(a)........................................................ 11.01
</TABLE>
N.A. Means Not Applicable.
- ---------------
<PAGE>
2
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of July 8, 1998, between CENTURY
MAINTENANCE SUPPLY, INC., a Delaware corporation (the "Company")
and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 13 1/4%
Subordinated Exchange Debentures due 2010 (the "Initial Securities") and, if and
when issued in accordance with the provisions hereof, the Company's 13 1/4%
Subordinated Exchange Debentures due 2010 (the "Exchange Securities" and,
together with the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other than
an Affiliate of the Company; provided, however, that, in the case of clause (b),
-------- -------
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (b) any other Person who is a
director or officer of (i) such specified Person, (ii) any Subsidiary of such
specified Person or (iii) any Person described in clause (a) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depository.
<PAGE>
2
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Temporary Regulation S Global Note or beneficial
interest therein, the rules and procedures of the Depository for such Global
Note, Euroclear and Cedel, in each case to the extent applicable to such
transaction and as in effect from time to time.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) any disposition
effected in compliance with Section 5.01(a), (iii) any Sale and Leaseback
Transaction completed within 180 days following the original acquisition of the
subject assets where such Sale and Leaseback Transaction represents the intended
financing of Property acquired after the Issue Date and (iv) any disposition or
series of related dispositions of assets having a Fair Market Value and sale
price of less than $500,000).
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or preferred stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such preferred stock multiplied by the amount of such payment by (b) the sum of
all such payments.
<PAGE>
3
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
Section 4.10, a Capital Lease Obligation shall be deemed secured by a Lien on
the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including preferred stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries for the benefit of their employees) by the
Company of any class of its Parity Stock and Junior Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Certificate of Designation" means the Certificate of Designation for
the Preferred Stock filed with the Secretary of State of the State of Deleware
on July 8, 1998.
<PAGE>
4
"Certificated Preferred Stock" means certificated Series B Preferred
Stock, bearing, if required, the restricted securities legend set forth in
clause (G)(2) of paragraph (m)(iii) of the Certificate of Designation.
"Change of Control" means the occurrence of any of the following
events:
(a) prior to the first Public Equity Offering, the Initial Control
Group ceases to be the "beneficial owners" (as defined in Rule 13d-3 under
the Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Company, whether as a result of the issuance of
securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Initial Control Group or otherwise (for purposes of this clause (a),
the Initial Control Group will be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as the Initial Control Group
beneficially own, directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of such parent corporation); or
(b) after the first Public Equity Offering, any "Person" or "group"
(as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provisions to either of the foregoing), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any one or more of the Permitted Holders, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders are the "beneficial
-------- -------
owners" (as defined in Rule 13d-3 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is
<PAGE>
5
exercisable immediately or only after the passage of time), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of all classes of the Voting Stock of the Company than such other
Person or group (for purposes of this clause (b), such Person or group
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation so long as such Person or group
beneficially owns, directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary or one or more Permitted Holders)
shall have occurred, or the Company merges, consolidates or amalgamates
with or into any other Person (other than one or more Permitted Holders) or
any other Person (other than one or more Permitted Holders) merges,
consolidates or amalgamates with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office; or
<PAGE>
6
(e) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination date to (b) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (i) if the Company or any Restricted
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Subsidiary has Incurred any Debt (other than Debt incurred in the ordinary
course of business pursuant to revolving credit facilities) since the beginning
of such period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated Interest Coverage Ratio is an Incurrence of
Debt, or both, Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Debt as if such discharge had occurred on the first day of such period, (ii)
if since the beginning of such period the Company or any Restricted Subsidiary
shall have repaid, repurchased, legally defeased or otherwise discharged any
Debt with Capital Stock Sale Proceeds, Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
discharge as if such discharge had occurred on the first day of such period,
(iii) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Sale or if the transaction giving rise to
the need to calculate the Consolidated Interest Coverage Ratio is an Asset Sale,
or both, EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the Property which is the subject
of such Asset Sale for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period, in either
case as if such Asset Sale had occurred on the first day of such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale, as if such Asset Sale had
occurred on the first day of such period (or, if the Capital Stock of any
<PAGE>
7
Restricted Subsidiary is sold, by an amount equal to the Consolidated Interest
Expense for such period directly attributable to the Debt of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Debt after such sale), (iv) if since the beginning
of such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of Property, including any
acquisition of Property occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Debt) as if such Investment or acquisition occurred on the
first day of such period, (v) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Sale, Investment or acquisition of Property that would have
required an adjustment pursuant to clause (iii) or (iv) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Sale, Investment or acquisition occurred on the
first day of such period, and (vi) if since the beginning of such period the
Company or any Restricted Subsidiary shall have permanently reduced or repaid
the amount owing under the Credit Facility or shall have reduced or repaid Debt
with a maturity in excess of one year, Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
reduction or repayment as if such reduction or repayment had occurred on the
first day of such period. For purposes of this definition, pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company and as further contemplated by the definition
of the term "pro forma". If any Debt bears a floating rate of interest and is
being given pro forma effect, the interest expense on such Debt shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Debt if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent
<PAGE>
8
not included in such total interest expense, and to the extent Incurred by the
Company or its Restricted Subsidiaries, (a) interest expense attributable to
capital leases, (b) amortization of debt discount and debt issuance cost,
including commitment fees, other than with respect to Debt Incurred in
connection with the Recapitalization, (c) capitalized interest, (d) non-cash
interest expenses (other than interest, if any, that is paid in kind on the
Securities), (e) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (f) net costs
associated with Hedging Obligations (including amortization of fees), (g)
Disqualified Dividends other than Disqualified Dividends paid with shares of
Parity Stock or Junior Stock of the Company which is not Disqualified Stock, (h)
preferred stock dividends in respect of all Preferred Stock of Restricted
Subsidiaries held by Persons other than the Company or a Wholly Owned
Subsidiary, (i) interest Incurred in connection with Investments in discontinued
operations, (j) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Restricted Subsidiary and (k) the
cash contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Debt Incurred by such
plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
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shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person other than an Unrestricted Subsidiary for such
period shall be included in determining such Consolidated Net Income, (b) for
the purposes of Section 4.04 only, any net income (loss) of any Person acquired
by the Company or any of its consolidated Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (c) any net
income (but not loss) of any Restricted Subsidiary if such Restricted Subsidiary
is subject to consensual restrictions, directly or indirectly,
<PAGE>
9
on the payment of dividends or the making of distributions, directly or
indirectly, to the Company, except that subject to the exclusion contained in
clause (d) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash distributed by such Restricted Subsidiary during
such period to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
another Restricted Subsidiary, to the limitation contained in this clause), (d)
any gain (or, for purposes of Section 4.03 and Section 5.01 only, loss) realized
upon the sale or other disposition of any Property of the Company or any of its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business, provided, that any tax benefit or tax liability resulting therefrom
--------
shall be excluded in such Consolidated Net Income, (e) any extraordinary gain or
loss or any nonrecurring cost or expense relating to the Recapitalization,
provided that any tax benefit or tax liability resulting therefrom shall be
excluded from such Consolidated Net Income, (f) the cumulative effect of a
change in accounting principles, (g) any non-cash compensation expense realized
as a result of the grant, vesting or exercise of performance shares, stock
options or other stock awards to officers, directors and employees of the
Company or any Restricted Subsidiary, (h) bonuses paid to employees in
connection with the Recapitalization up to $1.0 million in the aggregate and (i)
compensation expense attributable to the repurchase within 30 days of the
Recapitalization of outstanding options from employees of the Company and its
Subsidiaries in an amount not to exceed $4,020,000 in the aggregate.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a)(iii)(D) thereof.
"Credit Facility" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the New Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow
<PAGE>
10
from such lenders against such receivables or inventory) or trade letters of
credit, in each case together with any amendments, supplements, modifications
(including by any extension of the maturity thereof), refinancings or
replacements thereof by a lender or syndicate of lenders in one or more
successive transactions (including any such transaction that changes the amount
available thereunder, replaces such agreement or document, or provides for other
agents or lenders).
"Currency Exchange Protection Agreement" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (d) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (e) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any preferred stock (but
excluding, in each case, any accrued dividends); (f) all obligations of the type
referred to in clauses (a) through (e) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a)
<PAGE>
11
through (f) of other Persons secured by any Lien on any Property of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such Property or the
amount of the obligation so secured; and (h) to the extent not otherwise
included in this definition, Hedging Obligations of such Person. The amount of
Debt of any Person at any date shall be the outstanding balance at such date of
all unconditional obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided, that the amount outstanding at
--------
any time of any Debt issued with original issue discount is the face amount of
such Debt less the remaining unamortized portion of the original issue discount
of such Debt at such time as determined in accordance with GAAP.
"Default" means any event which, after notice or passage of time,
would be an Event of Default.
"Definitive Preferred Stock" means, certificated Series A Preferred
Stock bearing, if required, the restricted securities legend set forth in clause
G(1) of paragraph (m)(iii) of the Certificate of Designation.
"Designated Senior Debt" means any Senior Debt which has, at the time
of determination, an aggregate principal amount outstanding of at least $10.0
million (including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit thereunder)
that is specifically designated in the instrument evidencing such Senior Debt
and is designated in a notice delivered by the Company to the holders or a
Representative of the holders of such Senior Debt and in an Officers'
Certificate delivered to the Trustee as "Designated Senior Debt" of the Company
for purposes of this Indenture; provided that the New Credit Facility shall be
--------
deemed to be Designated Senior Debt under this Indenture.
"Disqualified Dividends" means, for any dividend with respect to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"Disqualified Stock" means, with respect to any Person, Redeemable
Stock of such Person as to which (i) the maturity, (ii) mandatory redemption or
(iii) redemption, repurchase, conversion or exchange at the option of the
<PAGE>
12
holder thereof occurs, or may occur, on or prior to the first anniversary of the
Stated Maturity of the Securities; provided, however, that Redeemable Stock of
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such Person that would not otherwise be characterized as Disqualified Stock
under this definition shall not constitute Disqualified Stock (a) if such
Redeemable Stock is convertible or exchangeable into Debt or Disqualified Stock
solely at the option of the issuer thereof or (b) solely as a result of
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Redeemable Stock upon the occurrence of a "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Securities, if (x) such repurchase obligation may not be triggered in respect of
such Redeemable Stock unless a corresponding obligation also arises with respect
to the Securities and (y) no such repurchase or redemption is permitted to be
consummated unless and until such Person shall have satisfied all repurchase or
redemption obligations with respect to any required purchase offer made with
respect to the Securities.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization expense and (v) any other non-cash items
(other than any such non-cash item to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), minus (b) all non-
cash items increasing Consolidated Net Income for such period (other than any
such non-cash item to the extent that it will result in the receipt of cash
payments in any future period). Notwithstanding the foregoing, the provision
for taxes based on the income or profits of, and the depreciation and
amortization of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would not be
prohibited at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of any consensual restriction applicable to such
Restricted Subsidiary.
"Employee Notes" means promissory notes of employees of the Company or
any of its Subsidiaries payable to the Company and received in connection with
the
<PAGE>
13
substantially concurrent purchase of common stock of the Company by such
employees.
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" means the date on which the Securities are issued in
exchange for the Preferred Stock.
"Fair Market Value" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value equal to or less than $2.5 million, by any Officer of the Company or (b)
if such Property has a Fair Market Value in excess of $2.5 million, by a
majority of the Board of Directors and evidenced by a Board Resolution, dated
within 30 days of the relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered
<PAGE>
14
into for the purpose of assuring in any other manner the obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
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"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Security Register.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); provided,
--------
however, that a change in GAAP that results in an obligation of such Person that
- -------
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided further, however, that
---------------- -------
solely for purposes of determining compliance with Section 4.03, amortization of
debt discount shall not be deemed to be the Incurrence of Debt, provided,
--------
however, that in the case of Debt sold at a discount, the amount of such Debt
- -------
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided, however,
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that such firm or appraiser is not an Affiliate of the Company.
"Initial Control Group" means Dennis Bearden (or his heirs or trusts
for the benefit of his heirs), the members of the Board of Directors of the
Company immediately following the consummation of the Recapitalization and
Freeman Spogli & Co. LLC or any successor entity thereof controlled by the
principals of Freeman Spogli & Co.
<PAGE>
15
Incorporated or any Person controlled by, or under common control with, Freeman
Spogli & Co. LLC.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of Section 4.04, Section 4.13 and the definition of "Restricted Payment", an
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
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Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (a) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (b) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
"Issue Date" means July 8, 1998.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York or Houston,
Texas.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security
<PAGE>
16
agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to such Property (including any Capital Lease Obligation,
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing or any Sale and Leaseback
Transaction).
"Merger" means the merger of Century Acquisition Corp. with and into
the Company pursuant to the Merger Agreement.
"Merger Agreement" means the Amended and Restated Merger Agreement
among Century Acquisition Corp., the Company and shareholders of the Company
dated as of May 5, 1998, as in effect on the Issue Date.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from any Asset Sale or other transaction subject
to Section 4.08 hereof means cash payments received therefrom (including any
cash payments received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Debt or other obligations relating to the Property that is
the subject of such transaction or received in any other noncash form), in each
case net of (a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under GAAP, as a
consequence of such transaction, (b) all payments made on any Debt which is
secured by any Property subject to such transaction, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such Property, or which must by its terms, or in order to obtain a necessary
consent to such transaction, or by applicable law, be repaid out of the proceeds
from such transaction, (c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such transaction and (d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the Property disposed in such transaction and retained by the Company or
any Restricted Subsidiary after such transaction.
"New Credit Facility" means the credit facilities made available
pursuant to the Credit Agreement dated as of the Issue Date among the Company,
the lenders party thereto,
<PAGE>
17
Salomon Smith Barney Inc, as Arranger, Advisor and Syndication Agent, and
Citicorp (USA), Inc., as Administrative Agent and Collateral Agent.
"Offering" the offering by the Company of 280,000 shares of Preferred
Stock consummated on July 8, 1998.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Executive Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company.
"Permitted Debt" means:
(a) Debt evidenced by the Securities;
(b)(i) Debt under the Credit Facility; provided that the aggregate
principal amount of all such Debt under the Credit Facility comprised of
(A) term loans at any one time outstanding shall not exceed $100.0 million
minus all principal amounts repaid in respect of such term loans and (B)
revolving credit loans and obligations at any one time outstanding shall
not exceed the greater of (x) $25.0 million and (y) the sum of the amounts
equal to (1) 60% of the net book value of the inventory of the Company and
the Restricted Subsidiaries and (2) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recent fiscal quarter ending at least 45 days prior to
the date of determination and (ii) Guarantees of Debt under the Credit
Facility;
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt; provided, however, that (i) the aggregate principal amount of such
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Debt does not exceed the Fair Market Value (on the date of the Incurrence
thereof) of the Property acquired, constructed or leased (including costs
of installation, taxes and delivery charges with respect to such
acquisition, construction or lease) and (ii) the aggregate principal amount
of all Debt Incurred and then outstanding pursuant to this clause (c)
(together
<PAGE>
18
with all Permitted Refinancing Debt Incurred in respect of Debt
previously Incurred pursuant to this clause (c) and then outstanding) does
not exceed $10.0 million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Wholly Owned Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
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subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Wholly Owned Subsidiary Incurred and outstanding on or
prior to the date on which such Wholly Owned Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Wholly Owned Subsidiary became a
Subsidiary of the Company or was otherwise acquired by the Company);
provided, however, that at the time such Wholly Owned Subsidiary was
-------- -------
acquired by the Company or otherwise became a Restricted Subsidiary and
after giving pro forma effect to the Incurrence of such Debt, the Company
would have been able to Incur $1.00 of additional Debt pursuant to clause
(a) in the first paragraph of Section 4.03;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided, however,
-------- -------
that the obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of Section 4.03;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
<PAGE>
19
(h) Debt in connection with one or more standby letters of credit or
performance bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the
obtaining of advances;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt not otherwise described in clauses (a) through (i) above in
an aggregate principal amount outstanding at any one time not to exceed
$15.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the first paragraph of Section 4.03 and clauses
(a), (c), (e) and (i) above, subject, in the case of clause (c) above, to
the limitations set forth in the proviso thereto.
"Permitted Holders" means the Continuing Stockholders, any member of
the senior management of the Company or any of its Subsidiaries (or trusts for
the benefit of his or her immediate family), the directors of the Company
immediately following the consummation of the Recapitalization and Freeman
Spogli & Co. LLC or any successor entity thereof controlled by the principals of
Freeman Spogli & Co. LLC or any entity controlled by, or under common control
with, Freeman Spogli & Co. LLC.
"Permitted Investment" means any Investment by the Company or a
Restricted Subsidiary in (a) any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
--------
however, that the primary business of such Restricted Subsidiary is a Related
- -------
Business; (b) any Person if as a result of such Investment such Person is merged
or consolidated with or into, or transfers or conveys all or substantially all
its Property to, the Company or a Restricted Subsidiary; provided, however, that
-------- -------
such Person's primary business is a Related Business; (c) Temporary Cash
Investments; (d) receivables owing to the Company or a Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
-------- -------
such trade terms may include such concessionary trade terms as the Company or
such Restricted Subsidiary deems reasonable under the circumstances; (e)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses
<PAGE>
20
for accounting purposes and that are made in the ordinary course of business;
(f) (i) loans and advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary, as
the case may be; provided, however, that such loans and advances do not exceed
-------- -------
$1.0 million at any one time outstanding and (ii) loans and advances to, or the
receipt of Employee Notes from, employees of the Company or any of its
Subsidiaries made or received in connection with the substantially concurrent
purchase of common stock of the Company by such employees; provided, however,
-------- -------
that the aggregate principal amount of such loans, advances and notes payable
shall not exceed $1.0 million at any one time outstanding; (g) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or a Restricted Subsidiary
or in satisfaction of judgments; (h) any Person to the extent such Investment
represents the non-cash portion of the consideration received in connection with
an Asset Sale consummated in compliance with Section 4.06; and (i) Persons
engaged in a Related Business; provided such Investments do not exceed $20.0
--------
million at any one time outstanding (it being agreed that an Investment shall
cease to be outstanding to the extent of dividends, repayments of loans or
advances or other transfers of Property received by the Company or any
Restricted Subsidiary from such Persons, and provided further that such amounts
----------------
do not increase the amount of Restricted Payments which the Company and the
Restricted Subsidiaries may make pursuant to clause (a)(iii)(D)(1) of Section
4.04).
"Permitted Liens" means:
(a) Liens securing Senior Debt of the Company or any Restricted
Subsidiary;
(b) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings;
(c) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
<PAGE>
21
(d) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety or indemnity bonds or other
obligations of a like nature and Incurred in a manner consistent with
industry practice, in each case which are not Incurred in connection with
the borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in the
operation of the business of the Company and the Restricted Subsidiaries
taken as a whole;
(e) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
-------- -------
other Property of the Company or any Restricted Subsidiary; provided
--------
further, however, that such Liens shall not have been Incurred in
------- -------
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(f) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
-------- -------
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
--------
further, however, that any such Lien was not Incurred in anticipation of or
------- -------
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(g) pledges or deposits by the Company or any Restricted Subsidiary
under worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
<PAGE>
22
(h) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(i) judgment and attachment Liens in connection with (A) judgments
that do not constitute an Event of Default so long as the judgment creditor
is not seeking enforcement thereof and reserves have been established to
the extent required by GAAP as in effect at such time and (B) litigation
and legal proceedings that are being contested in good faith by appropriate
proceedings (or as to which the Company or Restricted Subsidiary, as the
case may be, is preparing to promptly initiate appropriate proceedings) so
long as reserves have been established to the extent required by GAAP as in
effect at such time and so long as such Liens do not encumber assets by an
aggregate amount (together with the amount of any unstayed judgments
against the Company or any Restricted Subsidiary) in excess of $7.5
million;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above;
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (a), (e), (f) or (j) above; provided, however,
-------- -------
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (a), (e), (f)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under this Indenture and (ii) an amount necessary to pay any
fees and expenses, including premiums and defeasance costs, Incurred by the
Company or such Restricted Subsidiary in connection with such Refinancing;
and
(l) perfected Liens of any vendor or inventory sold by such vendor
securing the unpaid purchase price of such inventory, to the extent such
Liens are stated to be reserved in such vendor's sale documents (and not
granted by separate agreement of the Company or any Subsidiary).
<PAGE>
23
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced; provided, however, that Permitted Refinancing Debt shall not include
-------- -------
(x) Debt of a Subsidiary that Refinances Debt of the Company or (y) Debt of the
Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock.
"preferred stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
"principal" of any Debt (including the Securities) means the principal
amount of such Debt plus the premium, if any, on such Debt.
"Private Placement" means the sale by the Company of 120,000 shares of
Preferred Stock to Dennis C. Bearden (or his affiliate) and Freeman Spogli & Co.
LLC on or about July 8, 1998.
"Private Securities" means Initial Securities issued in exchange for
Preferred Stock originally sold by the Company in the Private Placement.
<PAGE>
24
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed,
and (b) Incurred to finance the acquisition or construction by the Company or a
Restricted Subsidiary of such asset, including remodeling thereof and additions
and improvements thereto; provided, however, that such Debt is Incurred within
-------- -------
180 days after such acquisition of such asset by the Company or a Restricted
Subsidiary or completion of such construction, remodeling, addition or
improvement, as the case may be.
"Recapitalization" means the recapitalization of the Company on July
8, 1998, effected pursuant to the Merger Agreement, the New Credit Facility and
the issuance of the Preferred Stock.
"Redeemable Stock" means, with respect to any Person, any Capital
Stock (other than the Preferred Stock) that by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable, in either
case at the option of the holder thereof) or otherwise (a) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (b)
is or may become redeemable or repurchaseable at the option of the holder
thereof, in whole or in part, or (c) is convertible
<PAGE>
25
or exchangeable, in either case at the option of the holder thereof, for Debt or
Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt,
in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Regulation S Securities" means Initial Securities issued in exchange
for Preferred Stock originally sold in the Offering pursuant to Regulation S.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Parity Stock or Junior Stock of the Company or any Capital
Stock of any Restricted Subsidiary (including any payment in connection with any
merger or consolidation with or into the Company or any Restricted Subsidiary),
except for any dividend or distribution which is made solely to the Company or a
Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividend or distribution payable
solely in shares of Junior Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of
any Parity Stock or Junior Stock of the Company or any Capital Stock of any
Affiliate of the Company (other than from the Company or a Restricted
Subsidiary) or any securities exchangeable for or convertible into any such
Parity Stock, Junior Stock or Capital Stock, including the exercise of any
option to exchange any Parity Stock, Junior Stock or Capital Stock (other than
for or into Capital Stock of the Company that is not Disqualified Stock); (c)
the purchase, repurchase, redemption, acquisition or retirement for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, any Subordinated Obligation (other than the purchase, repurchase or
other acquisition of
<PAGE>
26
any Subordinated Obligation purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition) or (d) any Investment (other than
Permitted Investments) in any Person.
"Restricted Subsidiary" means (a) any Subsidiary of the Company unless
such Subsidiary shall have been designated an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.13 and (b) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to Section 4.13.
"Rule 144A Securities" means Initial Securities issued in exchange for
Preferred Stock sold in the Offering pursuant to Rule 144A, other than
Regulation S Securities.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" of the Company means (a) all obligations consisting of
the principal, premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent post-filing interest is
allowed in such proceeding) in respect of (i) Debt of the Company for borrowed
money, including Debt under the Credit Facility, and (ii) Debt of the Company
evidenced by notes, debentures, bonds or other similar instruments permitted
under this Indenture for the payment of which the Company is responsible or
liable; (b) all Capital Lease Obligations of the Company; (c) all obligations of
the Company (i) for the reimbursement of any obligor on any letter of credit,
bankers' acceptance or similar credit transaction, (ii) under Hedging
Obligations or (iii) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and all obligations
under any title retention agreement permitted under this Indenture; and (d) all
obligations of other Persons of the type referred to in clauses (a), (b) and (c)
for the payment of which the Company is responsible or liable as Guarantor;
provided, however, that Senior Debt
- -------- -------
<PAGE>
27
shall not include (A) Debt of the Company that is by its terms subordinate or
pari passu in right of payment to the Securities, including any Subordinated
Debt and Subordinated Obligations; (B) any Debt Incurred in violation of the
provisions of this Indenture; (C) accounts payable or any other obligations of
the Company to trade creditors created or assumed by the Company in the ordinary
course of business in connection with the obtaining of materials or services
(including Guarantees thereof or instruments evidencing such liabilities); (D)
any liability for Federal, state, local or other taxes owed or owing by the
Company; (E) any obligation of the Company to any Subsidiary; or (F) any
obligations with respect to any Capital Stock.
"Series A Preferred Stock" means the Company's 13 1/4% Series A Senior
Exchangeable PIK Preferred Stock.
"Series B Preferred Stock" means the Company's 13 1/4% Series B Senior
Exchangeable PIK Preferred Stock.
"Series C Preferred Stock" means the Company's 13 1/4% Series C Senior
Exchangeable PIK Preferred Stock.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company which covers the Series A Preferred Stock (or, if the Series A
Preferred Stock has been exchanged therefor, the Exchange Securities, as
applicable), on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the SEC, all amendments and supplements
to such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
<PAGE>
28
"Subordinated Debt" means the Securities and any other Debt of the
Company that specifically provides that such Debt is to rank pari passu with the
Securities in right of payment and is not subordinated by its terms to any Debt
or other obligation of the Company which is not Senior Debt.
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the Issue Date or thereafter Incurred) that specifically provides
that such Debt is to be subordinate or junior in right of payment to the
Securities.
"Subsidiary" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of
such Person or (c) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (a)
Investments in U.S. Government Obligations; (b) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 90
days of the date of acquisition thereof issued by a bank or trust company which
is organized under the laws of the United States of America or any state thereof
having capital, surplus and undivided profits aggregating in excess of $500
million and whose long-term debt is rate "A-3" or "A-" or higher according to
Moody's or S&P (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (a) entered into
with a bank meeting the qualifications described in clause (b) above; (d)
Investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (e)
direct obligations (or certificates representing an ownership interest in such
obligations) of any state of the United States of America
<PAGE>
29
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of such state is pledged and which are not callable or
redeemable at the issuer's option, provided, however, that (i) the long-term
-------- -------
debt of such state is rated "A-3" or "A-1" or higher according to Moody's or S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) and (ii) such obligations mature within 180 days of the date of
acquisition thereof; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
------
77bbbb) as in effect on the date of this Indenture except as required by Section
9.03 hereof; provided, however, that in the event the Trust Indenture Act of
-------- -------
1939 is amended after such date, "Trust Indenture Act" means, to the extent
-------------------
required by any such amendment, the Trust Indenture Act of 1939, as so amended.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary; (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the Company
that is designated after the Issue Date as an Unrestricted Subsidiary as
permitted or required pursuant to Section 4.13 and not thereafter redesignated
as a Restricted Subsidiary as permitted pursuant thereto.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
<PAGE>
30
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares) is at such
time owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
SECTION 1.02. Other Definitions.
------------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction"........................................ 4.07
"Bankruptcy Law"............................................... 6.01
"Change of Control Offer"...................................... 4.09
"Change of Control Payment Date"............................... 4.09
"Change of Control Purchase Price"............................. 4.09
"covenant defeasance option"................................... 8.01(b)
"Custodian".................................................... 6.01
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.06
"Exchange Amendment"........................................... 2.01
"Global Security".............................................. Appendix A
"legal defeasance option"...................................... 8.01(b)
"Legal Holiday"................................................ 11.08
"Offer Amount"................................................. 4.06
"Offer Period"................................................. 4.06
"pay the Securities"........................................... 10.03
"Paying Agent"................................................. 2.04
"Payment Blockage Notice"...................................... 10.03
"Payment Blockage Period"...................................... 10.03
"Permanent Regulation S Global Notes".......................... 2.02
"Prepayment Offer"............................................. 4.06
"Prepayment Offer Notice"...................................... 4.06
"Purchase Date"................................................ 4.06
"Registrar".................................................... 2.04
"Rule 144A Global Note"........................................ 2.02
</TABLE>
<PAGE>
31
<TABLE>
<S> <C>
"Successor Company"............................................ 5.01
"Temporary Regulation S Global Notes".......................... 2.02
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the United States Securities and Exchange
Commission.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
----------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limita tion;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Debt shall not be deemed to be subordinate or junior to
secured Debt merely by virtue of its nature as unsecured Debt;
<PAGE>
32
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any preferred stock shall be the greater
of (i) the maximum liquidation value of such preferred stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect to
such preferred stock.
ARTICLE 2
The Securities
--------------
SECTION 2.01. Amount of Securities. The aggregate principal amount
---------------------
of Securities which may be authenticated and delivered under this Indenture
shall equal the liquidation preference of the Preferred Stock, plus, without
duplication, accumulated and unpaid dividends on the Exchange Date (the
"Exchange Amount") plus any Additional Securities issued in lieu of cash
interest.
Subject to Section 2.03, the Trustee shall authenticate Securities for
original issue on the Exchange Date in the aggregate principal amount equal to
the Exchange Amount and shall authenticate Additional Securities sufficient to
pay interest on outstanding Securities if the Company elects, as provided in
paragraph 1 of the Securities, to pay such interest in the form of Additional
Securities.
SECTION 2.02. Form and Dating. (a) Provisions relating to the
----------------
Initial Securities and the Exchange Securities are set forth in Appendix A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Initial Securities of each series and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage, provided that any such notation,
--------
legend or endorsement is in a form reasonably acceptable to the Company. Each
Security shall be dated the date of its
<PAGE>
33
authentication. The terms of the Securities set forth in Exhibit 1 to Appendix A
and Exhibit A are part of the terms of this Indenture.
(b) Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Notes registered in the name of the
Depository or its nominee and deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee, for
credit by the Depository to the respective accounts of beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Such Global Notes are collectively herein called the "Rule 144A Global Note".
Upon their original issuance, Regulation S Securities shall, to the extent
required pursuant to paragraph (C)(3)(ii)(B) of Rule 903 under Regulation S
under the Securities Act, be issued in the form of one or more temporary Global
Notes (the "Temporary Regulation S Global Notes") and, to the extent permitted
pursuant to paragraph (C)(3)(ii)(B) of such Rule 903, shall be issued initially
in the form of one or more permanent Global Notes (the "Permanent Regulation S
Global Notes"), in each case registered in the name of the Depository or its
nominee and deposited with the Trustee as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee, for credit to the
Agent Member accounts at the Depository of Euroclear and/or Cedel for further
credit by Euroclear and Cedel, as the case may be, to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct). Interests in the Temporary Regulation S Global
Notes may only be held by the Agent Members of the Depository for Euroclear and
Cedel. Upon their initial issuance, the Private Securities shall be issued in
the form of individual definitive certificates in fully registered form without
distribution coupons and with the appropriate restrictive legends.
SECTION 2.03. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may
<PAGE>
34
deliver Securities executed by the Company to the Trustee for authentication,
together with a written order of the Company signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company for the authentication and delivery of such Securities, and the Trustee
in accordance with such written order of the Company shall authenticate and
deliver such Securities.
The Company may issue, and the Trustee shall authenticate and deliver,
upon initial issuance Initial Securities in exchange for Series A Preferred
Stock or Series B Preferred Stock. The Company may issue, and the Trustee shall
authenticate and deliver, Exchange Securities (i) upon initial issuance in
exchange for Series C Preferred Stock or (ii) pursuant to an exchange offer
registered under the Securities Act. Additional Securities, if any, issued by
the Company in payment of interest (i) on the Initial Securities shall be in the
form of additional Initial Securities and (ii) on the Exchange Securities shall
be in the form of additional Exchange Securities.
A Security shall not be valid until an authorized officer or signatory
of the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
---------------------------
in the Borough of Manhattan, the City of New York, an office or agency where
Securities may be presented for registration of transfer or for exchange (the
"Registrar") and an office or agency where Securities may be presented for
payment (the "Paying Agent"). The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the
<PAGE>
35
Borough of Manhattan, the City of Mew York) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
-------- -------
recision shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York, for such
purposes. The Company will give written notice to the Trustee of any such
designation or recision and of any change in the location of any such other
office or agency.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company
may change any Paying Agent or Registrar upon notice to the Trustee but without
notice to any Holder.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.05. Paying Agent To Hold Money in Trust. No later than
------------------------------------
11:00 a.m., New York City time, on or prior to each due date of the principal
and interest on any Security, the Company shall deposit with the Paying Agent,
on such due date, a sum sufficient to pay such principal and interest then so
becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Wholly Owned Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
<PAGE>
36
SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as
---------------------
current a form as is reasonably prac ticable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.07. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee and the Company. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Security is replaced. The Company
and the Trustee may charge the Holder for their expenses in replacing a
Security.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
of mutilated, lost, destroyed or wrongfully taken Securities.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
-----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancelation and those described in this Section
as not outstanding. A Security does not cease to be out standing because the
Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and
<PAGE>
37
interest payable on that date with respect to the Securities (or portions
thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is
not prohibited from paying such money to the Securityholders on that date
pursuant to the terms of this Indenture, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Every such temporary Security shall be
authentic upon the same conditions and in substantially the same manner,
and with the same effect, as the definitive Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Securities and deliver them in exchange for temporary Securities. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same rights, privileges and benefits under this Indenture as definitive
Securities authenticated and delivered hereunder.
SECTION 2.10. Cancelation. The Company at any time may deliver
------------
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company, unless
the Company directs the Trustee to deliver canceled Securities to the Company.
If the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Debt represented by such
Securities unless and until the same are delivered to the Trustee for
cancelation. The Company may not issue new Securities to replace Securities it
has redeemed, paid or delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults on a
-------------------
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the Persons who are
Securityholders on a subsequent special
<PAGE>
38
record date. The Company shall fix or cause to be fixed any such special record
date and payment date to the reasonable satisfaction of the Trustee and shall
promptly mail to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the grace period provided for in Section 6.01(1) hereof shall be
paid to the Holders of the Securities as of the regular record date for which
interest has not been paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
--------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
- -------- -------
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company redeems Securities
-------------------
pursuant to paragraph 5 of the Securities, it shall notify the Trustee in
writing of the redemption date and the principal amount of Securities to be
redeemed.
In the event of a redemption pursuant to paragraph 5 of the
Securities, the Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Any notice pursuant to this Section shall be
transmitted by facsimile and confirmed with a Trust Officer by telephone. Such
notice shall be accompanied by an Officers' Certificate and an Opinion of
Counsel from the Company to the effect that such redemption will comply with the
conditions herein. Such Officers' Certificate shall, in addition, specify the
redemption price of the Securities.
SECTION 3.02. Selection of Securities To Be Redeemed. If less than
---------------------------------------
all the Securities are to be redeemed at any time, selection of Securities for
redemption may be made by the Trustee in compliance with the require-
<PAGE>
39
ments of the principal national securities exchange, if any, on which the
Securities are listed, or, if the Securities are not so listed, on a pro rata
basis, by lot or by such other method that the Trustee shall deem fair and
appropriate (and in a manner that complies with applicable legal requirements,
if any). The Trustee shall make the selection from outstanding Securities not
previously called for redemption. The Trustee may select for redemption portions
of the principal of Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company and, unless the Trustee is
acting as such, the Registrar, promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.03. Notice of Redemption. The Company shall mail a notice
---------------------
of redemption by first-class mail to each Holder of Securities to be redeemed at
least 30 days but not more than 60 days before a date for redemption of
Securities.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price, or the calculation thereof described in
paragraph 5 of the Securities;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemp tion price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is pro hibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after the redemption
date; and
<PAGE>
40
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
-------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice, and from
and after such redemption date (unless the Company shall default on the payment
of the redemption price and accrued interest) such Securities shall cease to
bear interest. Upon surrender to the Paying Agent, such Securities shall be
paid at the redemption price stated in the notice, plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date that
is on or prior to the date of redemption). Failure to give notice or any defect
in the notice to any Holder shall not affect the validity of the notice to any
other Holder.
SECTION 3.05. Deposit of Redemption Price. No later than 11:00 a.m.,
----------------------------
New York City time, on the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Wholly Owned Subsidiary is the Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date that is on or prior to the date of redemption) on all Securities to be
redeemed on that date other than Securities or portions of Securities called for
redemption which have been delivered by the Company to the Trustee for
cancelation. All money earned on funds held in trust by the Trustee or any
Paying Agent and any excess or remaining funds shall be remitted to the Company.
The Trustee (or the paying agent) shall not be accountable or liable for any
losses from the sale or depreciation in value of such investments. In the event
that any such loss or depreciation occurs, the Company will pay the Trustee an
amount equal to such loss or depreciation.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of the redemption price of and accrued interest, if any, on the
Securities that remains unclaimed for two years (or if then
<PAGE>
41
held by the Company or a Wholly Owned Subsidiary in trust for the payment
thereof), shall be discharged from such trust, and, thereafter, Securityholders
entitled to the money must look to the Company for payment as general creditors;
provided, however, that the Trustee or such Paying Agent before being required
- -------- -------
to make any such repayment shall at the expense of the Company cause to be
mailed to each such Holder a notice that said moneys have not been so applied
and that after a date named therein any unclaimed balance of said moneys then
remaining will be returned to the Company.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
----------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Secur ity
surrendered.
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue princi pal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Commencing 60 days after the Issue Date,
------------
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Securities and Exchange Commission ("Commission") and provide the
Trustee, the Holders of Securities and, upon request, security analysts of
prospective holders of the Securities with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S.
<PAGE>
42
corporation subject to such Sections, such information, documents and reports to
be so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections; provided, however, that
-------- -------
the Company shall not be so obligated to file such information, documents and
reports with the Commission if the Commission does not permit such filings. The
Company shall file with the Commission and provide the Trustee, Holders of
Securities and, upon request, security analysts of prospective holders of the
Securities with the information, documents and reports described herein whether
or not the Exchange Offer Registration Statement has been filed or declared
effective.
SECTION 4.03. Limitation on Debt. The Company shall not, and shall
-------------------
not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt
unless, after giving pro forma effect to the application of the proceeds
thereof, no Default or Event of Default would occur as a consequence of such
Incurrence or be continuing following such Incurrence and either (a) after
giving effect to the Incurrence of such Debt and the application of the proceeds
thereof, the Consolidated Interest Coverage Ratio would be greater than 2.00 to
1.00 or (b) such Debt is Permitted Debt.
Notwithstanding paragraphs (j) and (k) of the definition of "Permitted
Debt", (a) the Company shall not, and shall not permit any Restricted Subsidiary
to, Incur any Debt pursuant to such paragraphs if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Securities to at least the same extent as such
Subordinated Obligations and (b) the Company shall not permit any Restricted
Subsidiary to Incur any Debt pursuant to such paragraphs if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations.
SECTION 4.04. Limitation on Restricted Payments.
----------------------------------
(a) The Company shall not make, and shall not permit any Restricted Subsidiary
to make, directly or indirectly, any Restricted Payment if at the time of, and
after giving pro forma effect to, such proposed Restricted Payment,
(i) a Default or Event of Default shall have occurred and be
continuing,
(ii) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 or
<PAGE>
43
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(A) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date occurs to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or if the aggregate
amount of Consolidated Net Income for such period shall be a deficit,
minus 100% of such deficit),
(B) Capital Stock Sale Proceeds,
(C) the amount by which Debt of the Company Incurred after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by the Company or a Subsidiary of
the Company) subsequent to the Issue Date of any Debt (other than
Subordinated Obligations) of the Company for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
other Property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange), and
(D) an amount equal to the sum of (1) the net reduction in
Investments in any Person other than the Company or a Restricted
Subsidiary resulting from dividends, repayments of loans or advances
or other transfers of Property, in each case to the Company or any
Restricted Subsidiary from such Person, to the extent such dividends,
repayments or transfers do not increase the amount of Permitted
Investments permitted to be made pursuant to clause (i) of the
definition thereof and (2) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
-------- -------
case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the
<PAGE>
44
Company or any Restricted Subsidiary in such Person, and
(E) $5.0 million.
(b) Notwithstanding the foregoing limitation, the Company may:
(i) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this Indenture; provided, however, that at the
-------- -------
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
--------
further, however, that such dividend shall be included in the calculation
------- -------
of the amount of Restricted Payments;
(ii) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or in an amount not in excess of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (1) such purchase, repurchase,
-------- -------
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (2) the Capital
Stock Sale Proceeds from such exchange or sale shall be excluded from the
calculation pursuant to clause (a)(iii)(B) above;
(iii) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or in an amount not
in excess of the proceeds of the substantially concurrent sale of,
Permitted Refinancing Debt; provided, however, that such purchase,
-------- -------
repurchase, redemption, legal defeasance, acquisition or retirement shall
be excluded in the calculation of the amount of Restricted Payments;
(iv) purchase, repurchase, redeem, legally defease, acquire or retire
for value, shares of, or options to purchase shares of, common stock of the
Company from employees or former employees of the Company, or its
Subsidiaries (or their estates or beneficiaries thereof) upon death,
disability, retirement or
<PAGE>
45
termination pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors, under which such individuals purchase or sell, or are granted
the option to purchase or sell, shares of such common stock; provided,
--------
however, that (1) the aggregate amount of such purchases, repurchases,
-------
redemptions, defeasances, acquisitions or retirements shall not exceed $2.5
million in any year or $5.0 million during the term of the Securities,
except that (x) such amounts shall be increased by the aggregate net amount
of cash received by the Company after the Issue Date from the sale of such
shares to, or the exercise of options to purchase such shares by, employees
of the Company or any of its Subsidiaries and (y) the Company may forgive
or return Employee Notes without regard to the limitation set forth in
clause (iv)(1) above and such forgiveness or return shall not be treated as
a Restricted Payment for purpose of determining compliance with such clause
(iv)(1) and (2) such purchases, repurchases, defeasances, acquisitions or
retirements (but not forgiveness or return of Employee Notes) shall be
included in the calculation of the amount of Restricted Payments; and
(v) purchase or redeem Subordinated Obligations pursuant to asset sale
or change of control provisions contained in the governing instrument
relating thereto; provided, however, that (A) no offer or purchase
-------- -------
obligation may be triggered in respect of any such Subordinated Obligation
unless a corresponding obligation also arises with respect to the
Securities and (B) in any event, no repurchase or redemption of any such
Subordination Obligation may be consummated unless and until the Company
shall have satisfied all repurchase obligations with respect to any
required purchase offer made with respect to the Securities; provided,
--------
however, that such purchases or redemptions shall be included in the
-------
calculation of the amount of Restricted Payments.
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records
<PAGE>
46
of the Company that are available on the date of determination. If the Company
makes a Restricted Payment which, at the time of the making of such Restricted
Payment, would in the good faith determination of the Company be permitted under
the requirements of this Indenture, such Restricted Payment shall be deemed to
have been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period.
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual restriction on the right of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Restricted Subsidiary (except, with
respect to restrictions on dividends of non-cash Property, as permitted pursuant
to clause (ii) of the next sentence), (b) make any loans or advances to the
Company or any other Restricted Subsidiary or (c) transfer any of its Property
to the Company or any other Restricted Subsidiary. The foregoing limitations
will not apply (i) with respect to clauses (a), (b) and (c), to restrictions (A)
in effect on the Issue Date, (B) pursuant to the Credit Facility, (C) relating
to Debt of a Restricted Subsidiary and existing at the time it became a
Restricted Subsidiary if such restriction was not created in connection with or
in anticipation of the transaction or series of transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company or (D) which result from the Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (i)(A) or (B) above or in clause (ii)(A) or (B)
below, provided such restriction is no less favorable to the Holders of
Securities than those under the agreement evidencing the Debt so Refinanced, and
(ii) with respect to clause (c) only, to restrictions (A) relating to Debt that
is permitted to be Incurred and secured without also securing the Securities
equal and ratable treatment pursuant to Sections 4.03 and 4.10 that limit the
right of the debtor to dispose of the Property Securing such Debt, (B)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so acquired and was not created in connection with or in anticipation
of such acquisition, (C) resulting from customary provisions restricting
subletting or assignment of
<PAGE>
47
leases or customary provisions in other agreements that restrict assignment of
such agreements or rights thereunder or (D) customary restrictions contained in
asset sale agreements limiting the transfer of such Property pending the closing
of such sale.
SECTION 4.06. Limitation on Asset Sales. (a) The Company shall not,
--------------------------
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale; (ii) at least 75% of
the consideration received by the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash, cash equivalents or
Additional Assets or the assumption by the purchaser of liabilities of the
Company or any Restricted Subsidiary (other than liabilities that are by their
terms subordinated to the Securities) as a result of which the Company and the
Restricted Subsidiaries are no longer obligated with respect to such
liabilities; and (iii) the Company delivers an Officers' Certificate to the
Trustee certifying that such Asset Sale complies with the foregoing clauses (i)
and (ii).
(b) The Net Available Cash (or any portion thereof) from Asset Sales
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of any
Debt): (i) to prepay, repay, legally defease or purchase Senior Debt of the
Company or any Restricted Subsidiary (excluding, in any such case, Disqualified
Stock and Debt owed to the Company or an Affiliate of the Company); or (ii) to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary); provided, however, that in connection
-------- -------
with any prepayment, repayment, legal defeasance or purchase of Debt pursuant to
clause (i) above, the Company or such Restricted Subsidiary shall retire such
Debt and shall cause the related loan commitment (if any) to be permanently
reduced by an amount equal to the principal amount so prepaid, repaid, legally
defeased or purchased.
(c) Any Net Available Cash from an Asset Sale not applied in
accordance with the preceding paragraph within twelve months from the date of
the receipt of such Net Available Cash shall constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million (taking into
account income earned on such Excess Proceeds, if any), the Company will be
required to make an offer to
<PAGE>
48
purchase (the "Prepayment Offer") the Securities which offer shall be in the
amount of the Excess Proceeds, on a pro rata basis according to principal
amount, at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the purchase date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in this
Indenture. To the extent that any portion of the amount of Net Available Cash
remains after compliance with the preceding sentence and provided that all
holders of Securities have been given the opportunity to tender their Securities
for purchase in accordance with this Indenture, the Company or such Restricted
Subsidiary may use such remaining amount for any purpose permitted by this
Indenture and the amount of Excess Proceeds will be reset to zero.
(d)(1) Within five Business Days after the Company is obligated to
make a Prepayment Offer as described in the preceding paragraph, the Company
shall send a written notice, by first-class mail, to the Trustee and the Holders
of Securities (the "Prepayment Offer Notice"), accompanied by such information
regarding the Company and its Subsi diaries as the Company in good faith
believes will enable such Holders to make an informed decision with respect to
such Prepayment Offer. The Prepayment Offer Notice shall state (i) that the
Company is offering to purchase Securities pursuant to the provisions of this
Indenture, (ii) that any Security (or any portion thereof) accepted for payment
(and duly paid on the Purchase Date) pursuant to the Prepayment Offer shall
cease to accrue interest on the Purchase Date, (iii) that any Securities (or
portions thereof) not properly tendered shall continue to accrue interest, (iv)
the purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days after the date the Prepayment Offer Notice is mailed (the "Purchase
Date"), (v) the aggregate principal amount of Securities to be purchased, (vi) a
description of the procedures which Holders of Securities must follow in order
to tender their Securities and the procedures that Holders of Securities must
follow in order to withdraw an election to tender their Securities for payment
and (vii) all other instructions and materials necessary to enable Holders to
tender Securities pursuant to the Prepayment Offer.
(2) Not later than the date upon which written notice of a Prepayment
Offer is delivered to the Trustee as provided above, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Prepayment
<PAGE>
49
Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from
the Asset Sales pursuant to which such Prepayment Offer is being made and (iii)
the compliance of such allocation with the provisions of Section 4.06(a). On
such date or prior to the Purchase Date, the Company shall also irrevocably
deposit with the Trustee or with the Paying Agent (or, if the Company or a
Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust)
in cash or Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Prepayment Offer remains open (the "Offer Period"), the
Company shall deliver to the Trustee for cancelation the Securities or portions
thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
In the event that the aggregate purchase price of the Secur ities delivered by
the Company to the Trustee is less than the Offer Amount, the Trustee or the
Paying Agent shall deliver the excess to the Company promptly after the
expiration of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appro priate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Purchase Date. Holders shall be entitled to withdraw
their election if the Trustee or the Company receives not later than one
Business Day prior to the Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part shall be issued
new Securities equal in princi pal amount to the unpurchased portion of the
Securities surrendered.
<PAGE>
50
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section 4.06. A Security
shall be deemed to have been accepted for purchase at the time the Trustee or
the Paying Agent mails or delivers payment therefor to the surrendering Holder.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities as described
above. To the extent that the provisions of any securities laws or regulations
conflict with the provisions relating to the Prepayment Offer, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described above by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a) The
-------------------------------------------
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
assignment, lease, conveyance or exchange of any Property or the rendering of
any service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), unless (a) the terms of such Affiliate Transaction are
(i) set forth in writing, (ii) in the interest of the Company or such Restricted
Subsidiary, as the case may be, and (iii) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company, (b) if such Affiliate Transaction involves aggregate
payments or value in excess of $2.5 million, the Board of Directors (including a
majority of the disinterested members of the Board of Directors) approves such
Affiliate Transaction and, in its good faith judgment, believes that such
Affiliate Transaction complies with clauses (a) (ii) and (iii) of this paragraph
as evidenced by a Board Resolution promptly delivered to the Trustee and (c) if
such Affiliate Transaction involves aggregate payments or value in excess of
$5.0 million, the Company obtains a written opinion from an Independent
Appraiser to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted
<PAGE>
51
Subsidiary, as the case may be and a copy of the written opinion is delivered to
the Trustee.
(b) Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business; provided that no more than
--------
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to Section
4.04;
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(iv) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; provided, that such loans and
--------
advances do not exceed $1.0 million in the aggregate at any one time
outstanding;
(v) the payment of fees and expenses in connection with the
Recapitalization pursuant to written agreements in effect on the Issue
Date;
(vi) the sale of common stock of the Company for cash; provided that
--------
the Company may receive Employee Notes in an aggregate principal amount not
in excess of $1.0 million at any one time outstanding;
(vii) the payment of dividends in kind in respect of any preferred
stock issued in compliance with this Section;
(viii) a proportionate split of, or a common stock dividend payable
on, the common stock of the Company;
<PAGE>
52
(ix) payments under any real or personal property lease with an
Affiliate of the Company existing at the date of this Indenture and any other
real or personal property lease with an Affiliate of the Company that is
approved by a majority of the disinterested members of the Board of Directors;
and
(x) sales of inventory at a price no less than the price the Company
paid to purchase such inventory and in customary volumes to Century
Airconditioning Supply, Inc. ("CAC"), purchases of inventory at cost from CAC,
and the provision of administrative services to CAC.
SECTION 4.08. Limitation on Issuance or Sale of Capital Stock of
--------------------------------------------------
Restricted Subsidiaries. The Company shall not (a) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary or
(b) permit any Restricted Subsidiary to, directly or indirectly, issue or sell
or otherwise dispose of any shares of its Capital Stock, other than (i)
directors' qualifying shares, (ii) to the Company or a Wholly Owned Subsidiary
or (iii) a disposition of 100% of the shares of Capital Stock of a Restricted
Subsidiary that complies with Section 4.06.
SECTION 4.09. Repurchase at the Option of Holders Upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each Holder of
- --------
Securities shall have the right to require the Company to repurchase all or any
part of such Holder's Securities pursuant to the offer described below (the
"Change of Control Offer") at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the purchase date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
(b) Within 30 days following any Change of Control, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the Trustee, to each Holder of
Securities, at such Holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section and that all Securities
timely tendered will be accepted for payment; (ii) the Change of Control
Purchase Price and the purchase date, which shall be, subject to any contrary
requirements of applicable law, a Business Day no earlier than 30 days nor later
than 60 days from the date
<PAGE>
53
such notice is mailed (the "Change of Control Payment Date"); (iii) the
circumstances and relevant facts regarding the Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to the Change of Control); (iv) that any
Security (or portion thereof) accepted for payment (and duly paid on the Change
of Control Payment Date) pursuant to the Change of Control Offer shall cease to
accrue interest on the Change of Control Payment Date; (v) that any Securities
(or portions thereof) not properly tendered shall continue to accrue interest;
(vi) the procedures that Holders of Securities must follow in order to tender
their Securities (or portions thereof) for payment and the procedures that
Holders of Securities must follow in order to withdraw an election to tender
Securities (or portions thereof) for payment; and (vii) all other instructions
and materials necessary to enable Holders to tender Securities pursuant to the
Change of Control Offer.
(c) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appro priate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Change of Control Payment Date. Holders shall be
entitled to withdraw their election if the Trustee or the Company receives not
later than one Business Day prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by
the Holder and a statement that such Holder is withdrawing his election to have
such Security purchased. Holders whose Securities are purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
(d) On or prior to 11:00 a.m., New York City time, on the Change of
Control Payment Date, the Company shall irrevocably deposit with the Trustee or
with the Paying Agent (or, if the Company or any of its Wholly Owned
Subsidiaries is acting as the Paying Agent, segregate and hold in trust) in cash
an amount equal to the Change of Control Purchase Price payable to the Holders
entitled thereto, to be held for payment in accordance with the provisions of
this Section.
(e) On the Change of Control Payment Date, the Company shall deliver
to the Trustee the Securities or portions thereof which have been properly
tendered to and are to be accepted by the Company for payment. The Trustee or
the Paying Agent shall, on the Change of Control Payment
<PAGE>
54
Date, mail or deliver payment to each tendering Holder of the Change of Control
Payment. In the event that the aggregate Change of Control Purchase Price is
less than the amount delivered by the Company to the Trustee or the Paying
Agent, the Trustee or the Paying Agent, as the case may be, shall deliver the
excess to the Company immediately after the Change of Control Payment Date.
(f) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee or the
Paying Agent mails or delivers payment therefor to the surrendering Holder.
Unless the Company defaults in the payment of the Change of Control Purchase
Price, each Security accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on and after the Change of Control Payment
Date.
(g) The Company shall comply, to the extent applicable, with the
requirements of Rule 14(e) under the Exchange Act and any other securities laws
or regulations thereunder in connection with the purchase of Securities pursuant
to this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Sec tion by virtue thereof.
SECTION 4.10. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist, any Lien (other than Permitted Liens) upon any of its Property
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or thereafter acquired, or any interest therein or any income or profits
therefrom, unless (i) if such Lien secures Subordinated Debt, the Securities are
secured on an equal and ratable basis with such Debt and (ii) if such Lien
secures Subordinated Obligations, such Lien shall be subordinated to a Lien
securing the Securities in the same Property as that securing such Lien to the
same extent as such Subordinated Obligations are subordinated to the Securities.
SECTION 4.11. Compliance Certificate. The Company shall deliver to
-----------------------
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers'
<PAGE>
55
Certificate stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any Default and whether or not the signers know of any Default that occurred
during such period. If they do, the certificate shall describe the Default, its
status and what action the Company is taking or proposes to take with respect
thereto. The Company also shall comply with TIA (S) 314(a)(4).
SECTION 4.12. Further Instruments and Acts. Upon request of the
-----------------------------
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.13. Designation of Restricted and Unrestricted
------------------------------------------
Subsidiaries. The Board of Directors may designate any Subsidiary of the
- -------------
Company to be an Unrestricted Subsidiary if (a) the Subsidiary to be so
designated does not own any Capital Stock or Debt of, or own or hold any Lien on
any Property of, the Company or any other Restricted Subsidiary, (b) the
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
-------- -------
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 and (y) no Default
or Event of Default shall have occurred and be continuing or would result
therefrom.
<PAGE>
56
Any such designation or redesignation by the Board of Directors will
be evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
SECTION 4.14. Limitation on the Company's Business. The Company
-------------------------------------
shall not to, directly or indirectly, engage in any business or activity other
than the business currently conducted by it and its Restricted Subsidiaries and
Related Businesses.
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. (a) The
------------------------------------------
Company shall not merge, consolidate or amalgamate with or into any other Person
(other than a merger of a Wholly Owned Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
its Property in any one transaction or series of transactions unless: (i) the
Company shall be the surviving Person (the "Surviving Person") or the Surviving
Person (if other than the Company) formed by such merger, consolidation or
amalgamation or to which such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia;
(ii) the Surviving Person (if other than the Company) expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all the Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture to be performed by the
Company; (iii) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company, such
Property shall have been transferred as an entirety or virtually as an entirety
to
<PAGE>
57
one Person; (iv) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and treating, for
purposes of this clause (iv) and clauses (v) and (vi) below, any Debt which
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (v)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under clause (a) of the
first paragraph of Section 4.03; provided, however, that this clause (v) shall
-------- -------
not apply to a merger between the Company and a Wholly Owned Subsidiary of the
Company incorporated in another state of the United States solely for the
purpose of reincorporating the Company as long as the total amount of Debt of
the Company and its Restricted Subsidiaries is not increased as a result
thereof; and (vi) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this Section and that all conditions precedent herein provided for relating
to such transaction have been satisfied.
(b) The Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of the Company under this Indenture, but
the predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of, and premium, if any, and interest on, the Securities.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. The following events shall be
------------------
"Events of Default":
(1) the Company fails to make the payment of any interest on the
Securities when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such failure continues for a
period of 30 days;
<PAGE>
58
(2) the failure to make the payment of any principal of or premium, if
any, on any of the Securities when the same become due and payable at its
Stated Maturity, upon acceleration, redemption, optional redemption, upon
required repurchase or otherwise;
(3) the Company fails to comply with Article 5;
(4) the Company fails to comply with any other covenant or agreement
in the Securities or in this Indenture (other than a failure which is the
subject of the foregoing clause (1), (2) or (3)), and continuance of such
failure, or occurrence, for a period of 30 days after the notice specified
below;
(5) default by the Company or any Restricted Subsidiary under any Debt
of the Company or any Restricted Subsidiary which results in acceleration
of the stated maturity of such Debt, or the failure to pay such Debt at
final maturity, in an aggregate amount greater than $7.5 million or its
foreign currency equivalent at the time;
(6) any judgment or judgments for the payment of money in an aggregate
amount in excess of $7.5 million (or its foreign currency equivalent at the
time) shall be rendered against the Company or any Restricted Subsidiary
and shall not be waived, satisfied or discharged for any period of 30
consecutive days during which a stay of enforcement shall not be in effect;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custo dian of it or for any
substantial part of its property; or
(D) makes a general assignment for the bene fit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
<PAGE>
59
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) grants any similar relief under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 60 days; or
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities notify the Company (and in the case of such notice by
Holders, the Trustee) in writing of such Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Default or Event of Default, its status and what action the Company is
taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(7) or (8)) occurs and is continuing,
the
<PAGE>
60
Trustee by notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities then outstanding by notice to the Company and
the Trustee, may declare the principal amount of all the Securities then
outstanding, plus accrued but unpaid interest to the date of such declaration to
be immediately due and payable; provided, however, that for the purposes of
-----------------
calculating such percentage, the aggregate principal amount of Securities held
by the Company and any Affiliates thereof shall not be counted in determining
such percentage. If an Event of Default specified in Section 6.01(7) or (8)
occurs, the principal of the Securities shall automatically and without any
action by the Trustee or any Holder, become immediately due and payable. The
Holders of a majority in aggregate principal amount of the outstanding
Securities by notice to the Trustee and the Company may rescind and annul any
declaration of acceleration if (i) the rescission would not conflict with any
judgment or decree, (ii) if all existing Events of Default have been cured or
waived except nonpay ment of principal, premium or interest that has become due
solely because of the acceleration and (iii) all amounts due to the Trustee
pursuant to Section 7.07 have been paid. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquies cence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Defaults. The Holders of a majority in
-------------------
aggregate principal amount of the Securities by notice to the Trustee may waive,
on behalf of the Holders of all outstanding Securities, a past or an existing
Default and its consequences or compliance with any provision of this Indenture
or the Securities except (i) a Default in the payment of the principal of or
interest on a Security or (ii) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each Securityholder
affected; provided, however, that for the purposes of calculating such
-----------------
percentage, the aggregate
<PAGE>
61
principal amount of Securities held by the Company and any Affiliates thereof
shall not be counted in determining such percentage. When a Default is waived,
it is deemed cured and not to have occurred for every purpose of this Indenture
and the Securities, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
aggregate principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee with respect to the
Securities; provided, however, that for the purposes of calculating such
-----------------
percentage, the aggregate principal amount of Securities held by the Company and
any Affiliates thereof shall not be counted in determining such percentage.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
-------- -------
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to reasonable indemnity against all losses and expenses caused by taking or not
taking such action.
SECTION 6.06. Limitation on Suits. A Security holder may not pursue
--------------------
any remedy or proceeding, including the appointment of a receiver or trustee,
with respect to this Indenture or the Securities unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding shall have made a written request, and such
Holder of or Holders shall have offered reasonable indemnity, to the
Trustee to pursue such proceeding as trustee; provided, however, that for
-----------------
the purposes of calculating such percentage, the aggregate principal amount
of Securities held by the Company and any Affiliates thereof shall not be
counted in determining such percentage; and
(3) the Trustee has not received from the Holders of at least a
majority in aggregate principal amount of the Securities outstanding a
direction inconsistent
<PAGE>
62
with such request, and has failed to institute such proceeding within 60
days after such notice, request and offer.
The foregoing limitations on the pursuit of remedies by a
Securityholder shall not apply to a suit instituted by a Holder of Securities
for the enforcement of payment of the principal of or interest on such Security
on or after the applicable due date specified in such Security. A Securityholder
may not use this Indenture to prejudice the rights of another Securityholder or
to obtain a preference or priority over another Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Inden ture, the right of any Holder to receive
payment of princi pal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in this Secu rities, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, is empowered to participate as a member,
voting or otherwise, of any official committee of creditors appointed in such
matter, and any Custodian in any such judicial proceeding is hereby authorized
by each Holder to make payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disburse ments and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
<PAGE>
63
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee col lects any money or
-----------
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Debt of the Company to the extent
required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Inden ture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including rea sonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, the Company, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in aggregate principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatso-
<PAGE>
64
ever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the require ments of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture, but shall not be obligated to verify the contents thereof.
(c) The Trustee may not be relieved from liabil ity for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer
<PAGE>
65
unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document reasonably believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opin ion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent (other than an agent who is an
employee of the Trustee) appointed with due care.
<PAGE>
66
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers; provided, however, that the Trustee's conduct does not
-------- -------
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the written advice or
written opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with such advice or opinion of such
counsel.
(f) Unless otherwise specifically provided herein, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(g) The Company, the Paying Agent, the Registrar, the Trustee and any
agent of the Company, the Paying Agent, the Registrar or the Trustee may deem
and treat the Person in whose name any Security is registered as the absolute
owner of such Security for the purpose of receiving payment of or on account of
the principal of and, subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the Company, the Paying
Agent, the Registrar nor the Trustee nor any agent of the Company, the Paying
Agent, the Registrar or the Trustee shall be affected by any notice to the
contrary.
(h) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(i) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate (including any Officers'
Certificate), statement, instrument, opinion (including any Opinion of Counsel),
notice, request, direction, consent, order, bond, debenture, or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Company, to examine the books,
<PAGE>
67
records, and premises of the Company, personally or by agent or attorney.
(j) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(k) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as duties.
(l) The Trustee shall not be charged with knowledge of any Default or
Event of Default, of the identity of any Restricted Subsidiary or the existence
of any Change of Control or Asset Sale unless either (i) a Responsible Officer
shall have actual knowledge thereof or (ii) the Trustee shall have received
written notice thereof from the Company or any Holder.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or co-
registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the employees of the Trustee with
responsibility for the Securities, the Trustee shall mail to each Securityholder
notice of the Default within 90 days after it is known to such employees of the
Trustee or written notice of it is received by the Trustee. Except in the case
of a Default in payment of principal of or interest on any Security, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.
<PAGE>
68
SECTION 7.06. Reports by Trustee to Holders. As promptly as
------------------------------
practicable after each May 15 beginning with May 15, 1999, and in any event
prior to June 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of May 15 each year that complies with TIA (S) 313(a), if
and to the extent required by said subsection. The Trustee also shall comply
with TIA (S) 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
---------------------------
the Trustee from time to time rea sonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reim burse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee and its agents, employees,
officers and directors against any and all loss, liability or expense (including
reasonable attorneys' fees, but excluding any franchise taxes imposed on the
Trustee and any taxes based on the income of the Trustee) incurred by them in
connection with the acceptance and administration of this trust, including the
reasonable costs and expenses of enforcing this Indenture against the Company
(including Section 7.07) and of defending itself against any claim (including
any claim asserted by the Company) and the performance of its duties hereunder.
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder, except to the extent such failure
shall have materially prejudiced the Company. The Company shall defend the
claim and the Trustee shall cooperate in the defense. If the Trustee is advised
by counsel in writing that it may have available to it defenses which are in
conflict with the defenses available to the Company, then the Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not reimburse any expense or indemnify against
any loss, liability or expense incurred by the Trustee or any of its agents,
counsel, accountants or experts which is judicially
<PAGE>
69
determined to be the result of the Trustee's or any such agent's, counsel's,
accountant's or expert's own wilful misconduct, negligence or bad faith. The
Company need not pay for any settlement made by the Trustee without the
Company's consent, such consent not to be unreasonably withheld or delayed.
The Trustee's right to receive payment of any amounts due under this
Section 7.07 shall not be subordinated to any other liability or indebtedness of
the Company (even though the Securities may be so subordinated).
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the resignation or removal of the Trustee and the discharge of this
Indenture. When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or (8), the expenses are intended to constitute
expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in aggregate
principal amount of the Securities may remove the Trustee by so notifying the
Trustee and may appoint a successor Trustee. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in aggregate principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
<PAGE>
70
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in aggregate principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
who has been a bona fide Holder of a Security for at least six months may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
such successor to the Trustee may authenticate such Securities either in the
name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Securities or in this Indenture provided that the
certificate of the Trustee shall have.
<PAGE>
71
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with
TIA (S) 310(b), subject to the penultimate paragraph thereof; provided, however,
-------- -------
that there shall be excluded from the operation of TIA (S) 310(b)(1) any
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance.
-------------------------------------------------
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for cancelation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.13 and 4.14 the operation of
Sections 6.01(4) (to the extent relating to such other Sections), 6.01(5),
6.01(6), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(7) and (8), with
respect
<PAGE>
72
only to Significant Subsidiaries), its obligations under Sections 5.01(a)(iv),
5.01(a)(v) and the related operation of Section 6.01(3) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Sections 6.01(3) and 6.01(4) (with respect to the provisions of Articles 4
and 5 referred to in the immediately preceding paragraph) and Sections 6.01(5),
6.01(6), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(7) and (8), with
respect only to Significant Subsidiaries).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.05 and 8.06 and
Appendix A shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
<PAGE>
73
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other material
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such cove nant defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable Federal income tax law); and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Opinions of Counsel required to be delivered to the Trustee may have
assumptions customary for opinions of
<PAGE>
74
the type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact, including that various financial covenants have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
---------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
---------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years (or if
then held by the Company or a Wholly Owned Subsidiary in trust for the payment
thereof), shall be discharged from such trust, and, thereafter, Securityholders
entitled to the money must look to the Company for payment as general creditors;
provided, however, that the Trustee or such Paying Agent before being required
- -------- -------
to make any such repayment, may at the expense of the Company cause to be mailed
to each such Holder a notice that said moneys have not been so applied and that
after a date named therein any unclaimed balance of said moneys then remaining
will be returned to the Company.
SECTION 8.05. Indemnity for Government Obligations. The Company
-------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
--------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of
<PAGE>
75
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article 8 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Article 8; provided, however, that, if the Company has made any payment of
--------- -------
interest on principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
---------------------------
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities (provided that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code);
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Senior Debt of the Company under such
provisions or to comply with any requirement of the Commission in
connection with the qualification of this Indenture under the Trust
Indenture Act (or Representatives therefor) under Article 10;
(5) to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
<PAGE>
76
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder in any material respect.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or their Representative)
consent in writing to such change, it being understood that any amendment the
purpose of which is to permit the Incurrence of additional Debt shall not be
construed as impairing the rights of the holders of Senior Debt pursuant to such
subordination provisions.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company and the Trustee
------------------------
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in aggregate
principal amount of the Securities then Outstanding; provided, however, that for
-----------------
the purposes of calculating such majority, the aggregate principal amount of
Securities held by the Company and any Affiliates thereof shall not be counted
in determining such majority. However, without the consent of each Holder of an
outstanding Security affected thereby an amendment or waiver may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on
any Security,
(3) reduce the principal of or extend the Stated Maturity of any
Security,
(4) make any Security payable in money other than that stated in the
Security,
(5) impair the right of any Holder of the Securities to receive
payment of principal of and
<PAGE>
77
interest on such Holder's Securities on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with respect to
such Holder's Securities,
(6) release any security interest that may have been granted in favor
of the Holders of the Securities,
(7) reduce the premium payable upon the redemption or repurchase of
any Security, or change the time at which any Security may be redeemed, as
described under Article 3,
(8) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control or Asset Sale has occurred, change the time
at which the Change of Control Offer or Prepayment Offer relating thereto
must be made or at which the Securities must be repurchased pursuant to
such Change of Control Offer, or
(9) make any change to the subordination provisions of this Indenture
that would adversely affect the Holders of the Securities.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or their Representative)
consent in writing to such change, it being understood that any amendment the
purpose of which is to permit the Incurrence of additional Debt shall not be
construed as impairing the rights of the holders of Senior Debt pursuant to such
subordination provisions.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
------------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
<PAGE>
78
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
----------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall form a part of this Indenture
for all purposes and shall bind every Securityholder. An amendment or waiver
becomes effective upon the execution of such amendment or waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
--------------------------------------
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article 9 if such amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of
<PAGE>
79
Counsel complying with Section 11.04 and stating that such amendment is
authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
--------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
-------------------------
each Securityholder by accepting a Security agrees, that the Securities are
subordinated obligations of the Company and that the Debt evidenced by the
Securities is subordinated in right of payment, to the extent and in the manner
provided in this Article 10, to the payment when due of all Senior Debt of the
Company and that the subordination is for the benefit of and enforceable by the
holders of such Senior Debt. The Securities shall in all respects rank pari
----
passu in right of payment with any future Subordinated Debt of the Company, and
- -----
only Senior Debt of the Company shall be senior to the Securities in accordance
with the provisions set forth herein. All provisions of this Article 10 shall
be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
payment or distribution of the assets of the Company upon a total or partial
liquidation, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) holders of Senior Debt of the Company shall be entitled to receive
payment in full in cash of such Senior Debt before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities, except that Holders of Securities may receive and retain shares
of stock and any debt securities that are subordinated to Senior Debt to at
least the same extent as the Securities; and
<PAGE>
80
(2) until such Senior Debt is paid in full in cash, any distribution
to which Securityholders would be entitled but for this Article 10 shall be
made to holders of such Senior Debt as their interests may appear.
SECTION 10.03. Default on Senior Debt. The Company may not pay the
-----------------------
principal of or interest on the Securities or make any deposit pursuant to
Section 8.01 and may not repurchase, redeem or otherwise retire any Securities
(collectively, "pay the Securities") if (a) any principal, premium or interest
in respect of any Senior Debt is not paid within any applicable grace period
(including at maturity) or (b) any other default on Senior Debt occurs and the
maturity of such Senior Debt is accelerated in accordance with its terms
unless, in either case, (i) the default has been cured or waived and any such
acceleration has been rescinded or (ii) such Senior Debt has been paid in full
in cash; provided, however, that the Company may pay the Securities without
-------- -------
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of each issue of Designated
Senior Debt. During the continuance of any default (other than a default
described in clause (a) or (b) of the preceding sentence) with respect to any
Designated Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except notice required to effect the
acceleration) or the expiration of any applicable grace period, the Company may
not pay the Securities for a period (a "Payment Blockage Period") commencing
upon the receipt by the Company and the Trustee of written notice of such
default from the Representative of the holders of such Designated Senior Debt
specifying an election to effect a Payment Blockage Period (a "Payment Blockage
Notice") and ending 179 days thereafter (unless such Payment Blockage Period is
earlier terminated (a) by written notice to the Trustee and the Company from the
Representative which gave such Payment Blockage Notice, (b) because such default
is no longer continuing or (c) because such Designated Senior Debt has been
repaid in full in cash). Unless the holders of such Designated Senior Debt or
the Representative of such holders have accelerated the maturity of such
Designated Senior Debt and not rescinded such acceleration, the Company may
(unless otherwise prohibited as described in the first sentence of this
paragraph) resume payments on the Securities after the end of such Payment
Blockage Period. Not more than one Payment Blockage Notice with respect to all
issues of Designated Senior Debt may be given in any consecutive 360-day period,
irrespective of the number of defaults with
<PAGE>
81
respect to one or more issues of Designated Senior Debt during such period.
SECTION 10.04. Acceleration of Payment of Securities. If payment of
--------------------------------------
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Debt (or
their Representatives) of the acceleration. If payment of the Securities is
accelerated when any Designated Senior Debt is outstanding, the Company may not
pay the Securities until three Business Days after the Representatives of all
issues of Designated Senior Debt receive notice of such acceleration and,
thereafter, may pay the Securities only if this Indenture otherwise permits
payment at that time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
------------------------------------
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Debt of the Company and pay it over
to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Debt of the Company is
------------
paid in full in cash and until the Securities are paid in full, Securityholders
shall be subrogated to the rights of holders of such Senior Debt to receive
distributions applicable to such Senior Debt. A distribution made under this
Article 10 to holders of such Senior Debt which otherwise would have been made
to Securityholders is not, as between the Company and Securityholders, a payment
by the Company on such Senior Debt.
SECTION 10.07. Relative Rights. This Article 10 defines the relative
----------------
rights of Securityholders and holders of Senior Debt of the Company. Nothing in
this Indenture shall:
(1) impair, as between the Company and Security holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders of Senior Debt of the Company to receive distributions
otherwise payable to Securityholders.
<PAGE>
82
SECTION 10.08. Subordination May Not Be Impaired by Company. No
---------------------------------------------
right of any holder of Senior Debt of the Company to enforce the subordination
of the Debt evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
-----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer receives notice
satisfactory to it that payments may not be made under this Article 10. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Debt may give the notice; provided, however, that, if an issue
-------- -------
of Senior Debt of the Company has a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capacity may hold Senior
Debt of the Company with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Debt of the Company which may at any time
be held by it, to the same extent as any other holder of such Senior Debt; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Repre sentative. Whenever a
------------------------------------------
distribution is to be made or a notice given to holders of Senior Debt of the
Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
----------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the Securities
- --------------------
by reason of any provision in this Article 10 shall not be construed as pre
venting the occurrence of a Default. Nothing in this Article 10 shall have any
effect on the right of the Secu rityholders or the Trustee to accelerate the
maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
------------------------------
anything contained herein to the contrary,
<PAGE>
83
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article 8 by the Trustee for the payment of principal of and interest on
the Securities shall not be subordinated to the prior payment of any Senior Debt
or subject to the restrictions set forth in this Article 10, and none of the
Securityholders shall be obligated to pay over any such amount to the Company or
any holder of Senior Debt of the Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
-------------------------
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
juris diction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Debt of the Company for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of such Senior Debt and
other Debt of the Company, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article 10. In the event that the Trustee determines, in good faith, that
evidence is required with respect to the right of any Person as a holder of
Senior Debt of the Company to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article 10, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 7.01 and 7.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordina tion. Each
-------------------------------------
Securityholder by accepting a Security author izes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Debt of the Company as provided in this Article 10 and appoints the
Trustee as attorney-in-fact for any and all such purposes.
<PAGE>
84
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Debt. The
-------------------------------------------------
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt and shall not be liable to any such holders if it shall mistakenly pay over
or distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of Senior Debt of the Company shall be entitled by
virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Debt on Subordination
---------------------------------------------------
Provisions. Each Securityholder by accept ing a Security acknowledges and
- -----------
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration to each holder of any Senior Debt of the
Company, whether such Senior Debt was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Debt and such holder of such Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Debt.
ARTICLE 11
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls. If any provision of
-----------------------------
this Indenture limits, qualifies or con flicts with another provision which is
required to be included in this Indenture by the TIA, the required provi sion
shall control. If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case may be.
SECTION 11.02. Notices. Any notice or communica tion shall be in
--------
writing and delivered in person or mailed by first-class mail or recognized
overnight courier or sent by facsimile (with a hard copy delivered in person or
by mail promptly thereafter) and addressed as follows:
if to the Company:
Century Maintenance Supply, Inc.
9100 Winkler Drive
Houston, TX 77017
Attention:
if to the Trustee:
<PAGE>
85
(1) for payment, registration, transfer, exchange and tender of the
Securities:
By Hand:
-------
United States Trust Company of New York
111 Broadway
New York, NY 10006
Attention: Corporate Trust Window Lower Level
By Mail:
-------
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust Services
Telephone No.: (800)548-6565
(2) for all other communications relating to the Securities:
United States Trust Company of New York
Attention: Corporate Trust Administration -
Century Maintenance Supply, Inc.
114 West 47th Street, 25th Floor
New York, NY 10036
Telephone No.: (212) 852-1663
Telecopy No.: (212) 852-1626
The Company, on the one hand, or the Trustee, on the other hand, by
notice to the other may designate additional or different addresses for
subsequent notices or communications.
Any notice or communication mailed to a Security holder shall be
mailed to the Securityholder at the Secu rityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
All such notices and communications shall be deemed to have been duly
received: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail with first-class postage prepaid, if
mailed; when receipt acknowledged, if sent by facsimile; and the next Business
Day after timely delivery to the courier, if sent by recognized overnight
courier
<PAGE>
86
guaranteeing next-day delivery. Notices to the Trustee will be deemed effective
only upon actual receipt.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Notices to the Trustee shall be effective only upon receipt.
SECTION 11.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investiga tion as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
<PAGE>
87
(4) a statement as to whether or not, in the opin ion of such
individual, such covenant or condition has been complied with.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous, and provided that any such certificate or opinion names the Trustee
as an addressee and is furnished to the Trustee at the time of delivery of such
certificate or opinion. Any such certificate or Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Company stating that
the information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous. Opinions of Counsel required to be delivered to the
Trustee may have qualifications customary for opinions of the type required and
counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, including certificates certifying as to matters of fact, including
that various financial covenants have been complied with.
SECTION 11.06. When Securities Disregarded; Acts of Holder. In
--------------------------------------------
determining whether the Holders of the re quired principal amount of Securities
have concurred in any direction, waiver or consent, Securities owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar, the Paying Agent and any co-registrar may make reasonable rules
for their functions.
<PAGE>
88
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
---------------
Sunday or a day on which banking institu tions are not required to be open in
New York City and Houston, Texas. If a payment date is a Legal Holiday, payment
shall be made on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period. If a regular record date is a
Legal Holiday, the record date shall not be affected.
SECTION 11.09. Governing Law. THIS INDENTURE AND THE SECURITIES
--------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 11.10. No Recourse Against Others. A director, officer,
---------------------------
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such lia bility. The waiver and release shall be part of the consi
deration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.14. Separability Clause. In case any provision of this
--------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.15. Benefits of Indenture. Nothing in this Indenture or
----------------------
in the Securities, express or implied, shall give to any Person, other than the
parties hereto, the
<PAGE>
89
holders of Senior Debt (subject to Article 10 hereof) and the Holders of the
Securities and their successors, any benefit or any legal or equitable right,
remedy or claim under this Indenture or the Securities.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
CENTURY MAINTENANCE SUPPLY,
INC.,
by
/s/ Richard E. Penick
--------------------------
Name: Richard E. Penick
Title: Vice President
by
/s/ Terri Garcia
--------------------------
Name: Terri Garcia
Title: Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK,
by
/s/ James E. Logan
--------------------------
Name: James E. Logan
Title: Vice President
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
CENTURY MAINTENANCE SUPPLY, INC.
280,000 Shares of 13 1/4%
Series A Senior Exchangeable PIK Preferred Stock due 2010
REGISTRATION AGREEMENT
New York, New York
July 8, 1998
Salomon Smith Barney
Salomon Brothers Inc
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Century Maintenance Supply, Inc., a Delaware corporation (the
"Company") proposes to issue and sell to Salomon Brothers Inc (the "Purchaser"),
upon the terms set forth in a purchase agreement dated the date hereof (the
"Purchase Agreement"), 280,000 shares of the Company's 13 1/4% Series A Senior
Exchangeable PIK Preferred Stock due 2010, par value $0.001 with a liquidation
preference of $100.00 per share (the "Preferred Stock"). The Preferred Stock is
exchangeable at the Company's option, subject to certain conditions, in whole
but not in part, for the Company's 13 1/4% Subordinated Exchange Debentures due
2010 (the "Exchange Debentures" and, together with the Preferred Stock, the
"Securities"). As an inducement to the Purchaser to enter into the Purchase
Agreement and in satisfaction of a condition to your obligations thereunder, the
Company agrees with you, (i) for your benefit and (ii) for the benefit of the
holders from time to time of the Securities (including the Purchaser) (each of
the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
------------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Commission promulgated thereunder.
<PAGE>
2
"Affiliate" of any specified person means any other person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Indenture" means the indenture governing the Exchange
------------------
Debentures.
"Exchange Offer Registration Period" means the 180-day period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means one or more registration
-------------------------------------
statements of the Company on an appropriate form under the Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Purchaser)
-----------------
which is a broker-dealer electing to exchange Securities acquired for its own
account as a result of market-making activities or other trading activities for
New Securities.
"Holder" has the meaning set forth in the preamble hereto.
------
"Initial Placement" means the issuance and sale of the Preferred
-----------------
Stock.
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount or liquidation preference, as applicable, of any securities
registered under a Registration Statement.
<PAGE>
3
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering.
"New Exchange Debentures" means exchange debentures of the Company
-----------------------
identical in all material respects to the Exchange Debentures (except that the
interest rate step-up provisions and the transfer restrictions will be modified
or eliminated, as appropriate), to be issued pursuant to the Exchange Indenture.
"New Preferred Stock" means preferred stock of the Company identical
-------------------
in all material respects to the Preferred Stock (except that the dividend rate
step-up provisions and the transfer restrictions will be modified or eliminated,
as appropriate), to be issued pursuant to the Certificate of Designation for the
Preferred Stock.
"New Securities" means collectively, the New Preferred Stock and, if
--------------
applicable, New Exchange Debentures.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer or offers to the
-------------------------
Holders to issue and deliver to such Holders, in exchange for the Preferred
Stock (or, if the Preferred Stock has been exchanged therefor, Exchange
Debentures), as applicable, a like principal amount or liquidation preference,
as applicable, of applicable New Securities.
"Registration Securities" has the meaning set forth in Section 3(a)
-----------------------
hereof.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, all amendments
and supplements to such registration statement, including, without limitation,
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits
<PAGE>
4
thereto and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 3 or Section 5 hereof which
covers some of or all the Securities or New Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Transfer Agent" means the Company's transfer agent for the Preferred
--------------
Stock and the New Preferred Stock.
"Trustee" means the trustee with respect to the Exchange Debentures
-------
and New Exchange Debentures under the Exchange Indenture.
"underwriter" means any underwriter of securities in connection with
-----------
an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange.
- --------------------------
(a) The Company shall prepare and, not later than 60 days after the
date of the original issuance of the Preferred Stock, shall file with the
Commission the Exchange Offer Registration Statement with respect to the
Registered Exchange Offer. The Company shall use its best efforts to cause the
Exchange Offer Registration Statement to become effective under the Act within
180 days after the date of the original issuance of the Preferred Stock.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder is
not an affiliate of the Company within
<PAGE>
5
the meaning of the Act, acquires the New Securities in the ordinary course of
such Holder's business and has no arrangements with any person to participate in
the distribution of the New Securities and is not prohibited by any law or
policy of the Commission from participating in the Registered Exchange Offer) to
trade such New Securities from and after their receipt without any limitations
or restrictions under the Act and without material restrictions under the
securities laws of the several states of the United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(iv) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last business day on which
the Registered Exchange Offer shall remain open; and
(v) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee or the Transfer Agent, as the case may be,
for cancelation all Securities so accepted for exchange; and
(iii) cause the Trustee or the Transfer Agent, as the case may be,
promptly to authenticate and deliver to each Holder of Securities, New
Securities equal in
<PAGE>
6
principal amount or liquidation preference to the Securities of such Holder
so accepted for exchange.
(e) The Purchaser and the Company acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the Act, and
in the absence of an applicable exemption therefrom, each Exchanging Dealer is
required to deliver a Prospectus in connection with a sale of any New Securities
received by such Exchanging Dealer pursuant to the Registered Exchange Offer in
exchange for Securities acquired for its own account as a result of market-
making activities or other trading activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange Offer
Registration Period for delivery by Exchanging Dealers in connection with
sales of New Securities received pursuant to the Registered Exchange Offer,
as contemplated by Section 4(h) below.
(f) In the event that the Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of the Purchaser, the Company shall issue and deliver to the Purchaser,
in exchange for such Securities, a like principal amount or liquidation
preference of New Securities (which shall be subject to restrictions on transfer
under the Act and the securities laws of the several states of the United
States). The Company shall seek to cause the CUSIP Service Bureau to issue the
same CUSIP numbers for such New Securities as for New Securities issued pursuant
to the Registered Exchange Offer. The Company shall cause such principal amount
or liquidation preference of New Securities (which shall not be subject to such
restrictions on transfer) to be delivered to a party purchasing such New
Securities from such Purchaser
<PAGE>
7
registered under a Shelf Registration Statement as contemplated by Section 3
hereof.
3. Shelf Registration. If, (i) because of any change in law or
-------------------
applicable interpretations thereof by the Commission's staff, the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 2
hereof, (ii) for any other reason the Exchange Offer Registration Statement is
not declared effective within 180 days after the Closing Date or the Registered
Exchange Offer is not consummated within 210 days after the Closing Date, (iii)
the Purchaser so requests with respect to Securities (or any New Securities
received pursuant to Section 2(f)) not eligible to be exchanged for New
Securities in a Registered Exchange Offer or, in the case that the Purchaser
participates in any Registered Exchange Offer, the Purchaser does not receive
freely tradable New Securities, (iv) any Holder (other than the Purchaser) is
not eligible to participate in the Registered Exchange Offer or (v) in the case
of any such Holder that participates in the Registered Exchange Offer, such
Holder does not receive freely tradable New Securities in exchange for tendered
securities, other than by reason of such Holder being an affiliate of the
Company within the meaning of the Act (it being understood that, for purposes of
this Section 3, (x) the requirement that the Purchaser deliver a Prospectus
containing the information required by Items 507 and/or 508 of Regulation S-K
under the Act in connection with sales of New Securities acquired in exchange
for such Securities shall result in such New Securities being not "freely
tradeable" and (y) the requirement that an Exchanging Dealer deliver a
Prospectus in connection with sales of New Securities acquired in the Registered
Exchange Offer in exchange for Securities acquired as a result of market-making
activities or other trading activities shall not result in such New Securities
being not "freely tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this Section 3),
file with the Commission and thereafter shall use its best efforts to cause to
be declared effective under the Act a Shelf Registration Statement relating to
the offer and sale of the Securities or the New Securities, as applicable, by
the Holders from time to time in accordance with the methods of distribution
elected by such Holders and set forth in such Shelf Registration Statement (such
Securities or New Securities, as applicable, to be sold by such Holders under
such Shelf Registration Statement being referred to herein as "Registration
Securities"); provided, however, that, with
-------- -------
<PAGE>
8
respect to New Securities received by the Purchaser in exchange for Securities
constituting any portion of an unsold allotment, the Company may, if permitted
by current interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under this paragraph (a) with respect thereto,
and any such Exchange Offer Registration Statement, as so amended, shall be
referred to herein as, and governed by the provisions herein applicable to, a
Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years after the
later of (x) the date of the original issuance of the Preferred Stock (or until
one year after such date if such Shelf Registration Statement is filed at the
request of the Purchaser) and (y) the last date on which any Affiliate of the
Company, as applicable, was a beneficial owner of the Securities or such shorter
period that will terminate when all the Securities or New Securities, as
applicable, covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement (in any such case, such period being called
the "Shelf Registration Period"). The Company shall be deemed not to have used
its best efforts to keep the Shelf Registration Statement effective during the
Shelf Registration Period if it takes any action that would result in Holders of
securities covered thereby not being able to offer and sell such securities
during that period, unless (i) such action is required by applicable law or (ii)
such action is taken by the Company in good faith and for valid business reasons
(not including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
------------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to the Purchaser, prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement and
any Exchange Offer Registration Statement, each amendment thereof and each
amendment or supplement, if any, to the Prospectus included therein and
shall use its best
<PAGE>
9
efforts to reflect in each such document, when so filed with the
Commission, such comments as the Purchaser or any Holder reasonably may
propose.
(b) The Company shall use its best efforts to ensure that (i) any
Registration Statement and any amendment thereto and any Prospectus forming
part thereof and any amendment or supplement thereto complies in all
material respects with the Act and the rules and regulations thereunder,
(ii) any Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (iii) any Prospectus forming part
of any Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(c) (1) The Company shall advise the Purchaser and, in the case of a
Shelf Registration Statement, the Holders of securities covered thereby,
and, if requested by the Purchaser or any such Holder, confirm such advice
in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company shall advise the Purchaser and, in the case of a
Shelf Registration Statement, the Holders of securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer which has provided in writing to the Company a telephone
or facsimile number and address for
<PAGE>
10
notices, and, if requested by the Purchaser or any such Holder or
Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of
such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to suspend the
use of the Prospectus until the requisite changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of any Registration Statement at
the earliest possible time.
(e) The Company shall furnish to each Holder of securities included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, any documents incorporated by reference
therein and all exhibits thereto (including those incorporated by reference
therein).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as
<PAGE>
11
such Holder may reasonably request; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders of securities in connection with the offering and sale of
the securities covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if the Exchanging Dealer so
requests in writing, any documents incorporated by reference therein and
all exhibits thereto (including those incorporated by reference therein).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies
of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may
reasonably request for delivery by such Exchanging Dealer in connection
with a sale of New Securities received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or
any amendment or supplement thereto by any such Exchanging Dealer, as
aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company shall
register or qualify or cooperate with the Holders of securities included
therein and their respective counsel in connection with the registration or
qualification of such securities for offer and sale under the securities or
blue sky laws of such jurisdictions as any such Holder reasonably requests
in writing and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdictions of the securities
covered by such Registration Statement; provided, however, that the Company
-------- -------
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities to
facilitate the timely preparation and
<PAGE>
12
delivery of certificates representing securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior to
sales of securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide CUSIP numbers for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the Transfer Agent or the Trustee, as
applicable, with printed certificates for such Securities or New
Securities, in a form, if requested by the applicable Holder or Holder's
Counsel, eligible for deposit with The Depository Trust Company or any
successor thereto under the Certificate of Designation for Preferred Stock
or the Exchange Indenture, as applicable.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission to the extent and so
long as they are applicable to the Registered Exchange Offer or the Shelf
Registration and will make generally available to its security holders a
consolidated earnings statement (which need not be audited) covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act.
(n) The Company shall cause the Exchange Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, on or prior to the
effective date of any Shelf Registration Statement or Exchange Offer
Registration Statement.
<PAGE>
13
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such securities as
the Company may from time to time reasonably require for inclusion in such
Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority
Holders reasonably agree should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment
as soon as notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company
shall enter into such agreements (including underwriting agreements) and
take all other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than
those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to the Majority Holders and the Managing
Underwriters, if any), with respect to all parties to be indemnified
pursuant to Section 7 hereof from Holders of Securities to the Company.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
all relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries; (ii) cause the Company's
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter, attorney,
accountant or agent in connection with any such Registration Statement as
is customary for similar due diligence examinations; provided, however,
-------- -------
that any information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such
<PAGE>
14
information shall be kept confidential by the Holders or any such
underwriter, attorney, accountant or agent, unless such disclosure is made
in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality; (iii) make
such representations and warranties to the Holders of securities registered
thereunder and the underwriters, if any, in form, substance and scope as
are customarily made by issuers to underwriters in primary underwritten
offerings; (iv) obtain opinions of counsel to the Company (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters (or, in the case of any
person that does not satisfy the conditions for receipt of a "cold comfort"
letter specified in Statement on Auditing Standards No. 72, an "agreed-upon
procedures" letter) and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of securities registered
thereunder and the underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 4(r) shall be performed (A) on the effective date of such
Registration Statement and each post-effective amendment thereto and (B) at
each closing under any underwriting or similar agreement as and to the
extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall, if requested
<PAGE>
15
of the Purchaser by an Exchanging Dealer, (i) obtain opinions of counsel to
the Company (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the Purchaser and its counsel),
addressed to the Purchaser, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Purchaser or its counsel and
(ii) obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to the Purchaser, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings, or if requested by such
Purchaser or its counsel in lieu of a "cold comfort" letter, an agreed-upon
procedures letter under Statement on Auditing Standards No. 35, covering
matters requested by the Purchaser or its counsel. The foregoing actions,
if requested as set forth above, shall be performed (A) at the close of the
Registered Exchange Offer and (B) on the effective date of any post-
effective amendment to the Exchange Offer Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
----------------------
incurred in connection with the performance of their obligations under Sections
2, 3, and 4 hereof and, (a) in the event of any Shelf Registration Statement,
will reimburse the Holders for the reasonable fees and disbursements of one firm
or counsel (in addition to one local counsel in each relevant jurisdiction)
designated by the Majority Holders to act as counsel for the Holders in
connection therewith ("Holders' Counsel"), and (b) in the case of any Exchange
Offer Registration Statement, will reimburse the Purchaser for the reasonable
fees and disbursements of counsel acting in connection therewith; provided, that
--------
the Company shall not be obligated to reimburse the Purchaser in excess of
$10,000 in the aggregate pursuant to this clause (b).
6. Indemnification and Contribution. (a) In connection with any
---------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including the Purchaser and, with respect
to any Prospectus delivery as contemplated in
<PAGE>
16
Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees
and agents of each such Holder and each other person, if any, who controls any
such Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement as originally filed or in any amendment thereof, or in any preliminary
Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any case to the extent that any such loss, claim, damage or liability arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company and by or on behalf of any
such Holder specifically for inclusion therein; provided further, however, that
---------------- -------
the indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any indemnified party to the extent that it is determined by a final,
non-appealable judgment that (i) any Registration Statement or Prospectus, or
any amendment thereof or supplement thereto, contained an untrue statement of a
material fact or omitted to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) the
sale to the person asserting any such losses, claims, damages or liabilities was
an initial resale of New Securities by any Exchanging Dealer, (iii) any such
loss, claim, damage or liability of such indemnified party results from the fact
that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such New Securities to such person, a copy of any
amended or supplemented Registration Statement or Prospectus and the Company had
previously furnished copies thereof to such Exchanging Dealer and (iv) the
amended or supplemented Registration Statement or Prospectus as amended or
supplemented corrected such untrue statement or omission.
<PAGE>
17
This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined below) of, as provided in Section 6(d), any underwriters of Securities
registered under a Shelf Registration Statement, their officers, directors,
employees and agents and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Purchaser and
the selling Holders provided in this Section 6(a) and shall, if requested by any
Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including the Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally and not
jointly agrees to indemnify and hold harmless the Company, each of its directors
and officers and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each such Holder, but only
with reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to participate therein and, to
the extent it may wish, to assume the defense thereof with counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any
<PAGE>
18
separate counsel retained by the indemnified party or parties except as set
forth below); provided, however, that such counsel shall be satisfactory to the
-------- -------
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided that the indemnifying party shall not be
--------
responsible for the expenses of more than one separate counsel (in addition to
one local counsel in each relevant jurisdiction) in any one action. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. An indemnified party will
not, without the prior written consent of the indemnifying party, which consent
will not be unreasonably withheld, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason (other than as provided in paragraph (a)),
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation
<PAGE>
19
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
-------- -------
no case shall the Purchaser or any subsequent Holder of any Security or New
Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest or dividend which the Company was
not required to pay as a result of registering the securities covered by the
Registration Statement which resulted in such Losses. Benefits received by the
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Securities or New Securities, as applicable, registered under the Act.
Benefits received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement which resulted in such
Losses. Relative fault shall be determined by reference to whether any alleged
untrue statement or omission relates to information provided by the indemnifying
party, on the one hand, or by the indemnified party, on the other hand. The
parties agree that it would not be just and equitable if
<PAGE>
20
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person who
controls a Holder within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder, the
Company or any underwriter or any of the officers, directors or controlling
persons referred to in this Section 6, and will survive the sale by a Holder of
securities covered by a Registration Statement.
7. Miscellaneous.
--------------
(a) No Inconsistent Agreements. The Company has not, as of the date
---------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
-----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount or Liquidation preference, as the case may be, of Securities
(or, after the consummation of any Exchange Offer in accordance with Section 2
hereof, of New Securities); provided that, with respect to any matter that
--------
directly or indirectly affects the rights of any Purchaser hereunder, the
Company shall obtain the written consent of each such Purchaser against which
such amendment, qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing
<PAGE>
21
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of
securities being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
--------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this
Section 7(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the registrar under the
Exchange Indenture and the Certification of Designation for the
Preferred Stock, with a copy in like manner to Salomon Brothers Inc by
fax (212-783-2823) and confirmed by mail to it at Seven World Trade
Center, New York, New York 10048;
(2) if to you, initially at the address set forth in the Purchase
Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Purchaser's or the Company's notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company or subsequent Holders of Securities and/or New Securities. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number of
-------------
counterparts and by the parties hereto in
<PAGE>
22
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
(f) Headings. The headings in this Agreement are for convenience of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) Severability. In the event that any one of more of the
-------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
------------------------------------
approval of Holders of a specified percentage of principal amount of Securities
or New Securities is required hereunder, Securities or New Securities, as
applicable, held by the Company or its Affiliates (other than subsequent Holders
of Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
<PAGE>
23
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
CENTURY MAINTENANCE
SUPPLY, INC.
By:
/s/ Richard E. Penick
------------------------------------
Name: Richard Penick
Title: Vice President
By:
/s/ Terri Garcia
------------------------------------
Name: Terri Garcia
Title: Assistant Secretary
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
SALOMON BROTHERS INC
By:
/s/ H. Allen Bouch
--------------------------
Name: H. Allen Bouch
Title: Director
<PAGE>
EXHIBIT 5.1
RIORDAN & McKINZIE
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071
August 31, 1998
Century Maintenance Supply, Inc.
9100 Winkler Drive
Houston, Texas 77017
Re: Century Maintenance Supply, Inc.--13 1/4% Series C Senior
Exchangeable PIK Preferred Stock due 2010 and 13 1/4%
Subordinated Exchange Debentures due 2010--Registration
Statement on Form S-4
----------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Century Maintenance Supply, Inc., a
Delaware corporation ("Century") in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act") of, and the offer to
exchange, Century's 13 1/4% Series C Senior Exchangeable PIK Preferred Stock due
2010 (the "Series C PIK Preferred Stock") to be registered with the Securities
and Exchange Commission (the "Commission") (the "Exchange Preferred Stock"), for
Century's outstanding 13 1/4% Series A Senior Exchangeable PIK Preferred Stock
due 2010, and in connection with the registration under the Securities Act of
Century's 13 1/4% Exchangeable Subordinated Debentures due 2010 (the "Exchange
Debentures). This opinion is delivered to you in connection with the
Registration Statement on Form S-4 (the "Registration Statement") for the
aforementioned Exchange Preferred Stock and exchange offer and for the
aforementioned Exchange Debentures, filed as of the date hereof with the
Commission under the Securities Act. Capitalized terms used herein without
definition shall have the meanings given to them in the Registration Statement.
In rendering this opinion, we have examined copies identified to our
satisfaction as being copies of the Certificate of Designation and Exchange
Indenture, each attached as an exhibit to the Registration Statement, and
originals, counterparts or copies identified to our satisfaction as being true
copies of such other documents as we have deemed necessary or appropriate to
render the opinions given below. We have assumed the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies.
<PAGE>
Century Maintenance Supply, Inc.
August 31, 1998
Page 2
We have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary. We express no opinion with
respect to compliance with state securities laws or with respect to any state or
federal fraudulent conveyance statutes.
Based upon the foregoing and subject to the qualifications, exceptions
and limitations set forth herein, we are of the opinion that:
1. The shares of Series C PIK Preferred Stock have been duly
authorized by all necessary corporate action and will, when issued, constitute
valid and binding obligations on behalf of Century, enforceable in accordance
with its terms under the laws of the State of Delaware, except as may be limited
by (i) bankruptcy, reorganization, insolvency or other similar laws of general
application affecting the rights and remedies of creditors and secured parties
and (ii) the discretion of the courts in applying equitable principles.
2. The Exchange Debentures have been duly authorized by all
necessary corporate action on the part of Century and, when the Exchange
Indenture shall become qualified under the Trust Indenture Act of 1939, as
amended, and when the Exchange Debentures shall have been duly executed,
authenticated and delivered in accordance with the Exchange Indenture in
exchange for the Series C PIK Preferred Stock, as contemplated by the Exchange
Indenture, Certificate of Designation and Registration Statement, the Exchange
Debentures will be legally issued and fully paid and constitute the legally
valid and binding obligations of Century, enforced under the laws of the State
of New York, except as may be limited by (i) bankruptcy, reorganization,
insolvency or other similar laws of general application affecting the rights and
remedies of creditors and secured parties and (ii) the discretion of the courts
in applying equitable principles.
To the extent that the obligations of Century under the Exchange
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Exchange
Indenture; that the Exchange Indenture has been duly authorized, executed and
delivered by the Trustee and constitutes the valid, binding and enforceable
obligation of the Trustee; that the Trustee is in compliance, generally and with
respect to acting as a trustee under the Exchange Indenture, with all applicable
laws and regulations; and that the Trustee has the requisite corporate and legal
power and authority to perform its obligations under the Exchange Indenture.
We advise you that certain members of this firm own interests,
directly or indirectly, in a partnership which owns a majority of the stock of
Century.
<PAGE>
Century Maintenance Supply, Inc.
August 31, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
Riordan & McKinzie
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
dated as of July 8, 1998
among
CENTURY MAINTENANCE SUPPLY, INC.,
The Lenders Party Hereto,
SALOMON BROTHERS INC,
as Arranger, Advisor and Syndication Agent,
and
CITICORP USA, INC.,
as Administrative Agent and Collateral Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I
Definitions
SECTION 1.01. Defined Terms............................................. 1
SECTION 1.02. Terms Generally........................................... 24
ARTICLE II
The Credits
SECTION 2.01. Commitments............................................... 25
SECTION 2.02. Loans..................................................... 25
SECTION 2.03. Borrowing Procedure....................................... 26
SECTION 2.04. Notes and Records......................................... 27
SECTION 2.05. Fees...................................................... 27
SECTION 2.06. Interest on Loans......................................... 28
SECTION 2.07. Default Interest.......................................... 29
SECTION 2.08. Alternate Rate of Interest................................ 29
SECTION 2.09. Termination and Reduction of Commitments.................. 29
SECTION 2.10. Conversion and Continuation of Borrowings................. 30
SECTION 2.11. Repayment of Term Borrowings.............................. 31
SECTION 2.12. Prepayment................................................ 32
SECTION 2.13. Mandatory Prepayments..................................... 32
SECTION 2.14. Reserve Requirements...................................... 35
SECTION 2.15. Change in Legality........................................ 36
SECTION 2.16. Indemnity................................................. 37
SECTION 2.17. Pro Rata Treatment........................................ 37
SECTION 2.18. Sharing of Setoffs........................................ 37
SECTION 2.19. Payments.................................................. 38
SECTION 2.20. Taxes..................................................... 38
SECTION 2.21. Assignment of Commitments Under Certain
Circumstances; Duty to Mitigate........................... 40
SECTION 2.22. Swingline Loans........................................... 41
SECTION 2.23. Letters of Credit......................................... 43
</TABLE>
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ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers................................... 46
SECTION 3.02. Authorization.......................................... 46
SECTION 3.03. Enforceability......................................... 47
SECTION 3.04. Governmental Approvals and Licenses.................... 47
SECTION 3.05. Financial Statements................................... 47
SECTION 3.06. No Material Adverse Change............................. 48
SECTION 3.07. Title to Properties; Possession Under Leases........... 48
SECTION 3.08. Subsidiaries........................................... 48
SECTION 3.09. Litigation; Compliance with Laws....................... 48
SECTION 3.10. Default in Material Agreements......................... 49
SECTION 3.11. Federal Reserve Regulations............................ 49
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act............................................ 49
SECTION 3.13. Tax Returns............................................ 49
SECTION 3.14. No Material Misstatements.............................. 49
SECTION 3.15. Employee Benefit Plans................................. 49
SECTION 3.16. Environmental Matters.................................. 50
SECTION 3.17. Insurance.............................................. 50
SECTION 3.18. Security Documents..................................... 50
SECTION 3.19. Location of Real Property and Leased Premises.......... 51
SECTION 3.20. Labor Matters.......................................... 51
SECTION 3.21. Solvency............................................... 51
SECTION 3.22. Year 2000.............................................. 52
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events...................................... 52
SECTION 4.02. First Credit Event..................................... 52
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties................... 56
SECTION 5.02. Insurance.............................................. 57
SECTION 5.03. Payment of Taxes....................................... 58
SECTION 5.04. Financial Statements, Reports, etc..................... 59
SECTION 5.05. Litigation and Other Notices........................... 60
SECTION 5.06. Employee Benefits...................................... 60
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections............................................ 60
SECTION 5.08. Use of Proceeds........................................ 61
</TABLE>
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SECTION 5.09. Compliance with Environmental Laws..................... 61
SECTION 5.10. Preparation of Environmental Reports................... 61
SECTION 5.11. Further Assurances..................................... 61
SECTION 5.12. Mortgaged Property Casualty and Condemnation........... 62
SECTION 5.13. Compliance with Laws................................... 65
SECTION 5.14. Interest Rate Protection............................... 65
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness........................................... 66
SECTION 6.02. Liens.................................................. 66
SECTION 6.03. Investments, Loans and Advances........................ 67
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
Acquisitions........................................... 68
SECTION 6.05. Dividends and Distributions; Restrictions on Ability
of Subsidiaries to Pay Dividends....................... 69
SECTION 6.06. Transactions with Affiliates........................... 70
SECTION 6.07. Business of Borrower and Subsidiaries.................. 70
SECTION 6.08. Use of Proceeds........................................ 71
SECTION 6.09. Capital Expenditures................................... 71
SECTION 6.10. Debt/Adjusted EBITDA Ratio............................. 71
SECTION 6.11. Minimum EBITDA......................................... 72
SECTION 6.12. Interest Coverage Ratio................................ 72
SECTION 6.13. Fixed Charge Coverage Ratio............................ 73
SECTION 6.14. Modification of Certain Agreements..................... 73
ARTICLE VII
Defaults and Remedies
SECTION 7.01. Events of Default...................................... 73
ARTICLE VIII
The Agents
SECTION 8.01. Appointment of Administrative and Collateral Agent..... 76
SECTION 8.02. Limitations on Liabilities............................. 76
SECTION 8.03. Acting at the Direction of the Required Lenders........ 77
SECTION 8.04. Resignation of the Administrative Agent or the
Collateral Agent....................................... 77
SECTION 8.05. Other Transactions..................................... 77
SECTION 8.06. Reimbursement and Indemnity............................ 77
SECTION 8.07. No Reliance............................................ 78
</TABLE>
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ARTICLE IX
Miscellaneous
SECTION 9.01. Notices................................................ 78
SECTION 9.02. Survival of Agreement.................................. 78
SECTION 9.03. Effectiveness; Termination............................. 79
SECTION 9.04. Successors and Assigns................................. 79
SECTION 9.05. Expenses; Indemnity.................................... 82
SECTION 9.06. Right of Setoff........................................ 82
SECTION 9.07. Applicable Law......................................... 83
SECTION 9.08. Waivers; Amendment; Replacement Lenders................ 83
SECTION 9.09. Interest Rate Limitation............................... 85
SECTION 9.10. Entire Agreement....................................... 85
SECTION 9.11. WAIVER OF JURY TRIAL................................... 85
SECTION 9.13. Counterparts........................................... 86
SECTION 9.14. Headings............................................... 86
SECTION 9.15. Jurisdiction; Consent to Service of Process............ 86
SECTION 9.16. Confidentiality........................................ 86
</TABLE>
Annexes
- -------
Annex 1 - Initial Loan Commitments and Term Loan Commitments
Annex 2 - Administrative Information
Annex 3 - Description of the Recapitalization
Schedules
- ---------
Schedule 1.01(a) - Existing Letters of Credit
Schedule 1.01(b) - Mortgaged Properties
Schedule 1.01(c) - Subsidiary Guarantors
Schedule 3.07(b) - Exceptions to Compliance with Leases
Schedule 3.07(c) - Condemnation Proceedings
Schedule 3.08 - Subsidiaries
Schedule 3.09 - Litigation
Schedule 3.16 - Environmental Matters
Schedule 3.17 - Insurance
Schedule 3.18(d) - Mortgage Filing Offices
Schedule 3.19(a) - Owned Real Properties
Schedule 3.19(b) - Leased Real Properties
Schedule 4.02(b) - Local Counsel
Schedule 4.02(t) - Existing Indebtedness
Schedule 6.01(a) - Indebtedness to be Paid
Schedule 6.02(a) - Existing Liens
Schedule 6.06 - Transactions with Affiliates
Exhibits
- --------
-iv-
<PAGE>
Exhibit A - Administrative Questionnaire
Exhibit B - Form of Term Note
Exhibit C - Form of Revolving Credit Note
Exhibit D - Form of Swingline Note
Exhibit E - Form of Borrowing Request
Exhibit F - Form of Continuation/Conversion Request
Exhibit G - Form of Letter of Credit Request
Exhibit H - Form of Assignment and Acceptance
Exhibit I - Form of Security Agreement
Exhibit J - Form of Pledge Agreement
Exhibit K - Form of Mortgage
Exhibit L - Form of Subsidiary Guarantee Agreement
Exhibit M - Form of Indemnity, Subrogation and Contribution
Agreement
Exhibit N - Form of Pricing Adjustment Certificate
Exhibit O - Form of Opinion of Riordan & McKinzie, special
California counsel for the Borrower
Exhibit P - Form of Opinion of Porter & Hedges, special Texas
counsel for the Borrower
Exhibit Q - Form of Opinion of Dennis D. Teeter, P.C., Texas
counsel for the Borrower
Exhibit R - Form of Opinion of Richards & O'Neil, special New
York counsel for the Borrower
Exhibit S - Form of Opinion of Borrower's Local Counsel
Exhibit T - Form of Opinion of Cravath, Swaine & Moore, special
New York counsel for the Agents
-v-
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CREDIT AGREEMENT dated as of July 8, 1998, among
CENTURY MAINTENANCE SUPPLY, INC., a Delaware
corporation (the "Borrower"), the Lenders (as defined
in Article I), SALOMON BROTHERS INC, as Arranger,
Advisor and Syndication Agent (in such capacity, the
"Syndication Agent"), and CITICORP USA, INC., as
swingline lender (in such capacity, the "Swingline
Lender"), and as issuing bank (in such capacity, the
"Issuing Bank"), and as administrative agent (in such
capacity, the "Administrative Agent") and as collateral
agent (in such capacity, the "Collateral Agent") for
the Lenders.
The Borrower has requested the Lenders to extend credit in the form of (a)
Tranche A Term Loans (such term and each other capitalized term used but not
defined herein having the meaning given it in Article I) on the Closing Date, in
an aggregate principal amount not in excess of $40,000,000, Tranche B Term Loans
on the Closing Date, in an aggregate principal amount not to exceed $60,000,000
and (c) Revolving Loans at any time and from time to time prior to the Revolving
Credit Maturity Date, in an aggregate principal amount at any time outstanding
not in excess of $25,000,000. The Borrower has requested the Swingline Lender
to extend credit, at any time and from time to time prior to the Revolving
Credit Maturity Date, in the form of Swingline Loans. The Borrower has
requested the Issuing Bank to issue letters of credit, in an aggregate face
amount at any time outstanding not in excess of $7,500,000, to support payment
obligations incurred in the ordinary course of business by the Borrower and its
Subsidiaries. The proceeds of the Loans are to be used solely as set forth in
Section 6.08.
The Lenders and the Swingline Lender are willing to extend such credit to
the Borrower and the Issuing Bank is willing to issue letters of credit for the
account of the Borrower on the terms and subject to the conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" means a Borrowing comprised of ABR Loans.
"ABR Loan" means any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" means any Revolving Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Term Borrowing" means a Borrowing comprised of ABR Term Loans.
"ABR Term Loan" means any Term Loan bearing interest at a rate determined
by
<PAGE>
reference to the Alternate Base Rate in accordance with the provisions of
Article II.
"Acquisition Co." is defined in Annex 3.
"Adjusted EBITDA" means, with respect to the Borrower and its Subsidiaries
for the four most recently completed fiscal quarters for which financial
statements are available, EBITDA on a consolidated basis after giving effect to
all Permitted Acquisitions consummated during such period on a pro forma basis
in accordance with SEC Regulation S-X (as if such acquisitions were made on the
first day of such period).
"Adjusted Eurodollar Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the product of (a) the Eurodollar
Rate in effect for such Interest Period and (b) Statutory Reserves.
"Adjusted Working Capital" means, for any date, current assets (other than
cash and cash equivalent investments) less current liabilities (other than
current maturities of long-term debt).
"Administrative Agent" is defined in the Preamble.
"Administrative Agent Fees" is defined in Section 2.05(b).
"Administrative Questionnaire" means an Administrative Questionnaire in the
form of Exhibit A.
"Affiliate" means, when used with respect to a specified person, another
person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the person specified.
"Affiliate Transactions" is defined in Section 6.06.
"Aggregate Revolving Credit Exposure" means the aggregate amount of the
Lenders' Revolving Credit Exposures.
"Alternate Base Rate" means, at all times, a fluctuating rate per annum
equal to the highest of:
(a) the rate of interest announced publicly by Citibank, N.A., in New
York, New York, from time to time, as its base rate;
(b) the sum (adjusted to the nearest 1/16 of 1% per annum) of (i) 1/2
of one percent per annum, plus (ii) the rate obtained by dividing (A) the
latest three-week moving average of secondary market morning offering rates
in the United States for three-month certificates of deposit of major
United States money market banks, such three-week moving average (adjusted
to the basis of a year of 360 days) being determined weekly on each Monday
(or, if such day is not a Business Day, on the next succeeding Business
Day) for the three-week period ended on the previous Friday by Citibank,
N.A., on the basis of such rates reported by certificate of deposit dealers
to bank published by the Federal Reserve Bank of New York or, is such
publication shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank, N.A., from three New York certificate
of deposit dealers of recognized standing selected by it, by (B) a
percentage equal to 100% minus the average of the daily percentages
specified during such three-
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week period by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, but
not limited to, any emergency, supplemental, or other marginal reserve
requirement) for Citibank, N.A., with respect to liabilities consisting of
or including (among other liabilities) three-month non-personal time
deposits in the United States, plus (iii) the average during such three-
----
week period of the annual assessment rates estimated by Citibank, N.A., for
determining the then current annual assessment payable by it to the Federal
Deposit Insurance Corporation (or any successor) for insuring U.S. dollar
deposits of Citibank, N.A., in the Unites States; and
(c) 1/2 of 1% per annum above the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day
on such transactions received by Citibank, N.A., from three Federal funds
brokers of recognized standing selected by it.
"Applicable Percentage" of any Revolving Credit Lender at any time means
the percentage of the Total Revolving Credit Commitment represented by such
Lender's Revolving Credit Commitment. In the event the Revolving Credit
Commitments shall have expired or been terminated, the Applicable Percentages
shall be determined on the basis of the Revolving Credit Commitments most
recently in effect.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Borrower or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (a) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other Assets of the Borrower or any Restricted
Subsidiary outside of the ordinary course of business of the Borrower or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Borrower or by the Borrower or
a Restricted Subsidiary to a wholly owned Restricted Subsidiary, (ii) any
disposition effected in compliance with Section 6.04). "Asset Disposition"
shall not include any Sale/Leaseback Transaction.
"Assets" means property of any person other than capital stock, or
warrants, instruments or rights convertible into capital stock, of such person.
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee, and accepted by the Administrative Agent, in the
form of Exhibit or such other form as shall be approved by the Administrative
Agent.
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
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"Borrower" is defined assigned thereto in the Preamble.
"Borrowing" means a group of Loans of a single Type made by the Lenders on
a single date and as to which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower in accordance with the
terms of Section 2.03 or Section 2.22(b), as the case may be, and substantially
in the form of Exhibit E.
"Business Day" means any day other than a Saturday, Sunday or day on which
banks in New York City are authorized or required by law to close.
"Capital Expenditures" means capital expenditures of the Borrower and its
Subsidiaries determined in accordance with GAAP.
"Capital Lease Obligations" of any person means the obligations of such
person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Capital Stock" means, with respect to any person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participants, rights, warrants, options or other interests in the
nature of any equity interest in such person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Casualty" is defined in Section 5.12(a).
"Casualty Proceeds" is defined in Section 5.12(a).
"Change of Control" means the occurrence of any of the following events:
(a) prior to the first Public Equity Offering that results in a Public
Market, the Permitted Holders cease to be the "beneficial owners" (as defined in
Rule 13d-3 under the Exchange Act, except that a person will be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of a majority of the voting power of the
Voting Stock of the Borrower, whether as a result of the issuance of securities
of the Borrower, any merger, consolidation, liquidation or dissolution of the
Borrower, any direct or indirect transfer of securities by the Permitted Holders
or otherwise (for purposes of this clause, the Permitted Holders will be deemed
to beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so long
as the Permitted Holders beneficially own, directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of such parent
corporation); or
(b) after the first Public Equity Offering that results in a Public Market,
any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring, holding,
voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act, other than any one or more of the Permitted Holders or any
member of the senior management of the Borrower or any Subsidiary (or trusts for
the benefit of his or her heirs), becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act, except
4
<PAGE>
that a person will be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 25%
or more of the voting power of the Voting Stock of the Borrower; provided,
however, that the Permitted Holders or any member of the senior management of
the Borrower or any Subsidiary (or trusts for the benefit of his or her heirs)
are the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act,
except that a person will be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, in the
aggregate of a lesser percentage of the total voting power of all classes of the
Voting Stock of the Borrower than such other person or group (for purposes of
this clause, such person or group shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation so long as such
person or group beneficially owns, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of such parent corporation); or
(c) the sale, transfer, assignment, lease, conveyance or other disposition,
directly or indirectly, of all or substantially all the assets of the Borrower
and the Restricted Subsidiaries, considered as a whole (other than a disposition
of such assets as an entirety or virtually as an entirety to a wholly owned
Restricted Subsidiary or one or more Permitted Holders) shall have occurred, or
the Borrower merges, consolidates or amalgamates with or into any other person
(other than one or more Permitted Holders) or any other person (other than one
or more Permitted Holders) merges, consolidates or amalgamates with or into the
Borrower, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Borrower is reclassified into or exchanged for cash,
securities or other Property, other than any such transaction where (i) the
outstanding Voting Stock of the Borrower is reclassified into or exchanged for
Voting Stock of the surviving corporation and (ii) the holders of the Voting
Stock of the Borrower immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction and in substantially the same
proportion as before the transaction; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election or appointment by such Board or whose nomination
for election by the shareholders of the Borrower was approved by a vote of 66-
2/3% of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office;
(e) the shareholders of the Borrower shall have approved any plan of
liquidation or dissolution of the Borrower; or
(f) any transaction or series of related transactions constituting a
"change of control" or other similar occurrence under documentation evidencing
or governing any Indebtedness of the Borrower or its Restricted Subsidiaries of
$2,500,000 or more which results in an obligation of the Borrower or any
Restricted Subsidiary to prepay, purchase, offer to purchase, redeem or defease
such Indebtedness.
"Closing Date" means the date (which shall be on or prior to July 14, 1998)
of the first Credit Event.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all the "Collateral" as defined in any Security Document
and shall also
5
<PAGE>
include the Mortgaged Properties.
"Collateral Agent" is defined assigned thereto in the Preamble.
"Commitment" means, with respect to any Lender, such Lender's Revolving
Credit Commitment, Term Loan Commitment and Swingline Commitment.
"Commitment Fee" is defined in Section 2.05(a).
"Condemnation" is defined in Section 5.12(b).
"Condemnation Proceeds" is defined in Section 5.12(b).
"Confidential Information Memorandum" means the Confidential Information
Memorandum of the Borrower dated [ ], 1998.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Borrower and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Borrower or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of Indebtedness discount and
debt issuance cost, including commitment fees, (c) capitalized interest, (d)
non-cash interest expenses, (e) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (f) net costs associated with Hedging Obligations (including
amortization of fees), (g) dividends and other distributions on Disqualified
Stock, (h) Preferred Stock dividends in respect of all Preferred Stock of
Restricted Subsidiaries held by persons other than the Borrower or a wholly
owned Restricted Subsidiary (to the extent paid in cash), (i) interest Incurred
in connection with Investments in discontinued operations, (j) interest accruing
on any Indebtedness of any other person to the extent such Indebtedness is
Guaranteed by the Borrower or any Restricted Subsidiary and (k) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any person (other than the Borrower) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Borrower and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income
(a) any net income (loss) of any person (other than the Borrower) if
such person is not a Restricted Subsidiary, except that (i) subject to the
exclusion contained in clause (c), the Borrower's equity in the net income
of any such person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash distributed by such person
during such period to the Borrower or a Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in
clause (b)) and (ii) the Borrower's equity in a net loss of any such person
other than an Unrestricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(b) any net income (but not loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to consensual restrictions, directly or
indirectly, on the payment of dividends or the making of distributions,
directly or indirectly, to the Borrower, except that subject to the
exclusion contained in clause (c), the Borrower's equity in the net income
of any such Restricted Subsidiary for such period shall be included in such
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Consolidated Net Income up to the aggregate amount of cash distributed by
such Restricted Subsidiary during such period to the Borrower or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause);
(c) any gain (but not loss) realized upon the sale or other
disposition of any Property of the Borrower or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction)
which is not sold or otherwise disposed of in the ordinary course of
business; provided, that any tax benefit or tax liability resulting
therefrom shall be excluded in calculated such Consolidated Net Income;
(d) any extraordinary gain or loss and any nonrecurring Transaction
Costs; provided, that any tax benefit or tax liability resulting therefrom
shall be excluded in calculated such Consolidated Net Income;
(e) the cumulative effect of a change in accounting principles;
(f) any non-cash compensation expense realized in connection with the
grant, vesting or exercise of performance shares, stock options or other
stock awards to officers, directors and employees of the Borrower or any
Restricted Subsidiary;
(g) compensation expense attributable to bonus payments to management
of the Borrower which are payable in connection with the Recapitalization
within 90 days of the Closing Date and which are in the aggregate not
greater than $1,000,000; and
(h) compensation expense attributable to the repurchase in connection
with the Recapitalization of outstanding options from employees of the
Borrower and its Subsidiaries in an amount not to exceed $4,020,000 in the
aggregate.
"Continuation/Conversion Request" means a continuation/conversion request
delivered by the Borrower to the Administrative Agent, in the form of Exhibit F
or such other form as shall be approved by the Administrative Agent.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "Controlling" and "Controlled" shall have meanings correlative thereto.
"Credit Documents" means this Agreement, the Letters of Credit, the Notes,
the Subsidiary Guarantee Agreement, the Security Documents and the Indemnity,
Subrogation and Contribution Agreement.
"Credit Event" is defined in Section 4.01.
"Credit Parties" means the Borrower and the Guarantors.
"Current Owner" is defined in Annex 3.
"Debt" means, with respect to any person, all Indebtedness of such person
of the types referred to in clauses (a), (b), (c), (d), (e), (f) and (h) of the
definition of "Indebtedness".
"Debt/Adjusted EBITDA Ratio" means, as of any date with respect to the
Borrower and
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its consolidated Restricted Subsidiaries, the ratio of (a) the total amount of
Debt of the Borrower and its consolidated Restricted Subsidiaries as of such
date, to (b) Adjusted EBITDA of the Borrower and its consolidated subsidiaries
for the period of four fiscal quarters most recently ended for which financial
statements are available.
"Default" means any event or condition which upon notice, lapse of time or
both would constitute an Event of Default.
"Disqualified Stock" means, with respect to any person, Redeemable Stock of
such person as to which (i) the maturity, (ii) mandatory redemption or (iii)
redemption, repurchase, conversion or exchange at the option of the holder
thereof occurs, or may occur, on or prior to the first anniversary of the Term
Loan Maturity Date; provided, however, that Redeemable Stock of such person that
-------- -------
would not otherwise be characterized as Disqualified Stock under this definition
shall not constitute Disqualified Stock (a) if such Redeemable Stock is
convertible or exchangeable into Debt or Disqualified Stock solely at the option
of the issuer thereof or (b) solely as a result of provisions thereof giving
holders thereof the right to require such person to repurchase or redeem such
Redeemable Stock upon the occurrence of a "change of control" occurring prior to
the first anniversary of the Term Loan Maturity Date, if (x) such repurchase
obligation may not be triggered in respect of such Redeemable Stock unless a
mandatory prepayment obligation also arises with respect to the Loans and (y) no
such repurchase or redemption is permitted to be consummated unless and until
such person shall have satisfied all mandatory prepayment obligations with
respect to the Loans.
"dollars" or "$" means lawful money of the United States of America.
"Domestic Subsidiaries" means all Restricted Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof or
the District of Columbia.
"EBITDA" means, for any period, an amount equal to, for the Borrower and
its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income
for such period, plus the following to the extent reducing Consolidated Net
Income for such period: (i) the provision for taxes based on income or profits
or utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization and (v) any other non-cash items (other than any
such non-cash item to the extent that it represents an accrual of or reserve for
cash expenditures in any future period), minus (b) all non-cash items increasing
Consolidated Net Income for such period (other than any such non-cash item to
the extent that it will result in the receipt of cash payments in any future
period). Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would not be prohibited at the date of determination from
being dividended to the Borrower by such Restricted Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of any consensual
restriction.
"Employee Notes" means promissory notes of employees of the Borrower or the
Subsidiaries payable to the Borrower or and received in connection with the
substantially concurrent purchase of Capital Stock of the Borrower or by such
employees.
"environment" means ambient air, surface water and groundwater (including
potable water, navigable water and wetlands), the land surface or subsurface
strata, the workplace or as otherwise defined in any Environmental Law.
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"Environmental Claim" means any written accusation, allegation, notice of
violation, claim, demand, order, directive, cost recovery action or other cause
of action by, or on behalf of, any Governmental Authority or any person for
damages, injunctive or equitable relief, personal injury (including sickness,
disease or death), Remedial Action costs, tangible or intangible property
damage, natural resource damages, nuisance, pollution, any adverse effect on the
environment caused by any Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon (a) the existence, or the
continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases), (b) exposure to any Hazardous Material,
(c) the presence, use, handling, transportation, storage, treatment or disposal
of any Hazardous Material or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
"Environmental Law" means any and all applicable present and future
treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. (S)(S) 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. (S)(S) 6901 et seq., the Federal Water Pollution Control Act, as amended
by the Clean Water Act of 1977, 33 U.S.C. (S)(S) 1251 et seq., the Clean Air Act
of 1970, as amended 42 U.S.C. (S)(S) 7401 et seq., the Toxic Substances Control
Act of 1976, 15 U.S.C. (S)(S) 2601 et seq., the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. (S)(S) 651 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. (S)(S) 11001 et seq., the
Safe Drinking Water Act of 1974, as amended, 42 U.S.C. (S)(S) 300(f) et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 5101 et seq., and
any similar or implementing state or local law, and all amendments or
regulations promulgated under any of the foregoing.
"Environmental Permit" means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Environmental Property" is defined in Section 3.16(a).
"Equity Issuance" means the issuance by the Borrower of any equity
interests therein, or the issuance or sale by the Borrower of any instrument or
obligation convertible into or exchangeable for, or giving any person any right,
option or warrant to acquire from the Borrower any equity interests therein or
any such convertible or exchangeable instrument or obligation, but excluding the
Excluded Shares.
"Equity Investment" is defined in Annex 3.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that, together with the Borrower, is treated as a single employer under Section
414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
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"ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the
adoption of any amendment to a Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or
Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g)
the receipt by the Borrower or any ERISA Affiliate of any notice concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which the Borrower or any of its Subsidiaries is a "disqualified person"
(within the meaning of Section 4975 of the Code) or with respect to which the
Borrower or any such Subsidiary could otherwise be liable; and (i) any other
event or condition with respect to a Plan or Multiemployer Plan that could
reasonably be expected to result in liability of the Borrower.
"Eurodollar Borrowing" means a Borrowing comprised of Eurodollar Loans.
"Eurodollar Loan" means any Eurodollar Revolving Loan or Eurodollar Term
Loan.
"Eurodollar Rate" means, with respect to any Eurodollar Borrowing, the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the Administrative Agent's portion
(or if the Administrative Agent is not a Lender, the largest portion of any
single Lender) of such Eurodollar Borrowing and for a maturity comparable to
such Interest Period are offered to the principal New York office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 10:00 a.m., New York time, two Business Days prior to
the commencement of such Interest Period.
"Eurodollar Revolving Loan" means any Revolving Loan bearing interest at a
rate determined by reference to the Adjusted Eurodollar Rate in accordance with
the provisions of Article II.
"Eurodollar Term Borrowing" means a Borrowing comprised of Eurodollar Term
Loans.
"Eurodollar Term Loan" means any Term Loan bearing interest at a rate
determined by reference to the Adjusted Eurodollar Rate in accordance with the
provisions of Article II.
"Event of Default" is defined in Section 7.01.
"Excess Cash Flow" for any period, means EBITDA for such period, less the
sum of
(a) (i) permitted Capital Expenditures, (ii) Taxes, (iii) Consolidated
Interest Expense, (iv) increases in Adjusted Working Capital for such
period, (v) scheduled and mandatory payments of Debt, (vi) voluntary
prepayments of Term Loans, (vii) payments pursuant to Section 6.05(a)(i) in
connection with purchases of the Borrower's Capital Stock, in each case to
the extent made in cash during such period; (viii) cash consideration paid
for Permitted Acquisitions (but excluding cash consideration funded by a
Borrowing
10
<PAGE>
under the Revolving Credit Commitments), and (ix) cash dividends paid on
the Exchangeable Preferred Stock to the extent permitted by this Agreement,
plus the sum of
(b) (i) decreases in Adjusted Working Capital for such period, (ii)
refunds of taxes paid in prior periods, and (iii) proceeds to the Borrower
or any Restricted Subsidiary of any Indebtedness referred to in Section
6.01(e), in each case to the extent received in cash or cash equivalents
during such period.
"Exchangeable Preferred Stock" means the Borrower's 13 1/4% Senior
Exchangeable PIK Preferred Stock due 2010 (Liquidation Preference $100 Per
Share).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Shares" means Capital Stock of the Borrower issued to a
Subsidiary of the Borrower or to an employee stock ownership plan or trust
established by the Borrower or any of its Subsidiaries for the benefit of their
employees.
"Existing Letters of Credit" means each Letter of Credit previously issued
for the account of any Credit Party that (a) is outstanding on the Closing Date
and (b) is listed on Schedule 1.01(a).
"Fair Market Value" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"Fee Letter" means the Fee Letter dated July 8, 1998, between the Borrower
and the Syndication Agent.
"Fees" means the Commitment Fees, the fees described in Section 2.05(c),
the Administrative Agent's Fees, the L/C Participation Fees and the Issuing Bank
Fees.
"Financial Officer" means the Chief Executive Officer or the Chief
Financial Officer of the Borrower.
"Fixed Charge Coverage Ratio" means, with respect to the Borrower and its
Restricted Subsidiaries for any period of four consecutive fiscal quarters, the
ratio of (a) EBITDA for such period, to (b) the sum of Capital Expenditures paid
in cash, Consolidated Interest Expense, scheduled amortizations of Debt, taxes
paid or due and payable, and dividends or other distributions on the Capital
Stock of such person paid in cash (other than to the Borrower or another
Restricted Subsidiary), in each case for such period.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
"FSC" means Freeman Spogli & Co. LLC, a Delaware limited liability company.
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental agency, authority, instrumentality or regulatory body.
11
<PAGE>
"Guarantee" of or by any person means any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business.
"Guarantors" means the Subsidiary Guarantors.
"Hazardous Materials" means all explosive or radioactive substances or
wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or
gaseous wastes, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-
containing materials or equipment, radon gas, infectious or medical wastes and
all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Obligations" means, with respect to any person, all obligations of
such person in respect of Interest Rate Agreements, foreign currency exchange
agreements or other interest or exchange rate hedging arrangements.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. Any Indebtedness issued at a
discount (including Indebtedness on which interest is payable through the
issuance of additional Indebtedness) shall be deemed incurred at the time of
original issuance of the Indebtedness at the initial accreted amount thereof.
"Incurred" and "Incurring" have corresponding meanings.
"Indebtedness" of any person means, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind held by it, (b) all obligations of such person evidenced by
bonds, debentures, notes or similar instruments, (c) financings of accounts
receivable, (d) all obligations of such person under other title retention
agreements relating to property or assets purchased by such person, (e) all
obligations of such person issued or assumed as the deferred purchase price of
property or services (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business), (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such person, whether or not the obligations secured thereby have
been assumed (measured as the fair market value of such property, (g) all
Guarantees by such person of Indebtedness of others (measured by the amount for
which such person would be liable), (h) all Capital Lease Obligations of such
person , (i) all net Hedging Obligations of such person and (j) all obligations
of such person as an account party in respect of letters of credit and bankers'
acceptances (other than trade letters of credit and trade bankers' acceptances).
The Indebtedness of any person shall include the Indebtedness of any partnership
in which such person is a general partner.
"Indebtedness to be Paid" is defined in Section 6.01(a).
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<PAGE>
"Indemnitee" is defined in Section 9.05(b).
"Indemnity, Subrogation and Contribution Agreement" means the Indemnity,
Subrogation and Contribution Agreement, substantially in the form of Exhibit M,
---------
among the Borrower, the Subsidiary Guarantors and the Collateral Agent.
"Interest Payment Date" means, with respect to any Loan, the last day of
the Interest Period applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each day that would have been an Interest Payment Date
had successive Interest Periods of three months' duration been applicable to
such Borrowing, and, in addition, the date of any prepayment of such Borrowing
or conversion of such Borrowing to a Borrowing of a different Type.
"Interest Period" means
(a) as to any Eurodollar Borrowing, the period commencing on the date
of such Borrowing and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months (or, if Interest Periods of such duration
shall be available from each Lender, 9 or 12 months) thereafter, as the
Borrower may elect and
(b) as to any ABR Borrowing, the period commencing on the date of such
Borrowing and ending on the earlier of (i) the next succeeding March 31,
June 30, September 30 or December 31, and (ii) the Revolving Credit
Maturity Date, the Tranche A Maturity Date or the Tranche B Maturity Date,
as applicable,
provided, however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurodollar Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day.
"Interest Rate Agreement" means, for any person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Investment" by any person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Indebtedness issued by, any other person. In
determining the amount of any Investment made by transfer of any Property other
than cash, such Property shall be valued at its Fair Market Value at the time of
such Investment.
"Issuing Bank" is defined in the Preamble and Section 2.23(i).
"Issuing Bank Fees" is defined in Section 2.05(d).
"L/C Commitment" means the commitment of the Issuing Bank to issue Letters
of Credit pursuant to Section 2.23.
13
<PAGE>
"L/C Disbursement" means a payment or disbursement made by the Issuing Bank
pursuant to a Letter of Credit.
"L/C Exposure" means at any time the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
principal amount of all L/C Disbursements that have not yet been reimbursed at
such time. The L/C Exposure of any Revolving Credit Lender at any time means
its Applicable Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" is defined in Section 2.05(d).
"Lenders" means (a) the financial institutions listed on Annex 1 (other
than any such financial institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that
has become a party hereto pursuant to an Assignment and Acceptance. Unless the
context clearly indicates otherwise, the term "Lenders" shall include the
Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to Section
2.23 and any Existing Letter of Credit.
"Letter of Credit Request" means a letter of credit issuance, extension or
amendment request delivered by the Borrower to the Administrative Agent, in the
form of Exhibit G or such other form as shall be approved by the Administrative
Agent and the applicable Issuing Bank.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, encumbrance, charge or security interest in or on such asset, (b)
the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement (or any financing lease having
substantially the same economic effect as any of the foregoing) relating to such
asset and (c) in the case of securities, any purchase option, call or similar
right of a third party with respect to such securities.
"Loans" means the Revolving Loans, the Term Loans and the Swingline Loans.
"Margin Stock" is defined in Regulation U.
"Material Adverse Effect" means (a) a materially adverse effect on the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and the Subsidiaries, taken as a whole, (b) impairment of the
ability of the Borrower or any other Credit Party to perform any of its
obligations under any Credit Document to which it is or will be a party, which
impairment is material with respect to the Borrower and the other Credit Parties
taken as a whole, or (c) impairment of the rights of or benefits available to
the Lenders under any Credit Document, which impairment is material with respect
to the Borrower and the other Credit Parties taken as a whole, to the Borrower,
or to a Material Subsidiary.
"Material Subsidiary" means a Restricted Subsidiary that, as of the end of
the most recent fiscal quarter for which financial statements are available
accounted for 5% or more of the Borrower's consolidated (i) total assets, (ii)
shareholders' equity, (iii) operating income (calculated for the four most
recently completed fiscal quarters for which financial statements are
available), or (iv) revenues (calculated for the four most recently completed
fiscal quarters for which financial statements are available), determined in
each case in accordance with GAAP.
"Moody's" means Moody's Investors Service, Inc.
14
<PAGE>
"Mortgaged Properties" means the owned real properties and leasehold and
subleasehold interests of the Credit Parties specified on Schedule 1.01(b).
"Mortgages" means the mortgages, deeds of trust, leasehold mortgages,
assignments of leases and rents, modifications and other security documents
delivered pursuant to Section 5.11, each substantially in the form of Exhibit K.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any Prepayment Event,
(a) all cash or readily marketable cash equivalents received (including by
way of sale, discounting or payment of a note, installment receivable or other
instrument or obligation, but excluding any other consideration received in the
form of assumption by the acquiree of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) therefrom by
such person, as part of the consideration for such Prepayment Event, if
applicable) received by or on behalf of the Borrower or any Restricted
Subsidiary in respect of such Prepayment Event, less
(b) the sum of
(i) the amount, if any, of all taxes (other than taxes based on
income) payable by the Borrower or any Restricted Subsidiary in
connection with such Prepayment Event and the Borrower's good-faith
best estimate of the amount of all taxes based on income payable in
connection with such Prepayment Event,
(ii) in the case of a Prepayment Event that is a Restricted
Asset Disposition, (A) the amount of any expense or reasonable reserve
established in accordance with GAAP against any liabilities associated
with the assets sold or disposed of and retained by the Borrower or
any Restricted Subsidiary (including (1) liabilities under any
indemnification obligations to the acquiror, (2) liabilities with
respect to representations and warranties, (3) liabilities retained by
the Borrower or such Restricted Subsidiary, and (4) employee
termination and similar costs relating to such disposition), provided
that the amount of any subsequent reduction of such reserve (other
than in connection with a payment in respect of any such liability)
shall be deemed to be Net Cash Proceeds of a Prepayment Event
occurring on the date of such reduction, and (B) the amount applied to
repay any Indebtedness (other than the Loans) to the extent such
Indebtedness is required by its terms to be repaid as a result of such
Prepayment Event,
(iii) fees, commissions and expenses (including, in the case of
Casualty Proceeds and Condemnation Proceeds, the costs of adjustment
and condemnation proceedings) and other costs paid by the Borrower or
any Restricted Subsidiary in connection with such Prepayment Event
(other than those payable to the Borrower or any Affiliate of the
Borrower), in each case only to the extent not already deducted in
arriving at the amount referred to in clause (a); and
(iv) all distributions and other payments made to minority
interest holders in Subsidiaries of such person or joint ventures as a
result of such Prepayment Event.
15
<PAGE>
Notwithstanding the foregoing, no proceeds of any Restricted Asset Disposition
of fixed or capital assets, no Casualty Proceeds and no Condemnation Proceeds
shall constitute Net Cash Proceeds, to the extent that such proceeds held by the
Borrower or any Restricted Subsidiary to be reinvested, or are reinvested, in
other fixed or capital assets within one year of such Restricted Asset
Disposition; provided, that (i) at any time when the aggregate amount of such
proceeds from Restricted Asset Disposition held for reinvestment exceeds
$5,000,000 at any one time, such excess shall immediately constitute Net Cash
Proceeds, and (ii) at any time when an Event of Default of type described in
Section 7.01(b) or (c) shall have occurred and be continuing, such proceeds
shall immediately constitute Net Cash Proceeds to the extent that the Borrower
has not entered into binding agreements to acquire assets with such proceeds.
"New Lending Office" is defined in Section 2.20(e).
"Non-U.S. Lender" is defined in Section 2.20(e).
"Notes" means the Term Notes, the Revolving Credit Notes and the Swingline
Notes.
"Obligations" means all obligations defined as "Obligations" in the
Subsidiary Guarantee Agreement and the Security Documents.
"Other Taxes" is defined in Section 2.20(b).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Perfection Certificate" means the Perfection Certificate substantially in
the form of Annex 2 to the Security Agreement.
"Permitted Acquisition" means any acquisition of the Assets or Capital
Stock of any person (other than the Borrower or a Restricted Subsidiary) in one
transaction or a series of transactions which satisfies each of the following
conditions:
(a) the aggregate amount of cash consideration as consideration for
such acquisition (less the amount of any cash equity contributions received
by the Borrower and applied as consideration for such acquisition) shall be
not greater than $10,000,000 in the aggregate after the Closing Date;
(b) the assets acquired in such acquisition shall comprise a business,
or assets of a business, of a type which is the same line of business as
the Borrower, or which is a related or complementary business to that of
the Borrower; and
(c) at the time of such Permitted Acquisition and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing, and the Borrower shall be in pro forma compliance (after giving
effect to such acquisition) with the covenants contained in Section 6.10,
Section 6.11, Section 6.12 and Section 6.13 as of the most recent
applicable fiscal quarter or fiscal year end.
"Permitted Holder" means (a) Dennis C. Bearden (or trusts for the benefit
of his heirs), (b) William C. Johnson, or (c) FSC or any successor entity
thereof controlled by the principals of FSC and any entity controlled by, or
under common control with, FSC.
16
<PAGE>
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of A1/P1 from S&P and from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof that
has a combined capital and surplus and undivided profits of not less than
$250,000,000;
(d) other investment instruments approved in writing by the Required
Lenders and offered by financial institutions which have a combined capital
and surplus and undivided profits of not less than $250,000,000; and
(e) interests in mutual funds which invest primarily in instruments
described in clauses (a), (b) and (c).
"Permitted Purchase Money Lien" means (a) purchase money and similar Liens
existing on the Closing Date or (b) Liens applicable to real property,
improvements thereto or equipment or other Property acquired or constructed
after the Closing Date by the Borrower or any Restricted Subsidiary; provided
that (i) such security interests are incurred, and the Indebtedness secured
thereby is created, no later than 12 months after such acquisition (or
completion of construction), and (ii) such security interests do not apply to
any other property or assets of the Borrower or any Subsidiary.
"person" means any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 307 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the form of
Exhibit J, between the Borrower, the Subsidiaries party thereto and the
Collateral Agent for the benefit of the Secured Parties.
"Preferred Stock" means any Capital Stock of a person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such person, over shares of any other class of
Capital Stock issued by such person.
"Prepayment Event" means any Incurrence of Debt of the Borrower or any
Subsidiary,
17
<PAGE>
any Equity Issuance, any Restricted Asset Disposition, any Restricted
Sale/Leaseback Transaction, any Casualty or any Condemnation.
"Pricing Adjustment" means, for any day, with respect to any Revolving Loan
or Tranche A Term Loan or with respect to the Commitment Fees, as the case may
be, the Pricing Adjustment set forth below, based upon the Debt/Adjusted EBITDA
Ratio as of the date of determination:
<TABLE>
<CAPTION>
CATEGORY 2
CATEGORY 1 DEBT/ADJUSTED EBITDA CATEGORY 3
DEBT/ADJUSTED EBITDA RATIO LESS THAN 3.25:1.00 DEBT/ADJUSTED
RATIO GREATER THAN OR EQUAL AND GREATER THAN OR EBITDA RATIO LESS
TO 3.25:1.00 EQUAL TO 2.50:1.00 THAN 2.50:1.00
---------------------------- ------------------------- -----------------
<S> <C> <C> <C>
Commitment Fees 0% 0.0625% 0.125%
ABR Tranche A Term 0% 0.25% 0.50%
Loans and Revolving
Loans
Eurodollar Tranche A 0% 0.25% 0.50%
Term Loans and
Revolving Loans
</TABLE>
Each change in the Pricing Adjustment resulting from a change in the
Debt/Adjusted EBITDA Ratio shall become effective with respect to all
outstanding Loans and Commitments on the Business Day after the date of receipt
by the Administrative Agent of the financial statements and certificates
required by Section 5.04(a) or (b) indicating such change until the date
immediately preceding the next date of delivery of such financial statements and
certificates indicating another such change. Notwithstanding the foregoing,
(i) the Pricing Adjustment shall be 0% for 12 months after the Closing
Date,
(ii) at any time during which the Borrower has failed to deliver the
financial statements and certificates required by Section 5.04(a) or (b),
the Debt/Adjusted EBITDA Ratio shall be deemed to be in Category 1 for
purposes of determining the Pricing Adjustment; and
(iii) at any time after the occurrence and during the continuance of
an Event of Default relating to Section 7.01(b), (c), or (d) (but only with
respect to breaches of the covenants contained in Section 6.09 through
Section 6.13), the Debt/Adjusted EBITDA Ratio shall be deemed to be in
Category 1 for purposes of determining the Pricing Adjustment.
"Pricing Adjustment Certificate" means an pricing adjustment certificate
delivered by the Borrower to the Administrative Agent, in the form of Exhibit N
or such other form as shall be approved by the Administrative Agent.
"Property" means, with respect to any person, any interest of such person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
person.
"Public Equity Offering" means an underwritten public offering of common
stock of the Borrower pursuant to an effective registration statement under the
Securities Act.
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<PAGE>
"Recapitalization" means the transactions described in Annex 3, and
includes any other transactions incidental thereto.
"Recapitalization Agreement" means the Recapitalization Agreement, dated as
of [ ], 1998, among Acquisition Co. and the Borrower, as amended
and otherwise modified from time to time with the consent of the Administrative
Agent and the Syndication Agent, together with any other agreement, instrument
or other document to be entered into or delivered by, between or among the
Borrower, the Acquisition Co., FSC and any of their respective Affiliates in
connection with the Recapitalization, as each such agreement, instrument or
document may be amended, modified or supplemented from time to time in
accordance with the terms thereof and hereof.
"Redeemable Dividend" means, for any dividend with respect to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable, in either case at the option of the holder
thereof,) or otherwise (a) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable, in either case at the option of the holder
thereof, for Debt or Disqualified Stock.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the Closing Date or Incurred
in compliance with this Agreement ((including (a) Indebtedness of the Borrower
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in this Agreement), (b) Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary, and (c) Indebtedness
that refinances Refinancing Indebtedness); provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
refinanced and (iii) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced, plus fees, underwriting
discounts and other costs and expenses incurred in connection with such
Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
is not a Subsidiary Guarantor that refinances Indebtedness of the Borrower or
(y) Indebtedness of the Borrower or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Register" is defined in Section 9.04(d).
"Regulation T" means Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
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"Regulation X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulatory Shares" means, with respect to any person, shares of such
person required to be issued as qualifying shares to directors or persons
similarly situated or shares issued to persons other than the Borrower or a
wholly owned Restricted Subsidiary of the Borrower in response to regulatory
requirements of foreign jurisdictions pursuant to a resolution of the Board of
Directors of such person, so long as such shares do not exceed 1% of the total
outstanding shares of Capital Stock of such person and any owners of such shares
irrevocably waive or agree to remit to the Borrower any dividends or
distributions payable in respect of such shares.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" means (a) "remedial action" as such term is defined in
CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the environment;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the environment; or (iii) perform studies and
investigations in connection with, or as a precondition to, clause (i) or (ii).
"Required Lenders" means, at any time, Lenders having Loans (excluding
Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit
Commitments and Term Loan Commitments representing greater than 50% of the sum
of all Loans outstanding (excluding Swingline Loans), L/C Exposure, Swingline
Exposure and unused Revolving Credit Commitments and Term Loan Commitments at
such time.
"Responsible Officer" of any corporation means any executive officer or
Financial Officer of such corporation and any other officer or similar official
thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Restricted Asset Disposition" means any sale, transfer, lease or other
disposition of any asset of the Borrower or any Subsidiary other than an
Unrestricted Asset Disposition.
"Restricted Payment" is defined in Section 6.05(a).
"Restricted Sale/Leaseback Transaction" means any Sale/Leaseback
Transaction other than an Unrestricted Sale/Leaseback Transaction.
"Restricted Subsidiary" means any Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
"Revolving Credit Borrowing" means a Borrowing comprised of Revolving
Loans.
"Revolving Credit Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans hereunder as set forth on
Annex I, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Revolving Credit Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
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"Revolving Credit Exposure" means, with respect to any Lender at any time,
the aggregate principal amount at such time of all outstanding Revolving Loans
of such Lender, plus the aggregate amount at such time of such Lender's L/C
Exposure, plus the aggregate amount at such time of such Lender's Swingline
Exposure.
"Revolving Credit Lender" means a Lender with a Revolving Credit
Commitment.
"Revolving Credit Maturity Date" means the last day of the fiscal quarter
of the Borrower in which the fifth anniversary of the Closing Date occurs.
"Revolving Credit Note" means a promissory note of the Borrower,
substantially in the form of Exhibit C, evidencing Revolving Loans.
"Revolving Loans" means the revolving loans made by the Lenders to the
Borrower pursuant to clause (c) of Section 2.01. Each Revolving Loan shall be a
Eurodollar Revolving Loan or an ABR Revolving Loan.
"S&P" means Standard & Poor's Ratings Service.
"Sale/Leaseback Transactions" means any arrangement, directly or
indirectly, with any person whereby it shall sell or transfer any property, real
or personal, used or useful in its business, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
"Secured Parties" is defined in the Security Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, substantially in the
form of Exhibit I, between the Borrower, the Subsidiaries party thereto and the
Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Mortgages, the Security Agreement, the
Pledge Agreement and each of the security agreements, mortgages and other
instruments and documents executed and delivered pursuant to any of the
foregoing or pursuant to Section 5.11.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Statutory Reserves" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the Administrative Agent or any Lender (including any branch,
Affiliate, or other fronting office making or holding a Loan) is subject (a)
with respect to the Base CD Rate, for new negotiable nonpersonal time deposits
in dollars of over $100,000 with maturities approximately equal to three months,
and (b) with respect to the Adjusted Eurodollar Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such reserve percentages
shall include those imposed pursuant to such Regulation D. Eurodollar Loans
shall
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be deemed to constitute Eurocurrency Liabilities and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subordinated Obligation" means any Indebtedness of the Borrower or any
Subsidiary (whether outstanding on the Closing Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or the
applicable Guarantee pursuant to a written agreement to that effect.
"subsidiary" means, with respect to any person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held, or (b) that is, at the time any determination
is made, otherwise Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee Agreement,
substantially in the form of Exhibit L, made by the Subsidiary Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties.
"Subsidiary Guarantor" means each Subsidiary listed on Schedule 1.01(c),
and each other Subsidiary that is or becomes a party to a Subsidiary Guarantee
Agreement.
"Swingline Commitment" means the commitment of the Swingline Lender to make
loans pursuant to Section 2.22, as the same may be reduced from time to time
pursuant to Section 2.09.
"Swingline Exposure" means at any time the aggregate principal amount at
such time of all outstanding Swingline Loans. The Swingline Exposure of any
Revolving Credit Lender at any time shall equal its Applicable Percentage of the
aggregate Swingline Exposure at such time.
"Swingline Lender" is defined in the Preamble.
"Swingline Loan" means any loan made by the Swingline Lender pursuant to
Section 2.22.
"Swingline Note" means a promissory note evidencing Swingline Loans,
executed and delivered as provided in Section 2.22 in substantially the form of
Exhibit D.
"Syndication Agent" is defined in the Preamble.
"Taxes" is defined in Section 2.20(a).
"Term Borrowing" means a Borrowing comprised of Tranche A Term Loans or
Tranche B Term Loans.
"Term Loan Commitments" means the Tranche A Commitments and the Tranche B
Commitments.
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"Term Loan Repayment Date" means any Tranche A Repayment Date or Tranche B
Repayment Date.
"Term Loans" means Tranche A Term Loans and Tranche B Term Loans.
"Term Note" means a promissory note of the Borrower, substantially in the
form of Exhibit B, evidencing Term Loans.
"Total Revolving Credit Commitment" means, at any time, the aggregate
amount of the Revolving Credit Commitments, as in effect at such time.
"Tranche A Commitment" means, with respect to each Lender, the commitment
of such Lender to make Tranche A Term Loans hereunder as set forth on Schedule
2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed
its Tranche A Commitment, as applicable, as the same may be (a) reduced from
time to time pursuant to Section 2.09 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 9.04.
"Tranche A Lenders" means Lenders having outstanding Tranche A Term Loans.
"Tranche A Maturity Date" means the date that is the fifth anniversary of
the Closing Date.
"Tranche A Term Borrowing" means a Borrowing comprised of Tranche A Term
Loans.
"Tranche A Repayment Date" shall have the meaning set forth in Section
2.11(a)(i).
"Tranche A Term Loans" means the terms loans made by the Lenders to the
Borrower pursuant to clause (a) of Section 2.01. Each Tranche A Term Loan shall
be either a Eurodollar Term Loan or an ABR Term Loan.
"Tranche B Commitment" means, with respect to each Lender, the commitment
of such Lender to make Tranche B Term Loans hereunder as set forth in Annex 1,
or in the Assignment and Acceptance pursuant to which such Lender assumed its
Tranche B Commitment, as applicable, as the same may be (a) reduced from time to
time pursuant to Section 2.09 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 9.04.
"Tranche B Lenders" means Lenders having outstanding Tranche B Term Loans.
"Tranche B Maturity Date" means the date that is the seventh anniversary of
the Closing Date.
"Tranche B Term Borrowing" means a Borrowing comprised of Tranche B Term
Loans.
"Tranche B Repayment Date" shall have the meaning set forth in Section
2.11(a)(ii).
"Tranche B Term Loans" means the term loans made by the Lenders to the
Borrower pursuant to clause (b) of Section 2.01. Each Tranche B Term Loan shall
be either a Eurodollar Term Loan or an ABR Term Loan.
"Transaction Costs" means commitment fees, financing fees, advisory fees,
underwriting
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fees and discounts, and other out-of-pocket fees and expenses relating to the
Recapitalization, excluding any expenses of the Current Owners which are
deducted from the Redemption Amount.
"Transactions" is defined in Section 3.02.
"Transferee" is defined in Section 2.20(a).
"Type", when used in respect of any Loan or Borrowing, shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, the term "Rate" shall include the
Adjusted Eurodollar Rate and the Alternate Base Rate.
"Unrestricted Asset Disposition" means, on a consolidated basis with
respect to the Borrower or any wholly owned Restricted Subsidiary, any sale,
transfer, lease or other disposition of any inventory, cash, Permitted
Investment, or obsolete or unusable Property of the Borrower or any such wholly
owned Restricted Subsidiary in the ordinary course of business and not otherwise
in violation of this Agreement.
"Unrestricted Sale/Leaseback Transaction" mean any Sale/Leaseback
Transaction which does not involve a sale or transfer of property which is owned
by the Borrower or its Restricted Subsidiaries on the Closing Date (or any
replacements thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Borrower that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors of the Borrower in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Borrower may designate any Subsidiary of the Borrower (including any newly
acquired or newly formed Subsidiary of the Borrower) to be an Unrestricted
Subsidiary; provided, however, that (A) such Subsidiary and none of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Borrower or any other Subsidiary of the Borrower
that is not a Subsidiary of the Subsidiary to be so designated, and (B) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"wholly owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of which securities (except for Regulatory Shares) or other ownership
interests representing 100% of the equity or 100% of the ordinary voting power
or 100% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held by the Borrower or one or more wholly
owned Restricted Subsidiaries of the Borrower or by the Borrower and one or more
wholly owned Restricted Subsidiaries of the Borrower.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
"Work" is defined in Section 5.12(e).
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever
the context may require, any
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pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation". All references herein to Articles, Sections,
Annexes, Exhibits and Schedules shall be deemed references to Articles and
Sections of, and Annexes, Exhibits and Schedules to, this Agreement unless the
context shall otherwise require. Except as otherwise expressly provided herein,
(a) any reference in this Agreement to any Credit Document means such document
as amended, restated, supplemented or otherwise modified from time to time and
(b) all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided, however, that
for purposes of determining compliance with the covenants contained in Article
VI, all accounting terms herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP as in effect on
the date of this Agreement and applied on a basis consistent with the
application used in the financial statements referred to in Section 3.05(a).
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, each Lender agrees,
severally and not jointly, (a) to make a single Tranche A Term Loan to the
Borrower on the Closing Date in a principal amount not to exceed its Tranche A
Commitment, (b) to make a single Tranche B Term Loan to the Borrower on the
Closing Date in a principal amount not to exceed its Tranche B Commitment, and
(c) to make Revolving Loans to the Borrower, at any time and from time to time
on or after the date hereof, and until the earlier of the Revolving Credit
Maturity Date and the termination of the Revolving Credit Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in (i) such Lender's Revolving Credit
Exposure exceeding (ii) such Lender's Revolving Credit Commitment. Within the
limits set forth in clause (c) of the preceding sentence and subject to the
terms, conditions and limitations set forth herein, the Borrower may borrow, pay
or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of
Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall be
made as part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their applicable Revolving Credit Commitments; provided,
however, that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). Except
for Loans deemed made pursuant to Section 2.02(e) or pursuant to Section
2.22(e), the Loans comprising any Borrowing shall be in an aggregate principal
amount that is (i) in the case of Eurodollar Loans, an integral multiple of
$1,000,000 and not less than $3,500,000, (ii) in the case of ABR Loans, an
integral multiple of $100,000 and not less than $1,000,000 or (iii) equal to the
remaining available balance of the applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant
to Section 2.03. Each Lender may at its option make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement and the applicable Note. Borrowings of more than one Type may be
outstanding at the same time; provided, however, that the Borrower shall not be
entitled to request any
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Borrowing that, if made, would result in more than five Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to Section 2.02(e), each
Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds to such account in New
York City as the Administrative Agent may designate not later than 11:00 a.m.,
New York City time, and the Administrative Agent shall by 12:00 (noon), New York
City time, credit the amounts so received to an account in the name of the
Borrower and designated by the Borrower in the applicable Borrowing Request or,
if a Borrowing shall not occur on such date because any condition precedent
herein specified shall not have been met, return the amounts so received to the
respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with clause (c) and the Administrative Agent may, in reliance upon
such assumption, make available to the Borrower on such date a corresponding
amount. If the Administrative Agent shall have so made funds available then, to
the extent that such Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of the Borrower, the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Lender, for the
first three such days, the Federal Funds Effective Rate, and for each day
thereafter, the Alternate Base Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
(e) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.23(e) within the time specified in such
Section, the Issuing Bank will promptly notify the Administrative Agent of the
L/C Disbursement and the Administrative Agent will promptly notify each
Revolving Credit Lender of such L/C Disbursement and its Applicable Percentage
thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately
available funds to the Administrative Agent not later than 2:00 p.m., New York
City time, on such date of notification (or, if such Revolving Credit Lender
shall have received such notice later than 12:00 (noon), New York City time, on
any day, not later than 10:00 a.m., New York City time, on the immediately
following Business Day), an amount equal to such Lender's Applicable Percentage
of such L/C Disbursement (it being understood that such amount shall be deemed
to constitute an ABR Revolving Loan of such Lender and such payment shall be
deemed to have reduced the L/C Exposure), and the Administrative Agent will
promptly pay to the Issuing Bank amounts so received by it from the Revolving
Credit Lenders. The Administrative Agent will promptly pay to the Issuing Bank
any amounts received by it from the Borrower pursuant to Section 2.23(e) prior
to the time that any Revolving Credit Lender makes any payment pursuant to this
clause; any such amounts received by the Administrative Agent thereafter will be
promptly remitted by the Administrative Agent to the Revolving Credit Lenders
that shall have made such payments and to the Issuing Bank, as their interests
may appear. If any Revolving Credit Lender shall not have made its Applicable
Percentage of such L/C Disbursement available to the Administrative Agent as
provided above, such Lender and the Borrower severally agree to pay interest on
such amount, for each day from and including the date such amount is required to
be
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paid in accordance with this clause to but excluding the date such amount is
paid, to the Administrative Agent for the account of the Issuing Bank at (i) in
the case of the Borrower, a rate per annum equal to the interest rate applicable
to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such
Lender, for the first such day, the Federal Funds Effective Rate, and for each
day thereafter, the Alternate Base Rate.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other
than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(e), as to
which this Section shall not apply), the Borrower shall hand deliver or telecopy
to the Administrative Agent a duly completed Borrowing Request (a) in the case
of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before a proposed Borrowing, and (b) in the case of an ABR
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall
be signed by or on behalf of the Borrower and shall specify the following
information: (i) whether the Borrowing then being requested is to be a Term
Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a
Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which
shall be a Business Day), (iii) the number and location of the account to which
funds are to be disbursed (which shall be an account that complies with the
requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if
such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect
thereto; provided, however, that, notwithstanding any contrary specification in
any Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. Any Borrowing made on the Closing Date
shall be an ABR Borrowing. If no election as to the Type of Borrowing is
specified in any such notice, then the requested Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is
specified in any such notice, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration. The Administrative Agent shall
promptly advise the applicable Lenders of any notice given pursuant to this
Section, and of each Lender's portion of the requested Borrowing.
SECTION 2.04. Notes and Records. (a) The Revolving Loans, Term Loans and
Swingline Loans made by each Lender shall be evidenced by a Revolving Credit
Note, Term Note and Swingline Note, respectively, duly executed on behalf of the
Borrower, dated the Closing Date, payable to the order of such Lender in a
principal amount equal to such Lender's Revolving Credit Commitment, in the case
of its Revolving Credit Note, such Lender's Term Commitment, in the case of its
Term Note or such Lender's Swingline Commitment, in the case of its Swingline
Note. The outstanding principal balance of each Loan, as evidenced by such a
Note, shall be payable (i) in the case of a Swingline Loan, on the last day of
the Interest Period applicable to such Loan and on the Revolving Credit Maturity
Date, (ii) in the case of a Revolving Loan, on the Revolving Credit Maturity
Date and (iii) in the case of a Term Loan, as provided in Section 2.11.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement. Each Lender shall, and is hereby authorized by the
Borrower to, endorse on the schedule attached to each Note delivered to such
Lender (or on a continuation of such schedule attached to such Note and made a
part thereof), or otherwise to record in such Lender's internal records, an
appropriate notation evidencing the date and amount of each Loan from such
Lender, each payment and prepayment of principal of any such Loan, each payment
of interest on any such Loan and the other information provided for on such
schedule; provided, however, that the failure of any Lender to make such a
notation or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Loans made by such Lender in accordance with the terms
of this Agreement and the
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applicable Note.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower or any Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to clauses (b)
and (c) shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through
the Administrative Agent, on March 31, June 30, September 30 and December 31
(beginning on September 30, 1998) and on each date on which any Commitment of
such Lender shall expire or be terminated as provided herein, a commitment fee
(a "Commitment Fee") of 0.50% per annum less the applicable Pricing Adjustment
on the average daily excess of the aggregate amount of the Revolving Credit
Commitments over the aggregate amount of the Revolving Credit Exposures during
the preceding quarter (or other period commencing with the Closing Date or
ending with the Revolving Credit Maturity Date or the date on which the
Commitments of such Lender shall expire or be terminated). All Commitment Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days. The Commitment Fee due to each Lender shall begin to accrue on the
date of execution of this Agreement and shall cease to accrue on the date on
which the Commitment of such Lender shall expire or be terminated as provided
herein. For purposes of calculating Commitment Fees only, no portion of the
Revolving Credit Commitments shall be deemed utilized under Section 2.17 as a
result of outstanding Swingline Loans.
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the administrative fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrower agrees to pay to the Administrative Agent, for payment to
the other Lenders (to the extent applicable), on the Closing Date, the other
fees specified in the Fee Letter, and the Administrative Agent shall pay to each
Lender on the Closing Date that portion of such fees that shall be owing to such
Lender.
(d) The Borrower agrees to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on March 31, June 30, September 30 and
December 31 of each year and on the date on which the Revolving Credit
Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C
Participation Fee") calculated on such Lender's Applicable Percentage of the
average daily aggregate L/C Exposure (excluding the portion thereof attributable
to unreimbursed L/C Disbursements) during the preceding quarter (or shorter
period commencing with the date hereof or ending with the Revolving Credit
Maturity Date or the date on which all Letters of Credit have been canceled or
have expired and the Revolving Credit Commitments of all Lenders shall have been
terminated) at a rate equal to the applicable margin from time to time used to
determine the interest rate on Revolving Credit Borrowings comprised of
Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with
respect to each Letter of Credit an administrative fee payable to the Issuing
Bank equal to the greater of (a) for the period from and after the date of
issuance thereof (or, with respect to Existing Letters of
28
<PAGE>
Credit, for the period from and after the Closing Date), 1/4 of 1% per annum of
the maximum amount available from time to time to be drawn under such Letter of
Credit, in each case calculated in arrears on and through the last day of each
Fiscal Quarter and on the basis of a 360-day year and the actual number of days
elapsed and (b) $500, and payable on the Business Day immediately succeeding
such date of calculation in immediately available funds, and (iii) the standard
issuance, drawing and amendment fees specified from time to time by the Issuing
Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days.
All Fees shall be paid on the dates due, in immediately available funds,
to the Administrative Agent for distribution, if and as appropriate, among the
Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing
Bank. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section
2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan,
shall bear interest (computed on the basis of the actual number of days elapsed
over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate
is determined by reference to the Prime Rate and over a year of 360 days at all
other times) at a rate per annum equal to the Alternate Base Rate plus (i) with
respect to Tranche B Term Loans, 1.75% or (ii) with respect to Tranche A Term
Loans and Revolving Loans, 1.50% less the applicable Pricing Adjustment.
(b) Subject to the provisions of Section 2.07, the Loans comprising each
Eurodollar Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted Eurodollar Rate for the Interest Period in effect for such Borrowing
plus (i) with respect to Tranche B Term Loans, 2.75% or (ii) with respect to
Tranche A Term Loans and Revolving Loans, 2.50% less the applicable Pricing
Adjustment.
(c) Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period. Interest on each
Loan shall be payable on the Interest Payment Dates applicable to such Loan
except as otherwise provided in this Agreement. The applicable Alternate Base
Rate or Adjusted Eurodollar Rate for each Interest Period or day within an
Interest Period, as the case may be, shall be determined by the Administrative
Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Credit Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06(a) plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Prime Rate and over a year
of 360 days at all other times) equal to the sum of the Alternate Base Rate plus
2.00%.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing any Lender shall have determined that
dollar deposits in the principal amounts of the Loans comprising such Borrowing
are not generally available to it in the Eurodollar interbank market, or that
the rates at which such dollar deposits are being offered will not adequately
and
29
<PAGE>
fairly reflect the cost to such Lender of making or maintaining its Eurodollar
Loan during such Interest Period, or that the Administrative Agent shall have
determined that reasonable means do not exist for ascertaining the Adjusted
Eurodollar Rate as soon as practicable thereafter, the affected Lender shall
give written or telecopy notice thereof to the Administrative Agent, and/or the
Administrative Agent shall, give written or telecopy notice thereof to the
Borrower and the Lenders. In the event of any such determination, until the
affected Lender or the Administrative Agent, as the case may be, shall have
given notice that the circumstances giving rise to such notice no longer exist,
any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03
or 2.10, from the affected Lender or the Lenders, as the case may be, shall be
deemed to be a request for an ABR Borrowing. Each determination by such Lender
or the Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan
Commitments hereunder shall terminate on the earliest of (i) the date on which
the Borrower informs the Lenders that it has decided not to proceed with the
Recapitalization, (ii) the date on which the Recapitalization Agreement is
terminated in accordance with its terms or (iii) 5:00 p.m., New York City time,
on June 30, 1998, if the initial Credit Event is not made on or before such
date. The Revolving Credit Commitments, the Swingline Commitment and the L/C
Commitment shall automatically terminate on the earliest of (i) the Revolving
Credit Termination Date, (ii) the date on which the Borrower informs the Lenders
that it has decided not to proceed with the Recapitalization, (iii) the date on
which the Recapitalization Agreement is terminated in accordance with its terms
or (iv) 5:00 p.m., New York City time, on June 30, 1998, if the initial Credit
Event shall not have occurred by such time.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Term Loan Commitments or the Revolving Credit Commitments; provided,
however, that (i) each partial reduction of the Term Loan Commitments or the
Revolving Credit Commitments shall be in (1) an integral multiple of $1,000,000
and in a minimum amount of $1,000,000 or (2) in the full remaining amount of the
Term Loan Commitments or the Revolving Credit Commitments, as the case may be,
and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount
that is less than the sum of the Aggregate Revolving Credit Exposure at the
time. In addition, if no Term Loans are outstanding, the Revolving Credit
Commitments shall automatically be reduced by the amount of any mandatory
prepayment that would otherwise have been applied to the prepayment of Term
Loans pursuant to Section 2.13(g).
(c) Each reduction in the Term Loan Commitments or the Revolving Credit
Commitments hereunder shall be made ratably among the Lenders in accordance with
their respective applicable Commitments. The Borrower shall pay to the
Administrative Agent for the account of the applicable Lenders, on the date of
each termination or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to but excluding the date of such
termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall
have the right at any time by delivery of a Continuation/Conversion Request (or
by telephonic notice promptly confirmed by delivery of a Continuation/Conversion
Request) to the Administrative Agent (a) not later than 11:00 a.m., New York
City time, one Business Day prior to conversion, to convert any Eurodollar
Borrowing into an ABR Borrowing, (b) not later than 11:00 a.m., New York City
time, three Business Days prior to conversion or continuation, to convert any
ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar
Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c)
not later than 11:00 a.m., New
30
<PAGE>
York City time, three Business Days prior to conversion, to convert the Interest
Period with respect to any Eurodollar Borrowing to another permissible Interest
Period, subject in each case to the following:
(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting Borrowing
shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b)
regarding the principal amount and maximum number of Borrowings of the
relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the new
Loan of such Lender resulting from such conversion and reducing the Loan
(or portion thereof) of such Lender being converted by an equivalent
principal amount; accrued interest on any Eurodollar Loan (or portion
thereof) being converted shall be paid by the Borrower at the time of
conversion;
(iv) if any Eurodollar Borrowing is converted at a time other than
the end of the Interest Period applicable thereto, the Borrower shall pay,
upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(v) any portion of a Borrowing maturing or required to be repaid in
less than one month may not be converted into or continued as a Eurodollar
Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be converted
into or continued as a Eurodollar Borrowing by reason of the immediately
preceding clause shall be automatically converted at the end of the
Interest Period in effect for such Borrowing into an ABR Borrowing;
(vii) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Tranche A Repayment Date or Tranche B
Repayment Date, as applicable, occurring on or after the first day of such
Interest Period if, after giving effect to such selection, the aggregate
outstanding amount of (A) the Eurodollar Term Borrowings with Interest
Periods ending on or prior to such Term Loan Repayment Date and (B) the ABR
Term Borrowings would not be at least equal to the principal amount of Term
Borrowings to be paid on such Term Loan Repayment Date;
(viii) no Interest Period applicable to a Revolving Loan may end
later than the Revolving Credit Maturity Date, and no Interest Period
applicable to a Term Loan may end later than the Term Loan Maturity Date;
and
(ix) upon notice to the Borrower from the Administrative Agent given
at the request of the Required Lenders, after the occurrence and during the
continuance of a Default or Event of Default, no outstanding Loan may be
converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section shall be irrevocable and shall refer
to this Agreement and specify (A) the identity and amount of the Borrowing that
the Borrower requests be converted or continued, (B) whether such Borrowing is
to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing,
(C) if such notice requests a conversion, the date of
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<PAGE>
such conversion (which shall be a Business Day) and (D) if such Borrowing is to
be converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall advise the Lenders of any notice given
pursuant to this Section and of each Lender's portion of any converted or
continued Borrowing. If the Borrower shall not have given notice in accordance
with this Section to continue any Borrowing into a subsequent Interest Period
(and shall not otherwise have given notice in accordance with this Section to
convert such Borrowing), such Borrowing shall, at the end of the Interest Period
applicable thereto (unless repaid pursuant to the terms hereof), automatically
be continued into a new Interest Period as an ABR Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) (i) The principal of the
Tranche A Term Loans shall be payable in quarterly installments on the following
dates (each such date being called a "Tranche A Repayment Date") in the
following amounts:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
AMOUNT OF REPAYMENT
DATE -----------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 1,000,000 1,000,000 1,750,000 3,000,000 3,500,000
- ---------------------------------------------------------------------------------------
June 30 1,000,000 1,000,000 1,750,000 3,000,000 3,500,000
- ---------------------------------------------------------------------------------------
September 30 1,000,000 1,750,000 3,000,000 3,500,000
- ---------------------------------------------------------------------------------------
December 31 1,000,000 1,000,000 1,750,000 3,000,000 3,500,000
- ---------------------------------------------------------------------------------------
</TABLE>
(ii) The principal of the Tranche B Term Loans shall be payable in
quarterly installments on the following dates (each such date being called a
"Tranche B Repayment Date") in the following amounts:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
AMOUNT OF REPAYMENT
DATE -----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 $150,0 $150,0 $150,00 $150, $150,0 $5,750, $8,500,0
00 00 0 000 00 000 00
- ------------------------------------------------------------------------------------------
June 30 $150,0 $150,0 $150,00 $150, $150,0 $5,750, $8,500,0
00 00 0 000 00 000 00
- ------------------------------------------------------------------------------------------
September $150,0 $150,0 $150,0 $150,00 $150, $5,750, $8,500,
30 00 00 00 0 000 000 000
- ------------------------------------------------------------------------------------------
December $150,0 $150,0 $150,0 $150,00 $150, $5,750, $8,500,
31 00 00 00 0 000 000 000
- ------------------------------------------------------------------------------------------
</TABLE>
(b) Each payment of Term Borrowings pursuant to this Section shall be
accompanied by accrued interest on the principal amount paid to but excluding
the date of payment.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any
time and
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<PAGE>
from time to time to prepay any Borrowing, in whole or in part, upon at least
three Business Days' prior written or telecopy notice (or telephone notice
promptly confirmed by written or telecopy notice) to the Administrative Agent
before 11:00 a.m., New York City time; provided, however, that each partial
prepayment shall be in an amount that is an integral multiple of $1,000,000 and
not less than $1,000,000.
(b) Optional prepayments of Term Loans shall be allocated pro rata between
the then-outstanding Tranche A Term Loans and Tranche B Term Loans and applied
(i) first, to scheduled amortization payments due within 12 calendar months
thereafter, and (ii) second, pro rata against the remaining scheduled
installments of principal due in respect of the Tranche A Term Loans and Tranche
B Term Loans.
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the amount
stated therein on the date stated therein. All prepayments under this Section
shall be subject to Section 2.16 but otherwise without premium or penalty. All
prepayments under this Section shall be accompanied by accrued interest on the
principal amount being prepaid to the date of payment.
SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination
of all the Revolving Credit Commitments, the Borrower shall repay or prepay all
its outstanding Revolving Credit Borrowings and all outstanding Swingline Loans
on the date of such termination. In the event of any partial reduction of the
Revolving Credit Commitments, then (i) at or prior to the effective date of such
reduction, the Administrative Agent shall notify the Borrower and the Revolving
Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect
thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the
Total Revolving Credit Commitment after giving effect to such reduction or
termination, then the Borrower shall, on the date of such reduction or
termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or
a combination thereof) in an amount sufficient to eliminate such excess.
(b) (i) With respect to any Restricted Sale/Leaseback Transaction, not
later than the third Business Day following the completion of such Restricted
Sale/Leaseback Transaction, and (ii) with respect to any Restricted Asset
Disposition upon the first to occur of the following: (A) not later than the
third Business Day following the completion of any Restricted Asset Disposition
if the Borrower does not intend to reinvest the Net Cash Proceeds thereof, as
set forth in the definition of Net Cash Proceeds, (B) promptly after the date on
which the Borrower determines not to reinvest the Net Cash Proceeds thereof as
set forth in the definition of Net Cash Proceeds, and (C) the first anniversary
of the date thereof, the Borrower shall apply 100% of the Net Cash Proceeds, if
any, received with respect thereto to prepay outstanding Term Loans and/or
reduce the Revolving Credit Commitment in accordance with Section 2.13(g).
(c) In the event and on each occasion that
(i) an Equity Issuance occurs as part of an initial public
offering of the Capital Stock of the Borrower, the Borrower shall,
substantially simultaneously with (and in any event not later than the
third Business Day next following) the occurrence of such Equity
Issuance, apply Net Cash Proceeds therefrom in an amount equal to 50%
of the net cash proceeds of the Capital Stock sold in such initial
public offering (whether or not all such Capital Stock is offered by
the Borrower) to prepay outstanding Term Loans and/or reduce the
Revolving Credit Commitment in accordance with Section 2.13(g);
provided, however, that the remaining portion of such Net Cash
Proceeds shall be applied either (A) pursuant
33
<PAGE>
to Section 6.05(a)(iii) for the redemption of Exchangeable Preferred
Stock (including accreted PIK liquidation preference) or (B) to prepay
outstanding Term Loans and/or reduce the Revolving Credit Commitment
in accordance with Section 2.13(g); and
(ii) an Equity Issuance occurs other than as part of an initial
public offering of the Capital Stock of the Borrower, the Borrower
shall, substantially simultaneously with (and in any event not later
than the third Business Day next following) the occurrence of such
Equity Issuance, apply 100% of the Net Cash Proceeds therefrom to
prepay outstanding Term Loans and/or reduce the Revolving Credit
Commitment in accordance with Section 2.13(g), except to the extent
such proceeds are applied toward the consideration of a Permitted
Acquisition.
(d) Beginning with the fiscal year ending nearest to December 31, 1999, no
later than the earlier of (i) 90 days after the end of each fiscal year of the
Borrower, and (ii) the date on which the financial statements with respect to
such period are delivered pursuant to Section 5.04(a), the Borrower shall prepay
outstanding Term Loans in accordance with Section 2.13(g) in an aggregate
principal amount equal to 75% (or 50%, for fiscal years for which the
Debt/Adjusted EBITDA Ratio for such fiscal year is less than 3.50:1.00) of
Excess Cash Flow for the fiscal year then ended.
(e) In the event that any Credit Party or any subsidiary of a Credit Party
shall receive Net Cash Proceeds from the Incurrence of Debt of the Borrower or
any of its Subsidiaries (other than any proceeds of Debt permitted pursuant to
Section 6.01), the Borrower shall, substantially simultaneously with (and in any
event not later than the third Business Day next following) the receipt of such
Net Cash Proceeds by the Borrower or such Subsidiary, apply an amount equal to
100% of such Net Cash Proceeds to prepay outstanding Term Loans and/or reduce
the Revolving Credit Commitment in accordance with Section 2.13(g).
(f) In the event that there shall occur any Casualty or Condemnation and,
pursuant to Section 5.12, the Casualty Proceeds or Condemnation Proceeds, as the
case may be, are required to be used to prepay the Term Loans, then the Borrower
shall apply an amount equal to 100% of such Casualty Proceeds or Condemnation
Proceeds, as the case may be, to prepay outstanding Term Loans and/or reduce the
Revolving Credit Commitment in accordance with Section 2.13(g).
(g) Mandatory prepayments of outstanding obligations under this Agreement
pursuant to paragraphs (b) through (f) above shall, be allocated pro rata
between the then-outstanding Tranche A Term Loans and Tranche B Term Loans, and,
subject to paragraph (j) below, applied pro rata against the remaining scheduled
installments of principal due in respect of Tranche A Term Loans and Tranche B
Term Loans.
(h) The Borrower shall deliver to the Administrative Agent, at the time of
each prepayment required under this Section, (i) a certificate signed by a
Responsible Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) to the extent practicable,
at least three days prior written notice of such prepayment. Each notice of
prepayment shall specify the prepayment date, the Type of each Loan being
prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All prepayments of Borrowings under this Section shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
(i) Subject to paragraph (g), amounts to be applied pursuant to this
Section to the
34
<PAGE>
prepayment of Term Loans and Revolving Loans shall be applied, as applicable,
first to reduce outstanding ABR Term Loans and ABR Revolving Loans. Any amounts
remaining after each such application shall, at the option of the Borrower, be
applied to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as the
case may be, immediately and/or shall be deposited in the Prepayment Account (as
defined below). The Administrative Agent shall apply any cash deposited in the
Prepayment Account (i) allocable to Term Loans to prepay Eurodollar Term Loans
and (ii) allocable to Revolving Loans to prepay Eurodollar Revolving Loans, in
each case on the last day of their respective Interest Periods (or, at the
direction of the Borrower, on any earlier date) until all outstanding Term Loans
or Revolving Loans, as the case may be, have been prepaid or until all the
allocable cash on deposit with respect to such Loans has been exhausted. For
purposes of this Agreement, the term "Prepayment Account" means an account
established by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal for application in accordance with this clause.
The Administrative Agent will, at the request of the Borrower, invest amounts on
deposit in the Prepayment Account in Permitted Investments that mature prior to
the last day of the applicable Interest Periods of the Eurodollar Term
Borrowings or Eurodollar Revolving Borrowings to be prepaid, as the case may be;
provided, however, that (i) the Administrative Agent shall not be required to
make any investment that, in its sole judgment, would require or cause the
Administrative Agent to be in, or would result in any, violation of any law,
statute, rule or regulation and (ii) the Administrative Agent shall have no
obligation to invest amounts on deposit in the Prepayment Account if a Default
or Event of Default shall have occurred and be continuing. The Borrower shall
indemnify the Administrative Agent for any losses relating to the investments so
that the amount available to prepay Eurodollar Borrowings on the last day of the
applicable Interest Period is not less than the amount that would have been
available had no investments been made pursuant thereto. Other than any interest
earned on such investments, the Prepayment Account shall not bear interest.
Interest or profits, if any, on such investments shall be deposited in the
Prepayment Account and reinvested and disbursed as specified above. If the
maturity of the Loans has been accelerated pursuant to Article VII, the
Administrative Agent may, in its sole discretion, apply all amounts on deposit
in the Prepayment Account to satisfy any of the Obligations. The Borrower hereby
grants to the Administrative Agent, for its benefit and the benefit of the
Issuing Bank, the Swingline Lender and the Lenders, a security interest in the
Prepayment Account to secure the Obligations.
(j) Notwithstanding any other provisions of this Agreement, any Tranche B
Lender may elect, by giving written or telecopy notice to the Administrative
Agent (or telephonic notice promptly confirmed by written or telecopy notice) at
least one Business Day prior to any prepayment of Tranche B Term Loans required
to be made by the Borrower for the account of such Lender pursuant to paragraphs
(b) through (f) above, to refuse to accept all or the portion of such prepayment
specified in such notice, in which case the Administrative Agent shall apply
such amount instead to prepay Tranche A Term Loans pursuant to paragraph (g)
above, provided that no Tranche B Lender shall be entitled to make such election
if at the time thereof no Tranche A Loans are outstanding.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or the Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other amounts payable hereunder (other than changes in respect of
taxes based on the overall net income of such Lender or the Issuing Bank by the
jurisdiction in which such Lender or the Issuing Bank has its principal office
or by any political subdivision or taxing authority therein), or shall impose,
modify or deem
35
<PAGE>
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by any Lender or the
Issuing Bank (except any such reserve requirement which is reflected in the
Adjusted Eurodollar Rate) or shall impose on such Lender or the Issuing Bank or
the London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or participation
therein, and the result of any of the foregoing shall be to increase the cost to
such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or
increase the cost to any Lender of issuing or maintaining any Letter of Credit
or purchasing or maintaining a participation therein or to reduce the amount of
any sum received or receivable by such Lender or the Issuing Bank hereunder or
under the Notes (whether of principal, interest or otherwise) by an amount
deemed by such Lender or the Issuing Bank to be material, then the Borrower will
pay to such Lender or the Issuing Bank, as the case may be, upon demand such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Issuing Bank or any Lender's or the
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any Governmental Authority
has or would have the effect of reducing the rate of return on such Lender's or
the Issuing Bank's capital or on the capital of such Lender's or the Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made or participations in Letters of Credit purchased by such Lender pursuant
hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's or the
Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's
holding company with respect to capital adequacy) by an amount deemed by such
Lender or the Issuing Bank to be material, then from time to time the Borrower
shall pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender's or the Issuing Bank's holding company for any such reduction
suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as applicable, as specified in clause (a) or (b), and showing
the method of calculation in reasonable detail, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank the amount shown as due on any such certificate
delivered by it within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation. The
protection of this Section shall be available to each Lender and the Issuing
Bank regardless of any possible contention of the invalidity or inapplicability
of the law, rule, regulation, agreement, guideline or other change or condition
that shall have occurred or been imposed. If such Lender receives a refund of
any such amount, such Lender will promptly pay such amount over to the Borrower.
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SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision
of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter
(for the duration of such unlawfulness) be made by such Lender hereunder
(or be continued for additional Interest Periods and ABR Loans will not
thereafter (for such duration) be converted into Eurodollar Loans),
whereupon any request for a Eurodollar Borrowing (or to convert an ABR
Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing
for an additional Interest Period) shall, as to such Lender only, be deemed
a request for an ABR Loan (or a request to continue an ABR Loan as such for
an additional Interest Period or to convert a Eurodollar Loan into an ABR
Loan, as the case may be), unless such declaration shall be subsequently
withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans as of the effective
date of such notice as provided in clause (b).
In the event any Lender shall exercise its rights under clause (i) or (ii), all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section, a notice to the Borrower by any Lender
shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on
the last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of receipt
by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against
any loss or expense that such Lender may sustain or incur as a consequence of
(a) any event, other than a default by such Lender in the performance of its
obligations hereunder, which results in (i) such Lender receiving or being
deemed to receive any amount on account of the principal of any Eurodollar Loan
prior to the end of the Interest Period in effect therefor, (ii) the conversion
of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period
with respect to any Eurodollar Loan, in each case other than on the last day of
the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made
by such Lender (including any Eurodollar Loan to be made pursuant to a
conversion or continuation under Section 2.10) not being made after notice of
such Loan shall have been given by the Borrower hereunder (any of the events
referred to in this clause being called a "Breakage Event") or (b) any default
in the making of any payment or prepayment required to be made hereunder. In
the case of any Breakage Event, such loss shall include an amount equal to the
excess, as reasonably determined by such Lender, of (i) its cost of obtaining
funds for the Eurodollar Loan that is the subject of such Breakage Event for the
period from the date of such Breakage Event to the last day of the Interest
Period in effect (or that would have been in effect) for such Loan over (ii) the
amount of interest likely to be realized by such Lender in redeploying the funds
released or not utilized by reason of such Breakage Event for such period. A
certificate of any Lender setting forth any amount or amounts which such Lender
is entitled to receive pursuant to this Section with calculations in reasonable
detail shall be delivered to the Borrower and shall be conclusive absent
manifest error.
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SECTION 2.17. Pro Rata Treatment. Except as provided below in this Section
with respect to Swingline Loans and as required under Sections 2.13(j) and
2.15, each Borrowing, each payment or prepayment of principal of any Borrowing,
each payment of interest on the Loans, each payment of the Commitment Fees, each
reduction of the Term Loan Commitments or the Revolving Credit Commitments and
each conversion of any Borrowing to or continuation of any Borrowing as a
Borrowing of any Type shall be allocated pro rata among the Lenders in
accordance with their respective applicable Commitments (or, if such Commitments
shall have expired or been terminated, in accordance with the respective
principal amounts of their outstanding Loans and participations in unreimbursed
drawings under Letters of Credit). For purposes of determining the available
Revolving Credit Commitments of the Lenders at any time, each outstanding
Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments
of the Lenders (including those Lenders which shall not have made Swingline
Loans) pro rata in accordance with such respective Revolving Credit Commitments.
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any other Credit Party, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of any
Loan or Loans or L/C Disbursement as a result of which the unpaid principal
portion of its Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and
participations in L/C Disbursements shall be proportionately less than the
unpaid principal portion of the Tranche A Term Loans, Tranche B Term Loans,
Revolving Loans and participations in L/C Disbursements of any other Lender, it
shall be deemed simultaneously to have purchased from such other Lender at face
value, and shall promptly pay to such other Lender the purchase price for, a
participation in the Tranche A Term Loans, Tranche B Term Loans, Revolving Loans
and L/C Exposure, as the case may be of such other Lender, so that the aggregate
unpaid principal amount of the Tranche A Term Loans, Tranche B Term Loans,
Revolving Loans and L/C Exposure and participations in Tranche A Term Loans,
Tranche B Term Loans, Revolving Loans and L/C Exposure held by each Lender shall
be in the same proportion to the aggregate unpaid principal amount of all
Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and L/C Exposure
then outstanding as the principal amount of its Tranche A Term Loans, Tranche B
Term Loans, Revolving Loans and L/C Exposure prior to such exercise of banker's
lien, setoff or counterclaim or other event was to the principal amount of all
Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and L/C Exposure
outstanding prior to such exercise of banker's lien, setoff or counterclaim or
other event; provided, however, that if any such purchase or purchases or
adjustments shall be made pursuant to this Section and the payment giving rise
thereto shall thereafter be recovered, such purchase or purchases or adjustments
shall be rescinded to the extent of such recovery and the purchase price or
prices or adjustment restored without interest. The Borrower consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Tranche A Term Loan, Tranche B Term Loan, Revolving Loan or L/C Disbursement
deemed to have been so purchased may exercise any and all rights of banker's
lien, setoff or counterclaim with respect to any and all moneys owing by the
Borrower to such Lender by reason thereof as fully as if such Lender had made a
Loan directly to the Borrower in the amount of such participation.
SECTION 2.19. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Credit Document not
later than 12:00 (noon), New York City
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time, on the date when due in immediately available dollars, without setoff,
defense or counterclaim. Each such payment (other than (i) Issuing Bank Fees,
which shall be paid directly to the Issuing Bank, and (ii) principal of and
interest on Swingline Loans, which shall be paid directly to the Swingline
Lender except as otherwise provided in Section 2.21(e)) shall be made to the
Administrative Agent at its offices at identified in Annex 2.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Credit
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by or on behalf of the
Borrower or any Credit Party hereunder and under any other Credit Document shall
be made, in accordance with Section 2.19, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding (i)
taxes imposed on the net income of the Administrative Agent, any Lender or the
Issuing Bank (or any transferee or assignee thereof, including a participation
holder (any such entity a "Transferee")) and (ii) franchise taxes imposed on the
net income of the Administrative Agent, any Lender or the Issuing Bank (or
Transferee), in each case by the jurisdiction under the laws of which the
Administrative Agent, such Lender or the Issuing Bank (or Transferee) is
organized (or where its lending office is located) or any political subdivision
thereof (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities, collectively or individually, being called
"Taxes"). If the Borrower or any Credit Party shall be required to deduct any
Taxes from or in respect of any sum payable hereunder or under any other Credit
Document to the Administrative Agent, any Lender or the Issuing Bank (or any
Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, such Lender or the Issuing Bank (or Transferee), as
the case may be, shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower or such Credit Party shall
make such deductions and (iii) the Borrower or such Credit Party shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay to the relevant Governmental
Authority in accordance with applicable law any current or future stamp,
documentary, excise, transfer, sales, property taxes, charges or similar levies
(including mortgage recording taxes and similar fees) that arise from any
payment made hereunder or under any other Credit Document or from the execution,
delivery, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Credit Document ("Other Taxes").
(c) The Borrower will indemnify the Administrative Agent, each Lender and
the Issuing Bank (or Transferee) for the full amount of Taxes and Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank (or
Transferee), as the case may be, and any liability (including penalties,
interest, expenses, and reasonable attorney's fees and disbursements (including
the allocated costs of in-house legal counsel)) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant Governmental Authority. A certificate as to
the amount of such payment or liability prepared by the Administrative Agent, a
Lender or the Issuing Bank (or Transferee), or the Administrative Agent on its
behalf showing calculations in reasonable detail, absent manifest error, shall
be final, conclusive and binding for all purposes. Such indemnification shall
be made within 30 days after the date the Administrative Agent, any Lender or
the Issuing Bank (or Transferee), as the case
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may be, makes written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes or Other
Taxes by the Borrower or any other Credit Party to the relevant Governmental
Authority, the Borrower or such other Credit Party will deliver to the
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing payment thereof.
(e) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Credit Documents. Such forms shall be delivered by each Non-U.S. Lender
on or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such
participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender.
Notwithstanding any other provision of this Section 2.20(e), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.20(e) that
such Non-U.S. Lender is not legally able to deliver.
(f) The Borrower shall not be required to indemnify any Non-U.S. Lender or
to pay any additional amounts to any Non-U.S. Lender, in respect of United
States Federal withholding tax pursuant to clause (a) or (c) to the extent that
(i) the obligation to withhold amounts with respect to United States Federal
withholding tax existed and would apply to payments made to such Non-U.S. Lender
on the date such Non-U.S. Lender became a party to this Agreement (or, in the
case of a Transferee that is a participation holder, on the date such
participation holder became a Transferee hereunder) or, with respect to payments
to a New Lending Office, the date such Non-U.S. Lender designated such New
Lending Office with respect to a Loan; provided, however, that this clause shall
not apply (x) to any Transferee or New Lending Office that becomes a Transferee
or New Lending Office as a result of an assignment, participation, transfer or
designation made at the request of the Borrower and (y) to the extent the
indemnity payment or additional amounts any Transferee, or any Lender (or
Transferee), acting through a New Lending Office, would be entitled to receive
(without regard to this clause) do not exceed the indemnity payment or
additional amounts that the person making the assignment, participation or
transfer to such Transferee, or Lender (or Transferee) making the designation of
such New Lending Office, would have been entitled to receive in the absence of
such assignment, participation, transfer or designation or (ii) the obligation
to pay such additional amounts would not have arisen but for a failure by such
Non-U.S. Lender to comply with the provisions of clause (e).
(g) Nothing contained in this Section shall require any Lender or the
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other
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information that it deems to be confidential or proprietary). If any Lender
receives a refund of any additional amount or any taxes paid by or on behalf of
such Lender, such Lender will promptly pay such amount over to the Borrower.
SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty
to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.15 or (iii) the
Borrower is required to pay any additional amount to any Lender or the Issuing
Bank or any Governmental Authority on account of any Lender or the Issuing Bank
pursuant to Section 2.20, the Borrower may, at its sole expense and effort
(including with respect to the processing and recordation fee referred to in
Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the
Administrative Agent, require such Lender or the Issuing Bank to transfer and
assign, without recourse (in accordance with and subject to the restrictions
contained in Section 9.04), all of its interests, rights and obligations under
this Agreement to an assignee identified by the Borrower that shall assume such
assigned obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided that (x) such assignment shall not conflict with any
law, rule or regulation or order of any court or other Governmental Authority
having jurisdiction, (y) the Borrower shall have received the prior written
consent of the Administrative Agent (and, if a Revolving Credit Commitment is
being assigned, of the Issuing Bank and the Swingline Lender), which consent
shall not unreasonably be withheld, and (z) the Borrower or such assignee shall
have paid to the affected Lender or the Issuing Bank in immediately available
funds an amount equal to the sum of the principal of and interest accrued to the
date of such payment on the outstanding Loans or L/C Disbursements of such
Lender or the Issuing Bank, respectively, plus all Fees and other amounts
accrued for the account of such Lender or the Issuing Bank hereunder (including
any amounts under Section 2.14 and Section 2.16); provided further that, if
prior to any such transfer and assignment the circumstances or event that
resulted in such Lender's or the Issuing Bank's claim for compensation under
Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to
Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank
to suffer increased costs or reductions in amounts received or receivable or
reduction in return on capital, or cease to have the consequences specified in
Section 2.15, or cease to result in amounts being payable under Section 2.20, as
the case may be (including as a result of any action taken by such Lender or the
Issuing Bank pursuant to clause (b)), or if such Lender or the Issuing Bank
shall waive its right to claim further compensation under Section 2.14 in
respect of such circumstances or event or shall withdraw its notice under
Section 2.15 or shall waive its right to further payments under Section 2.20 in
respect of such circumstances or event, as the case may be, then such Lender or
the Issuing Bank shall not thereafter be required to make any such transfer and
assignment hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation under
Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in
Section 2.15 or (iii) the Borrower is required to pay any additional amount to
any Lender or the Issuing Bank or any Governmental Authority on account of any
Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it to be significant) (x) to file any certificate or document reasonably
requested in writing by the Borrower or (y) to assign its rights and delegate
and transfer its obligations hereunder to another of its offices, branches or
affiliates, if such filing or assignment would materially reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant to
Section 2.15 or would materially reduce amounts payable pursuant to Section
2.20, as the case may be, in the future. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender or the Issuing Bank in
connection with
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any such filing or assignment, delegation and transfer.
SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the
terms and conditions and relying upon the representations and warranties herein
set forth, the Swingline Lender agrees to make loans to the Borrower at any time
and from time to time on and after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the Revolving Credit
Commitments in accordance with the terms hereof, in an aggregate principal
amount at any time outstanding that will not result in (i) the aggregate
principal amount of all Swingline Loans exceeding $5,000,000 in the aggregate or
(ii) the Aggregate Revolving Credit Exposure, after giving effect to any
Swingline Loan, exceeding the Total Revolving Credit Commitment. Each Swingline
Loan shall be in a principal amount that is an integral multiple of $100,000.
The Swingline Commitment may be terminated or reduced from time to time as
provided herein. Within the foregoing limits, the Borrower may borrow, pay or
prepay and reborrow Swingline Loans hereunder, subject to the terms, conditions
and limitations set forth herein.
(b) Swingline Loans. The Borrower shall notify the Administrative Agent
by telecopy or by telephone, not later than 1:00 p.m., New York City time, on
the day of a proposed Swingline Loan. Such notice shall be delivered on a
Business Day, shall be irrevocable and shall refer to this Agreement. Promptly
after such notification, the Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Borrowing Request confirming such
notification. Each such Borrowing Request shall be signed by or on behalf of
the Borrower and shall specify: (i) that the Borrower is requesting a Swingline
Loan, (ii) the requested date of such Swingline Loan (which shall be a Business
Day), (iii) the number and location of the account to which funds are to be
disbursed (which shall be an account that complies with the requirements of
Section 2.02(c)), and (iv) the amount of such Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any notice
received from the Borrower pursuant to this clause. The Swingline Lender shall
make each Swingline Loan available to the Borrower by means of a credit to the
account specified in the Borrowing Request by 4:00 p.m., New York City time, on
the date such Swingline Loan is so requested.
(c) Prepayment. The Borrower shall have the right at any time and from
time to time to prepay any Swingline Loan, in whole or in part, upon giving
written or telecopy notice (or telephone notice promptly confirmed by written,
or telecopy notice) to the Swingline Lender and to the Administrative Agent
before 12:00 (noon), New York City time on the date of prepayment at the
Swingline Lender's address for notices specified on Annex 2.
(d) Interest. Each Swingline Loan shall be an ABR Loan and, subject to
the provisions of Section 2.07, shall bear interest as provided in Section
2.06(a).
(e) Conversion to Revolving Loans. With respect to any Swingline Loans,
the Swingline Lender shall no later than 10 Business Days after such Swingline
Loan is made available to the Borrower, deliver to the Administrative Agent
(with a copy to the Borrower) no later than 11:00 a.m. (New York City time) on
the first Business Day in advance of the proposed Funding Date, a notice (which
shall be deemed to be a Borrowing Request given by the Borrower) requesting the
Lenders to make Revolving Loans that are ABR Loans on such Funding Date in an
amount equal to the amount of such Swingline Loans outstanding on the date such
notice is given which Swingline Lender requests the Lenders to prepay; provided,
however, that the obligations of the Lenders to fund such Borrowing shall not be
subject to Section 4.01.
(f) Participations. Upon the Borrowing of a Swingline Loan, each
Revolving Credit Lender shall be deemed to have automatically acquired a
unfunded participation in such Swingline
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Loan proportional to its Applicable Percentage. Upon demand by the Swingline
Lender, or automatically upon the occurrence of an Event of Default under
Section 7.01(g) or (h), each Revolving Credit Lender shall fund such
participation by paying to the Administrative Agent, for the account of the
Swingline Lender, such Revolving Credit Lender's Applicable Percentage of such
Swingline Loan, together with interest accruing on such participation amount
from the date of such Event of Default or such demand, as the case may be, at
the Federal Funds Effective Rate for the first day, and for each day thereafter,
the rate of interest then applicable to ABR Revolving Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this clause is absolute and unconditional and shall
not be affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or an Event of Default, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Each Lender shall comply with its obligation under this clause by
wire transfer of immediately available funds, in the same manner as provided in
Section 2.02(c) with respect to Loans made by such Lender and the Administrative
Agent shall promptly pay to the Swingline Lender the amounts so received by it
from the Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this clause and
thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Lenders that
shall have made their payments pursuant to this clause and to the Swingline
Lender, as their interests may appear. The purchase of participations in a
Swingline Loan pursuant to this clause shall not relieve the Borrower (or other
party liable for obligations of the Borrower) of any default in the payment
thereof.
If for any reason the Revolving Credit Commitments are terminated at a time
when any Swingline Loans are outstanding, each Lender shall be deemed to have
purchased, and hereby agrees to purchase, a participation in such outstanding
Swingline Loans in an amount equal to its Applicable Percentage calculated
immediately prior to such termination of the Revolving Credit Commitments ) of
the unpaid amount of such Swingline Loans together with accrued interest
thereon. Upon one Business Day's notice from the Swingline Lender, each Lender
shall deliver to the Swingline Lender an amount equal to its respective
participation in same day funds to the Administrative Agent at its offices
identified in Annex 2. In order to further evidence such participation (and
without prejudice to the effectiveness of the participation provisions set
forth above), each Lender shall enter into a separate participation agreement at
the request of the Swingline Lender in form and substance reasonably
satisfactory to such Lender and the Swingline Lender. If any Lender fails to
make available to the Swingline Lender the amount of such Lender's participation
as provided in this paragraph, the Swingline Lender shall be entitled to recover
such amount upon demand from such Lender together with interest thereon at the
Federal Funds Effective Rate for one Business Day and thereafter at the rate
applicable to ABR Revolving Loans. If the Swingline Lender receives a payment
of any amount in which other Lenders have purchased participations as provided
in this Paragraph, the Swingline Lender shall promptly distribute to each such
other Lender its Applicable Percentage of such payment.
SECTION 2.23. Letters of Credit. (a) General. The Borrower may request the
issuance of a Letter of Credit for its own account, by delivering a Letter of
Credit Request at any time and from time to time while the Revolving Credit
Commitments remain in effect. This Section shall not be construed to impose an
obligation upon the Issuing Bank to issue any Letter of Credit that is
inconsistent with the terms and conditions of this Agreement.
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(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
In order to request the issuance of a Letter of Credit (or to amend, renew or
extend an existing Letter of Credit), the Borrower shall hand deliver or
telecopy to the Issuing Bank and the Administrative Agent (reasonably in advance
of the requested date of issuance, amendment, renewal or extension) a Letter of
Credit Request requesting the issuance of a Letter of Credit, or identifying the
Letter of Credit to be amended, renewed or extended, the date of issuance,
amendment, renewal or extension, the date on which such Letter of Credit is to
expire (which shall comply with clause (c)), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare such Letter of Credit. A Letter of
Credit shall be issued, amended, renewed or extended only if, and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that, after giving effect to such issuance,
amendment, renewal or extension (A) the L/C Exposure shall not exceed $7,500,000
and (B) the Aggregate Revolving Credit Exposure shall not exceed the Total
Revolving Credit Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business no later than the first anniversary of the date of the issuance of such
Letter of Credit, unless such Letter of Credit expires by its terms on an
earlier date; provided, however, that this clause shall not prevent any Issuing
Bank from agreeing that a Letter of Credit will automatically be extended for
one or more successive periods not to exceed one year each unless such Issuing
Bank elects not to extend for any such additional period. Notwithstanding the
foregoing, no Letter of Credit shall expire later than the fifth Business Days
prior to the Revolving Credit Maturity Date.
(d) Participations. By the issuance of a Letter of Credit and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Credit Lender, and each such Lender hereby
acquires from the applicable Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Applicable Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay
to the Administrative Agent, for the account of the Issuing Bank, such Lender's
Applicable Percentage of each L/C Disbursement made by the Issuing Bank and not
reimbursed by the Borrower (or, if applicable, another party pursuant to its
obligations under any other Credit Document) forthwith on the date due as
provided in Section 2.02(e). Each Revolving Credit Lender acknowledges and
agrees that its obligation to acquire participations pursuant and to make
payments pursuant to this clause in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or an Event of Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in
respect of a Letter of Credit, the Borrower shall pay to the Issuing Bank an
amount equal to such L/C Disbursement on the same Business Day on which the
Borrower shall have received notice from the Issuing Bank that payment of such
draft will be made, or, if the Borrower shall have received such notice later
than 12:00 noon, New York City time, on any Business Day, not later than 11:00
a.m., New York City time, on the immediately following Business Day.
(f) Obligations Absolute. The Borrower's obligations to reimburse L/C
Disbursements as provided in clause (e) shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under any and all circumstances whatsoever, and irrespective of:
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(i) any lack of validity or enforceability of any Letter of Credit or
any Credit Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Credit Document;
(iii) the existence of any claim, setoff, defense or other right
that the Borrower, any other party guaranteeing, or otherwise obligated
with, the Borrower, any Subsidiary or other Affiliate thereof or any other
person may at any time have against the beneficiary under any Letter of
Credit, the Issuing Bank, the Administrative Agent or any Lender or any
other person, whether in connection with this Agreement, any other Credit
Document or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Issuing Bank, the Lenders, the Administrative Agent or any other person or
any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of the Issuing Bank. However, the
foregoing shall not be construed to excuse the Issuing Bank from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Issuing Bank's gross negligence or wilful misconduct in determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof; it is understood that the Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary and, in
making any payment under any Letter of Credit (i) the Issuing Bank's exclusive
reliance on the documents presented to it under such Letter of Credit as to any
and all matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in order, and whether
or not any other statement or any other document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein proves
to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance
in any immaterial respect of the documents presented under such Letter of Credit
with the terms thereof shall, in each case, be deemed not to constitute wilful
misconduct or gross negligence of the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as
possible give telephonic notification, confirmed by telecopy, to the
Administrative Agent and the Borrower of such demand for payment and whether
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the Issuing Bank has made or will make an L/C Disbursement thereunder; provided
that any failure to give or delay in giving such notice shall not relieve the
Borrower of its obligation to reimburse the Issuing Bank and the Revolving
Credit Lenders with respect to any such L/C Disbursement. The Administrative
Agent shall promptly give each Revolving Credit Lender notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, then, unless the Borrower shall reimburse such
L/C Disbursement in full on such date, the unpaid amount thereof shall bear
interest for the account of the Issuing Bank, for each day from and including
the date of such L/C Disbursement, to but excluding the earlier of the date of
payment by the Borrower or the date on which interest shall commence to accrue
thereon as provided in Section 2.02(e), at the rate per annum that would apply
to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrower, and may be removed at any
time by the Borrower by notice to the Issuing Bank, the Administrative Agent and
the Lenders, to be effective only upon the appointment of a successor Issuing
Bank pursuant to the following sentence. Subject to the next succeeding clause,
upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender
that shall agree to serve as successor Issuing Bank, such successor shall
succeed to and become vested with all the interests, rights and obligations of
the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from
its obligations to issue additional Letters of Credit hereunder. At the time
such removal or resignation shall become effective, the Borrower shall pay all
accrued and unpaid fees pursuant to Section 2.05(d)(ii). The acceptance of any
appointment as the Issuing Bank hereunder by a successor Lender shall be
evidenced by an agreement entered into by such successor, in a form satisfactory
to the Borrower and the Administrative Agent, and, from and after the effective
date of such agreement, (i) such successor Lender shall have all the rights and
obligations of the previous Issuing Bank under this Agreement and the other
Credit Documents and (ii) references herein and in the other Credit Documents to
the term "Issuing Bank" shall be deemed to refer to such successor or to any
previous Issuing Bank, or to such successor and all previous Issuing Banks, as
the context shall require. After the resignation or removal of the Issuing Bank
hereunder, the retiring Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement and the other Credit Documents with respect to Letters of Credit
issued by it prior to such resignation or removal, but shall not be required to
issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Credit Lenders holding participations in
outstanding Letters of Credit representing greater than 50% of the aggregate
undrawn amount of all outstanding Letters of Credit) thereof and of the amount
to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposits shall be held by the Collateral Agent
as collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Such deposits shall be invested in Permitted
Investments, to be selected by the Issuing Bank in its sole discretion, and
interest earned on such deposits shall be deposited in such account as
additional collateral for the payment and performance of the Obligations.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall (i) automatically be applied by the
Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for
which it has not been reimbursed, (ii) be
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held for the satisfaction of the reimbursement obligations of the Borrower for
the L/C Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
(k) Additional Issuing Banks. The Borrower may, at any time and from time
to time with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld) and such Lender, designate one or more additional Lenders
to act as an issuing bank under the terms of the Agreement. Any Lender
designated as an issuing bank pursuant to this clause shall be deemed to be an
"Issuing Bank" (in addition to being a Lender) in respect of Letters of Credit
issued or to be issued by such Lender, and, with respect to such Letters of
Credit, such term shall thereafter apply to the other Issuing Bank and such
Lender.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. The Borrower and each of the
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has all
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (c) is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where the failure so to qualify could not
reasonably be expected to result in a Material Adverse Effect, and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under each of the Credit Documents and each other agreement or instrument
contemplated hereby to which it is or will be a party and, in the case of the
Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
each Credit Party of each of the Credit Documents and the borrowings hereunder
(collectively, the "Transactions") and the Recapitalization (a) have been duly
authorized by all requisite corporate and, if required, stockholder action and
(b) will not (i) violate (A) any provision of law, statute, rule or regulation,
or of the certificate or articles of incorporation or other constitutive
documents or by-laws of the Borrower or any Subsidiary other than any violation
which will not have a Material Adverse Effect, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which the Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary (other than any Lien created
hereunder or under the Security Documents).
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SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Credit Document when
executed and delivered by the each Credit Party party thereto will constitute, a
legal, valid and binding obligation of such Credit Party enforceable against
such Credit Party in accordance with its terms.
SECTION 3.04. Governmental Approvals and Licenses. No action, consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions and the
Recapitalization, except for (a) the filing of Uniform Commercial Code financing
statements and filings with the United States Patent and Trademark Office and
the United States Copyright Office, (b) recordation of the Mortgages and (c)
such as have been made or obtained and are in full force and effect. The
Borrower and its Subsidiaries have all licenses, permits, approvals,
qualifications, consents, certificates of needs and accreditations (where such
are required) and other authorizations necessary for the lawful conduct of their
respective businesses or operations wherever now conducted and as planned to be
conducted, pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all Governmental Authorities having, asserting or claiming
jurisdiction over the Borrower and its Subsidiaries on a consolidated basis,
except where such failure would not have a Material Adverse Effect. Copies of
all such licenses, permits, approvals, qualifications, consents and other
authorizations shall be provided to the Administrative Agent upon request. The
Borrower and its Subsidiaries are not in default under any of such licenses,
permits, approvals, consents, qualifications or authorizations and no event has
occurred, and no condition exists, which, with the giving of notice, the passage
of time, or both, would constitute a default thereunder or would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any such
permit, license, authorization or accreditation, except where such failure would
not have a Material Adverse Effect. The continuation, validity and
effectiveness of all such licenses, permits, approvals, consents, qualifications
and authorizations will in no way be adversely affected by the transactions
contemplated by this Agreement, except where such a failure of continuation,
validly or effectiveness would not have a Material Adverse Effect. The Borrower
and its Subsidiaries know of no reason why they will not be able to maintain
after the Closing Date all licenses, permits, approvals, consents,
qualifications, accreditations and other authorizations necessary or appropriate
to own and operate their respective current businesses and to obtain such
licenses, permits, approvals, consents, qualifications and other authorizations
necessary to own and operate their respective current businesses, and otherwise
conduct the business of the Borrower and its Subsidiaries as now conducted and
presently proposed to be conducted.
SECTION 3.05. Financial Statements. (a) The Borrower has heretofore
furnished to the Lenders its consolidated and consolidating balance sheets and
statements of income and changes in financial condition as of and for the fiscal
year ended December 31, 1997, audited by and accompanied by the opinion of Ernst
& Young, independent public accountants. Such financial statements present
fairly the financial condition and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such
periods. Such balance sheets and the notes thereto disclose all material
liabilities, direct or contingent, of the Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared
in accordance with GAAP applied on a consistent basis.
(b) The Borrower has heretofore delivered to the Lenders its unaudited pro
forma consolidated balance sheet as of the Closing Date, prepared giving effect
to the Recapitalization as if it had occurred on such date, an unaudited
quarterly operating statement for the fiscal quarter ending nearest to March
31, 1998, and unaudited monthly operating statements for April and (if
available) May of 1998. Such pro forma balance sheet and monthly operating
statements has been prepared in good faith by the Borrower, based on the
assumptions used to prepare the pro forma financial information contained in the
Confidential Information Memorandum (which
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assumptions are believed by the Borrower on the date hereof and on the Closing
Date to be reasonable), is based on the best information available to the
Borrower as of the date of delivery thereof, accurately reflects all adjustments
required to be made to give effect to the Recapitalization and presents fairly
on a pro forma basis the estimated consolidated financial position of the
Borrower and its consolidated Subsidiaries as of such date, assuming that the
Recapitalization had actually occurred at such date.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, prospects, condition,
financial or otherwise, or material agreements of the Borrower and the
Subsidiaries, taken as a whole, since December 31, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) The
Borrower and each of the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets (including all
Mortgaged Property), except for minor defects in title that do not interfere
with its ability to conduct its business as currently conducted or to utilize
such properties and assets for their intended purposes. All such material
properties and assets are free and clear of Liens, other than Liens expressly
permitted by Section 6.02.
(b) Except as set forth on Schedule 3.07(b), the Borrower and each of the
Subsidiaries has complied in all material respects with all obligations under
all material leases to which it is a party and all such leases are in full force
and effect. the Borrower and each of the Subsidiaries enjoys peaceful and
undisturbed possession under all such material leases, except where failure to
have such possession will not have a Material Adverse Effect.
(c) Except as set forth on Schedule 3.07(c), the Borrower has not
received any written notice of, nor has any knowledge of, any pending or
contemplated condemnation proceeding affecting the Mortgaged Properties or any
sale or disposition thereof in lieu of condemnation.
(d) Neither the Borrower nor any of the Subsidiaries is obligated under
any right of first refusal, option or other contractual right to sell, assign or
otherwise dispose of any Mortgaged Property or any interest therein.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing Date
a list of all Subsidiaries and the percentage ownership interest of the Borrower
therein. The shares of capital stock or other ownership interests so indicated
on Schedule 3.08 are fully paid and non-assessable and are owned by the
Borrower, directly or indirectly, free and clear of all Liens.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth on
Schedule 3.09, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any business, property or rights of any such person (i) that
involve any Credit Document, the Transactions or the Recapitalization, or that
purport to affect the ability of the parties to consummate the Transactions or
the Recapitalization, or (ii) as to which there is a reasonable possibility of
an adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect.
(b) Neither the Borrower nor any of the Subsidiaries or any of their
respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any law, rule or regulation (including any zoning, building,
Environmental Law, ordinance, code or approval or any building permits) or any
restrictions of record or agreements affecting the Mortgaged Property, or is in
default with
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respect to any judgment, writ, injunction, decree or order of any Governmental
Authority, where such violation or default could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. Default in Material Agreements. Neither the Borrower nor any
of the Subsidiaries is in default in any manner under any provision of any
indenture or other agreement or instrument evidencing Indebtedness, or any other
material agreement or instrument to which it is a party or by which it or any of
its properties or assets are or may be bound, where such default could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. Neither the Borrower nor any of
the Subsidiaries is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of buying or carrying Margin
Stock.
SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.13. Tax Returns. The Borrower and each of the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials required to have been filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate proceedings and for which
the Borrower or such Subsidiary, as applicable, shall have set aside on its
books adequate reserves in accordance with GAAP.
SECTION 3.14. No Material Misstatements. None of (a) the Confidential
Information Memorandum or (b) any other information, report, financial
statement, exhibit or schedule furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with the negotiation of any
Credit Document or included therein or delivered pursuant thereto contained,
contains or will contain any material misstatement of fact or omitted, omits or
will omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were, are or will be made,
not misleading; provided that to the extent any such information, report,
financial statement, exhibit or schedule was based upon or constitutes a
forecast or projection, each of the Borrower represents only that it acted in
good faith and utilized reasonable assumptions and due care in the preparation
of such information, report, financial statement, exhibit or schedule.
SECTION 3.15. Employee Benefit Plans. Each of the Borrower and its ERISA
Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrower or
any of its ERISA Affiliates. The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed by more than $1,000,000
the fair market value of the assets of such Plan, and the present value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual valuation dates applicable
thereto, exceed by more than $1,000,000 the fair market value of the assets of
all such underfunded Plans.
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SECTION 3.16. Environmental Matters. Except as set forth in Schedule 3.16:
(a) The real properties owned or operated by the Borrower and the
Subsidiaries (the "Environmental Properties") do not contain any Hazardous
Materials in amounts or concentrations which (i) constitute, or constituted a
violation of, (ii) require Remedial Action under, or (iii) could give rise to
liability under, Environmental Laws, which violations, Remedial Actions and
liabilities, in the aggregate, could reasonably be expected to result in a
Material Adverse Effect;
(b) The Environmental Properties and all operations of the Borrower and the
Subsidiaries are in compliance, and in the last five years have been in
compliance, with all Environmental Laws and all necessary Environmental Permits
have been obtained and are in effect, except to the extent that such non-
compliance or failure to obtain any necessary permits, in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from, under or
proximate to the Environmental Properties or otherwise in connection with the
operations of the Borrower or the Subsidiaries, which Releases or threatened
Releases, in the aggregate, could reasonably be expected to result in a Material
Adverse Effect;
(d) Neither the Borrower nor any of the Subsidiaries has received any
Environmental Claim in connection with the Environmental Properties or the
operations of the Borrower or the Subsidiaries or with regard to any person
whose liabilities for environmental matters the Borrower or the Subsidiaries has
retained or assumed, in whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could reasonably be expected to result in a
Material Adverse Effect, nor do the Borrower or the Subsidiaries have reason to
believe that any such notice will be received or is being threatened; and
(e) Hazardous Materials have not been transported from the Environmental
Properties, nor have Hazardous Materials been generated, treated, stored or
disposed of at, on or under any of the Environmental Properties in a manner that
could give rise to liability under any Environmental Law, nor have the Borrower
or the Subsidiaries retained or assumed any liability, contractually, by
operation of law or otherwise, with respect to the generation, treatment,
storage or disposal of Hazardous Materials, which transportation, generation,
treatment, storage or disposal, or retained or assumed liabilities, in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.17. Insurance. Schedule 3.17 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or by the
Borrower for its Subsidiaries as of the date hereof and the Closing Date. As of
each such date, such insurance is in full force and effect and all premiums have
been duly paid. The Borrower and its Subsidiaries have insurance in such
amounts and covering such risks and liabilities as are in accordance with normal
industry practice.
SECTION 3.18. Security Documents. (a) The Pledge Agreement is effective to
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when the Collateral is delivered to the
Collateral Agent, the Pledge Agreement shall constitute a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
pledgors thereunder in such Collateral, in each case prior and superior in right
to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the
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ratable benefit of the Secured Parties, a legal, valid and enforceable security
interest in the Collateral (as defined in the Security Agreement) and, when
financing statements in appropriate form are filed in the offices specified on
Schedule 6 to the Perfection Certificate, the Security Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the grantors thereunder in such Collateral (other than the
Intellectual Property, as defined in the Security Agreement), in each case to
the extent such security interests can be so perfected by such filings, and
prior and superior in right to any other person, other than with respect to
Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent and
Trademark Office and the United States Copyright Office, the Security Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the grantors thereunder in the Intellectual Property (as
defined in the Security Agreement), in each case to the extent such security
interests can be so perfected by such filings, and prior and superior in right
to any other person (it being understood that subsequent recordings in the
United States Patent and Trademark Office and the United States Copyright Office
may be necessary to perfect a lien on registered trademarks, trademark
applications and copyrights acquired by the grantors after the date hereof).
(d) The Mortgages are effective to create in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal, valid and
enforceable Lien on all of the Credit Parties' right, title and interest in and
to the Mortgaged Property thereunder and the proceeds thereof, and when the
Mortgages are filed in the offices specified on Schedule 3.18(d), the Mortgages
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Credit Parties in such Mortgaged Property and the
proceeds thereof, in each case prior and superior in right to any other person,
other than with respect to the rights of persons pursuant to Liens expressly
permitted by Section 6.02.
SECTION 3.19. Location of Real Property and Leased Premises. (a) Schedule
3.19(a) lists completely and correctly as of the Closing Date all real property
owned by the Borrower and the Subsidiaries and the addresses thereof. The
Borrower and the Subsidiaries own in fee all the real property set forth on
Schedule 3.19(a).
(b) Schedule 3.19(b) lists completely and correctly as of the Closing Date
all real property leased by the Borrower and the Subsidiaries and the addresses
thereof. The Borrower and the Subsidiaries have valid leases in all the real
property set forth on Schedule 3.19(b).
SECTION 3.20. Labor Matters As of the date hereof and the Closing Date,
there are no strikes, lockouts or slowdowns against the Borrower or any
Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours
worked by and payments made to employees of the Borrower and the Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other
applicable Federal, state, local or foreign law dealing with such matters except
where such a violation would not have a Material Adverse Effect. All payments
due from the Borrower or any Subsidiary, or for which any claim may be made
against the Borrower or any Subsidiary, on account of wages and employee health
and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Borrower or such Subsidiary. The consummation of
the Transactions and the Recapitalization will not give rise to any right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower or any Subsidiary is
bound.
SECTION 3.21. Solvency. Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the making
of each Loan made on the Closing Date and after giving effect to the application
of the proceeds of such Loans, (i) the fair
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value of the assets of the Credit Parties, taken as a whole, at a fair
valuation, will exceed their debts and liabilities, subordinated, contingent or
otherwise; (ii) the present fair saleable value of the property of the Credit
Parties, taken as a whole, will be greater than the amount that will be required
to pay the probable liability of their debts and other liabilities,
subordinated, contingent or otherwise, taken as a whole, as such debts and other
liabilities become absolute and matured; (iii) the Credit Parties, taken as a
whole, will be able to pay their debts and liabilities, subordinated, contingent
or otherwise, taken as a whole, as such debts and liabilities become absolute
and matured; and (iv) the Credit Parties, taken as a whole, will not have
unreasonably small capital with which to conduct the business in which they are
engaged as such business is now conducted and is proposed to be conducted
following the Closing Date.
SECTION 3.22. Year 2000. The Borrower does not expect that its information
system capabilities will encounter any material "Year 2000" problems.
ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans (other than a Borrowing
pursuant to Section 2.2(e)) and of the Issuing Bank to issue Letters of Credit
hereunder are subject to the satisfaction of the following conditions (it being
understood for purposes of this Section that making a Loan or Borrowing does not
include a change or continuation of the Type of, or a duration of the Interest
Period applicable to, a previously outstanding Borrowing pursuant to Section
2.10):
SECTION 4.01. All Credit Events. On the date of each Borrowing (other than
a Borrowing pursuant to Section 2.02(e)), including each Borrowing of a
Swingline Loan and on the date of each issuance of a Letter of Credit (each such
event being called a "Credit Event"):
(a) Borrowing Request. The Administrative Agent shall have received a
notice of such Borrowing as required by Section 2.03 or, in the case of the
issuance of a Letter of Credit, the Issuing Bank and the Administrative Agent
shall have received a notice requesting the issuance of such Letter of Credit as
required by Section 2.23(b) or, in the case of the Borrowing of a Swingline
Loan, the Swingline Lender and the Administrative Agent shall have received a
notice requesting such Swingline Loan as required by Section 2.22(b).
(b) Representations and Warranties. Except in the case of a Borrowing
that does not increase the aggregate principal amount of Loans outstanding of
any Lender, the representations and warranties set forth in Article III hereof
shall be true and correct in all material respects on and as of the date of such
Credit Event with the same effect as though made on and as of such date, except
to the extent such representations and warranties expressly relate to an earlier
date.
(c) No Default. The Borrower and each other Credit Party shall be in
compliance with all the terms and provisions set forth herein and in each other
Credit Document on its part to be observed or performed, and at the time of and
immediately after such Credit Event, no Event of Default or Default shall have
occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Credit Event as to the matters specified in
clauses (b) (except as aforesaid) and (c) of this Section.
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SECTION 4.02. First Credit Event. On the Closing Date:
(a) Notes. Each Lender shall have received its duly executed Notes
complying with the provisions of Section 2.04.
(b) Opinions. The Administrative Agent shall have received, on behalf
of itself, the Lenders and the Issuing Bank, a favorable written opinion of
(i) Riordan & McKinzie, special California counsel for the Borrower,
substantially to the effect set forth in Exhibit O, (ii) Porter & Hedges,
special Texas counsel for the Borrower, substantially to the effect set
forth in Exhibit P, (iii) Dennis D. Teeter, P.C., Texas counsel for the
Borrower, substantially to the effect set forth in Exhibit Q, (iv) Richards
& O'Neil, special New York counsel for the Borrower, substantially to the
effect set forth in Exhibit R, and (v) each local counsel listed on
Schedule 4.02(b), substantially to the effect set forth in Exhibit S,
substantially to the effect set forth in Exhibit S, in each case (A) dated
the Closing Date, (B) addressed to the Syndication Agent, the Issuing Bank,
the Administrative Agent and the Lenders, and (C) covering such other
matters relating to the Credit Documents and the Transactions as the
Syndication Agent shall reasonably request, and the Borrower hereby
requests such counsel to deliver such opinions. The Syndication Agent shall
have received, on behalf of itself, the Administrative Agent and the
Lenders, a customary enforceability opinion of Cravath, Swain & Moore,
special New York counsel to the Syndication Agent and the Administrative
Agent.
(c) Legal Matters. All legal matters incident to this Agreement, the
Borrowings and extensions of credit hereunder and the other Credit
Documents shall be satisfactory to the Lenders, to the Issuing Bank and to
Cravath, Swaine & Moore, counsel for the Administrative Agent.
(d) Organizational Documents. The Administrative Agent shall have
received (i) a copy of the certificate or articles of incorporation,
including all amendments thereto, of each Credit Party, certified as of a
recent date by the Secretary of State of the state of its organization, and
a certificate as to the good standing of each Credit Party as of a recent
date, from such Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of each Credit Party dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the by-
laws of such Credit Party as in effect on the Closing Date and at all times
since a date prior to the date of the resolutions described in clause (B),
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Credit Party authorizing the
execution, delivery and performance of the Credit Documents to which such
person is a party and, in the case of the Borrower, the borrowings
hereunder, and that such resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the certificate or
articles of incorporation of such Credit Party have not been amended since
the date of the last amendment thereto shown on the certificate of good
standing furnished pursuant to clause (i), and (D) as to the incumbency and
specimen signature of each officer executing any Credit Document or any
other document delivered in connection herewith on behalf of such Credit
Party; (iii) a certificate of another officer as to the incumbency and
specimen signature of the Secretary or Assistant Secretary executing the
certificate pursuant to clause (ii); and (iv) such other documents as the
Lenders, the Issuing Bank or Cravath, Swaine & Moore, counsel for the
Administrative Agent, may reasonably request.
(e) Officer's Certificate. The Administrative Agent shall have
received a certificate, dated the Closing Date and signed by a Responsible
Officer of the Borrower, confirming compliance with the conditions
precedent set forth in clauses (b) and (c) of
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Section 4.01.
(f) Payment of Fees, Etc. The Administrative Agent shall have
received all Fees and other amounts due and payable on or prior to the
Closing Date, including, to the extent invoiced, reimbursement or payment
of all out-of-pocket expenses required to be reimbursed or paid by the
Borrower hereunder or under any other Credit Document and fees under
Section 9.05(a).
(g) Pledge Agreement. The Pledge Agreement shall have been duly
executed by the parties thereto and delivered to the Collateral Agent and
shall be in full force and effect, and all the outstanding capital stock of
the Borrower and the Subsidiaries shall have been duly and validly pledged
thereunder to the Collateral Agent for the ratable benefit of the Secured
Parties and certificates representing such shares, accompanied by
instruments of transfer and stock powers endorsed in blank, shall be in the
actual possession of the Collateral Agent; provided that to the extent to
do so would cause adverse tax consequences to the Borrower, (i) neither the
Borrower nor any Domestic Subsidiary shall be required to pledge more than
65% of the capital stock of any Foreign Subsidiary and (ii) no Foreign
Subsidiary shall be required to pledge the capital stock of any of its
Foreign Subsidiaries .
(h) Security Agreement. The Security Agreement shall have been duly
executed by the Credit Parties party thereto and shall have been delivered
to the Collateral Agent and shall be in full force and effect on such date
and each document (including each Uniform Commercial Code financing
statement) required by law or reasonably requested by the Administrative
Agent to be filed, registered or recorded in order to create in favor of
the Collateral Agent for the benefit of the Secured Parties a valid, legal
and perfected first-priority security interest in and lien on the
Collateral (subject to any Lien expressly permitted by Section 6.02)
described in such agreement shall have been delivered to the Collateral
Agent.
(i) Lien Search. The Collateral Agent shall have received the
results of a search of the Uniform Commercial Code (or equivalent filings)
filings made with respect to the Credit Parties in the states (or other
jurisdictions) in which the chief executive office of each such person is
located, any offices of such persons in which records have been kept
relating to Accounts and the other jurisdictions in which Uniform
Commercial Code filings (or equivalent filings) are to be made pursuant to
the preceding clause, together with copies of the financing statements (or
similar documents) disclosed by such search, and accompanied by evidence
satisfactory to the Collateral Agent that the Liens indicated in any such
financing statement (or similar document) would be permitted under Section
6.02 or have been released.
(j) Perfection Certificate. The Collateral Agent shall have received
a Perfection Certificate with respect to the Credit Parties dated the
Closing Date and duly executed by a Responsible Officer of the Borrower.
(k) Subsidiary Guarantee Agreement. The Subsidiary Guarantee
Agreement shall have been duly executed by the parties thereto, shall have
been delivered to the Collateral Agent and shall be in full force and
effect.
(l) Indemnity, Subrogation and Contribution Agreement. The
Indemnity, Subrogation and Contribution Agreement shall have been duly
executed by the parties thereto, shall have been delivered to the
Collateral Agent and shall be in full force and
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effect.
(m) Insurance Policies. The Administrative Agent shall have received
a copy of, or a certificate as to coverage under, the insurance policies
required by Section 5.02 and the applicable provisions of the Security
Documents, each of which shall be endorsed or otherwise amended to include
a "standard" or "New York" lender's loss payable endorsement and to name
the Collateral Agent as additional insured, in form and substance
satisfactory to the Administrative Agent and the Syndication Agent.
(n) Environmental and Employment Matters. The Lenders shall be
satisfied as to the amount and nature of any environmental and employee
health and safety exposures to which the Borrower and the Subsidiaries may
be subject and the plans of the Borrower with respect thereto.
(o) Recapitalization Documents. The Administrative Agent shall have
received, with a copy for each Lender, a copy of the Recapitalization
Agreement and any of the other related documentation reasonably requested
by the Administrative Agent, certified by a Responsible Officer of the
Borrower.
(p) Recapitalization. The Recapitalization shall be concurrently
consummated as set forth in Annex 3, and the capital structure of the
Borrower shall be as set forth in Annex 3. The terms and conditions, and
documentation, of any material Indebtedness and all equity securities of
the Borrower or any of its Subsidiaries to be outstanding at or after the
Closing Date, the certificate of incorporation, by-laws, other governing
documents and the corporate and capital structure of the Borrower and its
Subsidiaries, in each case after giving effect to the consummation of the
Recapitalization, shall be in form and substance satisfactory to the
Administrative Agent. The Recapitalization shall have been consummated for
an aggregate Conversion Amount in cash equal to $179,300,000 (the
"Conversion Amount"), pursuant to the Recapitalization Agreement. All of
the conditions precedent set forth in the Recapitalization Agreement shall
have been satisfied or waived, and no material provision of the
Recapitalization Agreement shall have been amended, supplemented, waived or
otherwise modified without the prior written consent of the Required
Lenders, which consent shall not be unreasonably withheld. The
Administrative Agent shall be satisfied with the Recapitalization Agreement
in all respects.
(q) Transaction Costs. The Transaction Costs shall have been paid
(or made provision reasonably satisfactory to the Administrative Agent and
the Syndication Agent for the payment thereof) in an amount not in excess
of $15,000,000.
(r) Equity Investment. The Equity Investment shall have been made in
an aggregate amount not less than $68,300,000 in cash.
(s) Exchangeable Preferred Stock. The Exchangeable Preferred Stock
shall have been duly authorized and issued in form and substance
satisfactory to the Lenders; and the Borrower shall have received proceeds
(before deductions for underwriting and placement fees) pursuant thereto of
approximately $40,000,000.
(t) Existing Indebtedness (i) After giving effect to the
Recapitalization and the other transactions contemplated hereby, the
Borrower and its subsidiaries shall have outstanding no indebtedness or
preferred stock other than (A) the Loans and other extensions of credit
under this Agreement, (B) the Exchangeable Preferred Stock, and (C) as set
forth in Schedule 4.02(t), and (ii) Syndication Agent shall have received
satisfactory
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evidence that all loans outstanding under, and all other amounts due in
respect of, the Indebtedness to be Paid shall have been repaid in full and
the commitments thereunder shall have been permanently terminated.
(u) Audited Balance Sheet. The Administrative Agent shall have
received (i) audited consolidated and consolidating balance sheets and
related statements of income, stockholders' equity and cash flows of the
Borrower for the three fiscal years ended before the Closing Date and (ii)
to the extent available, unaudited consolidated and consolidating balance
sheets and related statements of income, stockholders' equity and cash
flows of the Borrower for each completed fiscal quarter since the date of
such audited financial statements (and, to the extent available, for each
completed month since the last such quarter), which audited and unaudited
financial statements (A) shall not be materially inconsistent with the
financial statements previously provided to the Administrative Agent and
(B) shall otherwise be in form and scope satisfactory to the Administrative
Agent and the Syndication Agent.
(v) Pro Forma Balance Sheet. The Administrative Agent shall have
received a pro forma consolidated balance sheet of the Borrower as of the
Closing Date, after giving effect to the Transactions and the other
transactions contemplated hereby, together with a certificate of the chief
financial officer of the Borrower to the effect that such statements
accurately present the pro forma financial position of the Borrower and its
subsidiaries in accordance with generally accepted accounting principles,
and the Administrative Agent and the Syndication Agent shall be satisfied
that such balance sheets are not materially inconsistent with the forecasts
previously provided to the Administrative Agent.
(w) No Litigation. There shall be no litigation or administrative
proceeding that could reasonably be expected to have a material adverse
effect on the business, assets, results of operations, financial condition,
liabilities or prospects of the Borrower and its subsidiaries, taken as a
whole, or on the ability of the parties to consummate the Recapitalization
or the other transactions contemplated hereby.
(x) Taxes. The Administrative Agent and the Syndication Agent shall
be reasonably satisfied in all respects (i) with the tax position and the
contingent tax and other liabilities of the Borrower for prior operating
periods, and with the plans of the Borrower with respect thereto, and (ii)
with any tax sharing agreements among the Borrower and its subsidiaries
after giving effect to the Transactions and the other transactions
contemplated hereby.
(y) Solvency Certificate. The Administrative Agent shall have
received a certificate of the Borrower's chief financial officer, in form
and substance satisfactory to the Administrative Agent, to the effect of
the representations set forth in Section 3.21.
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties. (a) The Borrower
shall, and the Borrower shall cause each Restricted Subsidiary to, do or cause
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.04.
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(b) The Borrower shall, and the Borrower shall cause each Restricted
Subsidiary to, do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply in all material respects with
all applicable laws, rules, regulations (including any zoning, building,
Environmental Law, ordinance, code or approval or any building permits or any
restrictions of record or agreements affecting the Mortgaged Properties) and
decrees and orders of any Governmental Authority, whether now in effect or
hereafter enacted, except where the failure to do so will not have a Material
Adverse Effect; and at all times maintain and preserve all property material to
the conduct of such business and keep such property in good repair, working
order and condition and from time to time make renewals, additions, improvements
and replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 5.02. Insurance. The Borrower shall, and shall cause each
Restricted Subsidiary to,
(a) keep its insurable properties adequately insured at all times by
financially sound and reputable insurers; maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies in the same or
similar businesses operating in the same or similar locations, including
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by it; and maintain such other
insurance as may be required by law.
(b) cause all such policies to be endorsed or otherwise amended to
include a "standard" or "New York" lender's loss payable endorsement, in
form and substance satisfactory to the Administrative Agent and the
Collateral Agent, which endorsement shall provide that, from and after the
Closing Date, if the insurance carrier shall have received written notice
from the Administrative Agent or the Collateral Agent of the occurrence of
an Event of Default, the insurance carrier shall pay all proceeds otherwise
payable to the Borrower or the Credit Parties under such policies directly
to the Collateral Agent; cause all such policies to provide that neither
the Borrower, the Administrative Agent, the Collateral Agent nor any other
party shall be a coinsurer thereunder and to contain a "Replacement Cost
Endorsement", without any deduction for depreciation, and such other
provisions as the Administrative Agent or the Collateral Agent may
reasonably require from time to time to protect their interests; deliver
original or certified copies of all such policies to the Collateral Agent;
cause each such policy to provide that it shall not be canceled, modified
or not renewed (i) by reason of nonpayment of premium upon not less than 10
days' prior written notice thereof by the insurer to the Administrative
Agent and the Collateral Agent (giving the Administrative Agent and the
Collateral Agent the right to cure defaults in the payment of premiums) or
(ii) for any other reason upon not less than 30 days' prior written notice
thereof by the insurer to the Administrative Agent and the Collateral
Agent; deliver to the Administrative Agent and the Collateral Agent, prior
to the cancelation, modification or nonrenewal of any such policy of
insurance, a copy of a renewal or replacement policy (or other evidence of
renewal of a policy previously delivered to the Administrative Agent and
the Collateral Agent) together with evidence satisfactory to the
Administrative Agent and the Collateral Agent of payment of the premium
therefor.
(c) if at any time the area in which the Premises (as defined in the
Mortgages) are located is designated (i) a "flood hazard area" in any Flood
Insurance Rate Map published
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by the Federal Emergency Management Agency (or any successor agency),
obtain flood insurance in such total amount as the Syndication Agent, the
Collateral Agent or the Required Lenders may from time to time require, and
otherwise comply with the National Flood Insurance Program as set forth in
the Flood Disaster Protection Act of 1973, as it may be amended from time
to time, or (ii) a "Zone 1" area, obtain earthquake insurance in such total
amount as the Administrative Agent, the Collateral Agent or the Required
Lenders may from time to time require.
(d) with respect to any Mortgaged Property, carry and maintain
comprehensive general liability insurance including the "broad form CGL
endorsement" and coverage on an occurrence basis against claims made for
personal injury (including bodily injury, death and property damage) and
umbrella liability insurance against any and all claims, in no event for a
combined single limit of less than $10,000,000, naming the Collateral Agent
as an additional insured, on forms satisfactory to the Collateral Agent.
(e) notify the Administrative Agent and the Collateral Agent
immediately whenever any separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under
this Section is taken out by the Borrower; and promptly deliver to the
Administrative Agent and the Collateral Agent a duplicate original copy of
such policy or policies.
(f) in connection with the covenants set forth in this Section, it is
understood and agreed that:
(i) none of the Administrative Agent, the Lenders, the Issuing Bank,
or their respective agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under
this Section, it being understood that (A) the Borrower and the other
Credit Parties shall look solely to their insurance companies or any other
parties other than the aforesaid parties for the recovery of such loss or
damage and (B) such insurance companies shall have no rights of subrogation
against the Administrative Agent, the Collateral Agent, the Lenders, the
Issuing Bank or their agents or employees. If, however, the insurance
policies do not provide waiver of subrogation rights against such parties,
as required above, then the Borrower hereby agrees, to the extent permitted
by law, to waive its right of recovery, if any, against the Administrative
Agent, the Collateral Agent, the Lenders, the Issuing Bank and their agents
and employees; and
(ii) the designation of any form, type or amount of insurance coverage
by the Administrative Agent, the Collateral Agent or the Required Lenders
under this Section shall in no event be deemed a representation, warranty
or advice by the Administrative Agent, the Collateral Agent or the Lenders
that such insurance is adequate for the purposes of the business of the
Borrower and the Subsidiaries or the protection of their properties and the
Administrative Agent, the Collateral Agent and the Required Lenders shall
have the right from time to time to require the Borrower and the other
Credit Parties to keep other insurance in such form and amount as the
Administrative Agent, the Collateral Agent or the Required Lenders may
reasonably request, provided that such insurance shall be obtainable on
commercially reasonable terms.
SECTION 5.03. Payment of Taxes. The Borrower shall, and the Borrower shall
cause each Restricted Subsidiary to, pay and discharge promptly when due all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or in respect of its property, before the same shall
become delinquent or in default, that, if unpaid, might give rise to
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a Lien upon such properties or any part thereof; provided, however, that such
payment and discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the Borrower
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP and such contest operates to suspend collection of the
contested obligation, tax, assessment or charge and enforcement of a Lien and,
in the case of a Mortgaged Property, there is no risk of forfeiture of such
property.
SECTION 5.04. Financial Statements, Reports, etc. The Borrower shall
furnish to the Administrative Agent with copies for each Lender:
(a) within 90 days after the end of each fiscal year, its consolidated
and consolidating balance sheets and related statements of operations,
stockholders' equity and cash flows showing the financial condition of the
Borrower and its consolidated Subsidiaries as of the close of such fiscal
year and the results of its operations and the operations of such
Subsidiaries during such year, all audited by Ernst & Young or other
independent public accountants of recognized national standing and
accompanied by (i) an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, and (ii)
any management letter issued by such accountants to the board of directors
or finance committee of the Borrower;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, its consolidated balance sheets and related
statements of operations, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries as of
the close of such fiscal quarter and the results of its operations and the
operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
the absence of footnotes and normal year-end audit adjustments, together
with certified quarterly statements of data by distribution center and
quarterly corporate expense data, in form and scope consistent with past
practice, and accompanied by a management discussion and analysis,
(c) within 30 days after the end of each of month, its consolidated
balance sheets and related statements of operations, stockholders' equity
and cash flows showing the financial condition of the Borrower and its
consolidated Subsidiaries as of the close of such month and the results of
its operations and the operations of such Subsidiaries during such month
and the then elapsed portion of the fiscal year, all certified by one of
its Financial Officers as fairly presenting the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, subject
to the absence of footnotes and normal year-end audit adjustments, together
with certified monthly statements of data by distribution center and
monthly corporate expense data, in form and scope consistent with past
practice;
(d) concurrently with any delivery of financial statements under
clause (a), (b) or (c), a certificate of the accounting firm or a Financial
Officer opining on or certifying such statements (which certificate, when
furnished by an accounting firm, may be limited to accounting matters and
disclaim responsibility for legal interpretations) (i) certifying that
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no Event of Default or Default has occurred or, if such an Event of Default
or Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto and
(ii) setting forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the covenants contained
in Section 6.09 through Section 6.13;
(e) concurrently with any delivery of financial statements under
clause (a) or (b), a Pricing Adjustment Certificate;
(f) not later than December 31 of each year, (i) copies of the
Borrower's annual consolidated budget for the following fiscal year, in the
form presented by management to the Borrower's Board of Directors; and (ii)
copies of the Borrower's consolidated financial projections for the
following fiscal year and the next 4 fiscal years prepared in a manner
consistent with the financial projections delivered to the Syndication
Agent in connection with the closing of this Agreement;
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be; and
(h) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of any Credit Document, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. The Borrower shall, promptly
after a Responsible Officer becomes aware thereof, furnish to the Administrative
Agent, the Issuing Bank and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Borrower or any Affiliate thereof that could
reasonably be expected to result in a Material Adverse Effect; and (c) any
development that has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect.
SECTION 5.06. Employee Benefits. The Borrower shall, and the Borrower shall
cause each Restricted Subsidiary to, (a) comply in all material respects with
the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent (i) as soon as possible after, and in any event within 10
days after any Responsible Officer of the Borrower or any ERISA Affiliate knows
or has reason to know that, any ERISA Event has occurred that, alone or together
with any other ERISA Event could reasonably be expected to result in liability
of the Borrower in an aggregate amount exceeding $1,000,000 or requiring
payments exceeding $500,000 in any year, a statement of a Financial Officer of
the Borrower setting forth details as to such ERISA Event and the action, if
any, that the Borrower proposes to take with respect thereto.
SECTION 5.07. Maintaining Records; Access to Properties and Inspections.
(a) The
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Borrower shall, and shall cause each Restricted Subsidiary to, keep proper books
of record and account, in a manner consistent with requirements of law and with
sound business practice so as to permit the preparation of financial statements
in conformity with GAAP, and in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities.
(b) Each Credit Party will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Syndication Agent or any Lender to
visit and inspect the financial records and the properties of the Borrower or
any Subsidiary at reasonable times and as often as reasonably requested and to
make extracts from and copies of such financial records, and permit any
representatives designated by the Syndication Agent or any Lender to discuss the
affairs, finances and condition of the Borrower or any Subsidiary with the
officers thereof and independent accountants therefor; provided, however, that
(i) so long as no Event of Default has occurred and is continuing, the
Syndication Agent and the Lenders shall be limited to visits on four occasions
per year, and the Syndication Agent shall use it best efforts to coordinate such
visits, and (ii) the Syndication Agent shall give the Borrower reasonable notice
of a proposed discussions with such independent accountants, and representatives
of the Borrower may at the Borrower's option participate in such discussions.
SECTION 5.08. Use of Proceeds. The Borrower shall, and shall cause each
Restricted Subsidiary to, use the proceeds of the Loans and request the issuance
of Letters of Credit only for the purposes set forth in Section 6.08.
SECTION 5.09. Compliance with Environmental Laws. The Borrower shall, and
shall cause each Restricted Subsidiary to, comply, and cause all lessees and
other persons occupying its Environmental Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Environmental Properties; obtain and renew all material
Environmental Permits necessary for its operations and Environmental Properties;
and conduct any Remedial Action in accordance with Environmental Laws, except to
the extent to do the same could not be reasonably be expected to have a Material
Adverse Effect; provided, however, that none of the Borrower or any of the
Subsidiaries shall be required to undertake any Remedial Action to the extent
that its obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect to such
circumstances.
SECTION 5.10. Preparation of Environmental Reports. The Borrower shall, and
shall cause each Restricted Subsidiary to, if a Default caused by reason of a
breach of Section 3.16 or 5.09 shall have occurred and be continuing, at the
request of the Required Lenders through the Administrative Agent, provide to the
Lenders within 45 days after such request, at the expense of the Borrower, an
environmental site assessment report for the Environmental Properties which are
the subject of such default prepared by an environmental consulting firm
acceptable to the Administrative Agent and indicating the presence or absence of
Hazardous Materials and the estimated cost of any compliance or Remedial Action
in connection with such Environmental Properties.
SECTION 5.11. Further Assurances. The Borrower shall, and the Borrower
shall cause each Restricted Subsidiary to, execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements, mortgages and deeds of trust) that may be required under applicable
law, or that the Required Lenders, the Administrative Agent or the Collateral
Agent may reasonably request, in order to effectuate the transactions
contemplated by the Credit Documents and in order to grant, preserve, protect
and perfect the validity and first priority of the
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security interests created or intended to be created by the Security Documents.
The Borrower will cause any subsequently acquired or organized Domestic
Subsidiary to execute a Subsidiary Guarantee Agreement, Indemnity Subrogation
and Contribution Agreement and each applicable Security Document in favor of the
Collateral Agent. In addition, from time to time, the Borrower will, at its cost
and expense, promptly secure the Obligations by pledging or creating, or causing
to be pledged or created, perfected security interests with respect to such of
its assets and properties as the Administrative Agent or the Required Lenders
shall designate (it being understood that it is the intent of the parties that
the Obligations shall be secured by, among other things, substantially all the
assets of the Borrower (including real and other properties acquired subsequent
to the Closing Date)). Such security interests and Liens will be created under
the Security Documents and other security agreements, mortgages, deeds of trust
and other instruments and documents in form and substance satisfactory to the
Collateral Agent, and the Borrower shall deliver or cause to be delivered to the
Lenders all such instruments and documents (including legal opinions, title
insurance policies and lien searches) as the Collateral Agent shall reasonably
request to evidence compliance with this Section. The Borrower agrees to provide
such evidence as the Collateral Agent shall reasonably request as to the
perfection and priority status of each such security interest and Lien. Without
in any way limiting the foregoing, within 30 days following the completion of
the construction of the Borrower's headquarters building and distribution
facility located in Stafford, Texas (the "Headquarters Property"), (i) each
Security Document (including a Mortgage) in form and substance satisfactory to
the Lenders relating to the Borrower's leasehold interests in the Headquarters
Property shall have been duly executed by the Borrower and the other parties
thereto and delivered to the Collateral Agent and shall be in full force and
effect and (ii) the Borrower's interest in the Headquarters Property shall not
be subject to any Lien other than Liens permitted under Section 6.02.
SECTION 5.12. Mortgaged Property Casualty and Condemnation. (a)
Notwithstanding any other provision of this Agreement or the Security Documents
(but subject to the reinvestment provisions of clause (d)), the Collateral Agent
is authorized, at its option (for the benefit of the Secured Parties), to
collect and receive, to the extent payable to the Borrower or any other Credit
Party, all insurance proceeds, damages, claims and rights of action under any
insurance policies with respect to any casualty or other insured damage
("Casualty") to any portion of any Mortgaged Property (collectively, "Casualty
Proceeds"), unless the amount of the related Casualty Proceeds is less than
$1,000,000 and an Event of Default shall not have occurred and be continuing.
The Borrower agrees to notify the Collateral Agent and the Administrative Agent,
in writing, promptly after the Borrower obtains notice or knowledge of any
Casualty to a Mortgaged Property, which notice shall set forth a description of
such Casualty and the Borrower's good faith estimate of the amount of related
damages. The Borrower agrees, subject to the foregoing limitations, to endorse
and transfer or cause to be endorsed or transferred any Casualty Proceeds
received by it or any other Credit Party to the Collateral Agent.
(b) The Borrower will notify the Collateral Agent and the Administrative
Agent immediately upon obtaining knowledge of the institution of any action or
proceeding for the taking of any Mortgaged Property, or any part thereof or
interest therein, for public or quasi-public use under the power of eminent
domain, by reason of any public improvement or condemnation proceeding, or in
any other manner (a "Condemnation"). No settlement or compromise of any claim
in connection with any such action or proceeding shall be made without the
consent of the Collateral Agent, which consent shall not be unreasonably
withheld. The Collateral Agent is authorized (but subject to the reinvestment
provisions of clause (d)), at its option (for the benefit of the Secured
Parties), to collect and receive all proceeds of any such Condemnation (in each
case, the "Condemnation Proceeds"). The Borrower agrees to execute or cause to
be executed such further assignments of any Condemnation Proceeds as the
Collateral Agent may reasonably require.
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(c) In the event of any Condemnation of the Mortgaged Property, or any
part thereof and subject to the provisions of clause (e), the Collateral Agent
shall apply the Condemnation Proceeds first, in the case of a partial
Condemnation, to the repair or restoration of any integrated structure subject
to such Condemnation or, in the case of a total or "substantially all"
Condemnation, to the location of a replacement property, acquisition of such
replacement property and construction of the replacement structures, and second,
shall apply the remainder of such Condemnation Proceeds (less the reasonable
costs, if any, incurred by the Collateral Agent in the recovery of such
Condemnation Proceeds) to prepay obligations outstanding under this Agreement,
with any remaining Condemnation Proceeds being returned to the Borrower.
(d) In the event of any Casualty of less than 50% of the useable square
footage of the improvements of any Mortgaged Property, the Borrower shall,
subject to the conditions contained in clause (e), restore the Mortgaged
Property to substantially its same condition immediately prior to such Casualty.
In the event of any Casualty of greater than 50% of the useable square footage
of the improvements of any Mortgaged Property and so long as no Default or Event
of Default has occurred and is continuing, the Borrower shall have the option to
either:
(i) restore the Mortgaged Property to a condition substantially
similar to its condition immediately prior to such Casualty and to invest
the balance, if any, of any Casualty Proceeds in equipment or other assets
used in the Borrower's principal lines of business within 6 months after
the receipt thereof, provided that the Borrower, pending such reinvestment,
promptly deposits such excess Casualty Proceeds in a cash collateral
account established with the Collateral Agent for the benefit of the
Secured Parties, or
(ii) direct the Collateral Agent to apply the related Casualty
Proceeds to prepay obligations outstanding under this Agreement, with any
remaining Casualty Proceeds being returned to the Borrower.
Any excess Casualty Proceeds that are not reinvested in the Borrower's principal
lines of business as contemplated above will be applied to prepay the
Obligations.
If required to do so, the Borrower shall make the election contemplated by
the immediately preceding clause by notifying the Collateral Agent and the
Administrative Agent promptly after the later to occur of (A) five days after
the Borrower and its insurance carrier reach a final determination of the amount
of any Casualty Proceeds and (B) 30 days after the occurrence of the Casualty.
If the Borrower shall be required or shall elect to restore the Mortgaged
Property, the insufficiency of any Casualty Proceeds or Condemnation Proceeds to
defray the entire expense of such restoration shall in no way relieve the
Borrower of such obligation so to restore. In the event the Borrower shall be
required to restore or shall notify the Collateral Agent and the Administrative
Agent of its election to restore, the Borrower shall diligently and continuously
prosecute the restoration of the Mortgaged Property to completion. In the event
of a Casualty where the Borrower is required to make the election set forth
above and the Borrower shall fail to notify the Collateral Agent and the
Administrative Agent of its election within the period set forth above or shall
elect not to restore the Mortgaged Property, the Collateral Agent shall (after
being reimbursed for all reasonable costs of recovery of such Casualty Proceeds)
apply such Casualty Proceeds to prepay obligations outstanding under this
Agreement. In addition, upon such prepayment, the Borrower shall be obligated
to place the remaining portion, if any, of the Mortgaged Property in a safe
condition that is otherwise in compliance with the requirements of applicable
Governmental Authorities and the provisions of this Agreement and the applicable
Mortgage.
(e) Except as otherwise specifically provided in this Section, all
Casualty Proceeds and all
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Condemnation Proceeds recovered by the Collateral Agent (A) are to be applied to
the restoration of the applicable Mortgaged Property (less the reasonable cost,
if any, to the Collateral Agent of such recovery and of paying out such
proceeds, including reasonable attorneys' fees (including the allocated costs of
in-house legal counsel), other charges and disbursements and costs allocable to
inspecting the Work (as defined below)) and (B) shall be applied by the
Collateral Agent to the payment of the cost of restoring or replacing the
Mortgaged Property so damaged, destroyed or taken or of the portion or portions
of the Mortgaged Property not so taken (the "Work") and (C) shall be paid out
from time to time to the Borrower as and to the extent the Work (or the location
and acquisition of any replacement of any Mortgaged Property) progresses for the
payment thereof, but subject to each of the following conditions:
(i) the Borrower must promptly commence the restoration process or the
location, acquisition and replacement process (in the case of a total or
"substantially all" Condemnation) in connection with the Mortgaged
Property;
(ii) the Work shall be in the charge of an architect or engineer and
before the Borrower commences any Work, other than temporary work to
protect property or prevent interference with business, the Collateral
Agent shall have received the plans and specifications and the general
contract for the Work from the Borrower. The plans and specifications
shall provide for such Work that, upon completion thereof, the improvements
shall (A) be in compliance with all requirements of applicable Governmental
Authorities such that all representations and warranties of the Borrower
relating to the compliance of such Mortgaged Property with applicable laws,
rules or regulations in this Agreement or the Security Documents will be
correct in all respects and (B) be at least equal in value and general
utility to the improvements that were on such Mortgaged Property (or that
were on the Mortgaged Property that has been replaced, if applicable) prior
to the Casualty or Taking, and in the case of a Taking, subject to the
effect of such Taking;
(iii) except as provided in clause (iv), each request for payment
shall be made on seven days' prior notice to the Collateral Agent and shall
be accompanied by a certificate to be made by such architect or engineer,
stating (A) that all the Work completed has been done in substantial
compliance with the plans and specifications, (B) that the sum requested is
justly required to reimburse the Borrower for payments by the Borrower to,
or is justly due to, the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials for
the Work (giving a brief description of such services and materials) and
that, when added to all sums previously paid out by the Collateral Agent,
does not exceed the value of the Work done to the date of such certificate;
(iv) each request for payment in connection with the acquisition of a
replacement Mortgaged Property (in the case of a total or "substantially
all" Condemnation) shall be made on 30 days' prior notice to the Collateral
Agent and, in connection therewith, (A) each such request shall be
accompanied by a copy of the sales contract or other document governing the
acquisition of the replacement property by the Borrower and a certificate
of the Borrower stating that the sum requested represents the sales price
under such contract or document and the related reasonable transaction fees
and expenses (including brokerage fees) and setting forth in sufficient
detail the various components of such requested sum and (B) the Borrower
shall (I) in addition to any other items required to be delivered under
this Section), provide the Administrative Agent and the Collateral Agent
with such opinions, documents, certificates, title insurance policies,
surveys and other insurance policies as they may reasonably request and
(II) take such other actions as the
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Administrative Agent and the Collateral Agent may reasonably deem necessary
or appropriate (including actions with respect to the delivery to the
Collateral Agent of a first priority Mortgage with respect to such real
property for the ratable benefit of the Secured Parties);
(v) each request shall be accompanied by waivers of lien satisfactory
to the Collateral Agent covering that part of the Work for which payment or
reimbursement is being requested and, if required by the Collateral Agent,
by a search prepared by a title company or licensed abstractor or by other
evidence satisfactory to the Collateral Agent, that there has not been
filed with respect to such Mortgaged Property any mechanics' or other lien
or instrument for the retention of title in respect of any part of the Work
not discharged of record or bonded to the reasonable satisfaction of the
Collateral Agent;
(vi) there shall be no Default or Event of Default that has occurred
and is continuing;
(vii) the request for any payment after the Work has been completed
shall be accompanied by a copy of any certificate or certificates required
by law to render occupancy of the improvements being rebuilt, repaired or
restored legal; and
(viii) after commencing the Work, the Borrower shall continue to
perform the Work diligently and in good faith to completion in accordance
with the approved plans and specifications.
Upon completion of the Work and payment in full therefor, the Collateral Agent
will disburse to the Borrower the amount of any Casualty Proceeds or
Condemnation Proceeds then or thereafter in the hands of the Collateral Agent on
account of the Casualty or Taking that necessitated such Work to be applied (x)
to prepay obligations outstanding under this Agreement, with any excess being
returned to the Borrower, or (y) to be reinvested in the Borrower's principal
lines of business within 180 days after the receipt thereof, provided that the
Borrower, pending such reinvestment, promptly deposits such amounts in a cash
collateral account established with the Collateral Agent for the benefit of the
Secured Parties.
(f) Notwithstanding any other provisions of this Section, if the Borrower
shall have elected to replace a Mortgaged Property in connection with a total or
"substantially all" Condemnation as contemplated in clause (c), all Condemnation
Proceeds held by the Collateral Agent in connection therewith shall be applied
to prepay obligations outstanding under this Agreement if (i) the Borrower
notifies the Collateral Agent and the Administrative Agent that it does not
intend to replace the related Mortgaged Property, (ii) a Responsible Officer of
the Borrower shall not have notified the Administrative Agent and the Collateral
Agent in writing that the Borrower has acquired or has entered into a binding
contract to acquire land upon which it will construct the replacement property
within six months after the related Condemnation or (iii) the Borrower shall
have not notified the Administrative Agent and the Collateral Agent in writing
that it has begun construction of the replacement structures within one year
after the related Condemnation.
(g) Nothing in this Section shall prevent the Collateral Agent from
applying at any time all or any part of the Casualty Proceeds or Condemnation
Proceeds to (i) the curing of any Event of Default under this Agreement or (ii)
the payment of any of the Obligations after the occurrence and during the
continuance of an Event of Default.
SECTION 5.13. Compliance with Laws. The Borrower shall, and cause each
Restricted
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Subsidiary to, comply with the requirements of all laws, rules and regulations,
and all judgments, writs, injunctions, decrees and orders of any Governmental
Authority, that are applicable to it or to any of its properties, except where
noncompliance could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.14. Interest Rate Protection. Within 90 days after the Closing
Date, the Borrower shall enter into, and for a period of three years thereafter
maintain at all times, in full force and effect, Interest Rate Agreements at
rates, in form and with parties reasonably satisfactory to the Administrative
Agent, the effect of which shall be to set at fixed rates the interest cost to
the Borrower and its Subsidiaries with respect to at least 50% of the sum (at
any time of determination) of the outstanding principal amount of the Loans.
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any
Restricted Subsidiary to, incur, create, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness for borrowed money existing on the date hereof and
set forth in Schedule 6.01(a); provided, however, that such Indebtedness
shall be repaid concurrently with the incurrence of the Borrowing of the
Initial Credit Event hereunder ("Indebtedness to be Paid");
(b) Indebtedness represented by the Notes and by the other Credit
Documents;
(c) Indebtedness (i) of the Borrower to any wholly owned Restricted
Subsidiary or to any Guarantor and (ii) of any Restricted Subsidiary to the
Borrower or any wholly owned Restricted Subsidiary;
(d) Indebtedness represented by the Guarantees of Indebtedness
Incurred pursuant to clause (c);
(e) Indebtedness relating to (i) Capital Lease Obligations,
Sale/Leaseback Transactions and Permitted Purchase Money Liens; provided,
that with respect to Capital Lease Obligations, Indebtedness relating to
Purchase Money Liens and Sale/Leaseback Transactions, either (A) the
Incurrence of such Indebtedness relating to Capital Expenditures,
Sale/Leaseback Transactions and Permitted Purchase Money Liens would be
permitted pursuant to Section 6.09 in the fiscal year in which it is
Incurred, or (B) the aggregate principal amount of such Indebtedness does
not exceed $5,000,000 at any one time and (ii) Restricted Sale/Leaseback
Transactions, if the Net Cash Proceeds thereof are applied in accordance
with Section 2.13(b)
(f) Indebtedness under Hedging Obligations; provided, however, that
such Hedging Obligations are entered into for bona fide hedging purposes of
the Borrower or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors or senior management of the Borrower) and correspond
in terms of notional amount, duration, currencies and interest rates, as
applicable, to Indebtedness of the Borrower or its Restricted Subsidiaries
Incurred without violation of this Agreement or to business transactions of
the Borrower or its Restricted Subsidiaries on customary terms entered into
in the ordinary course of business; and
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(g) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (a) through (f)) does not exceed $5,000,000 at any one
time outstanding.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower and its Subsidiaries
existing on the date hereof and set forth in Schedule 6.02(a); provided
that such Liens shall secure only those obligations which they secure on
the date hereof;
(b) any Lien created under the Credit Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided that (i)
such Lien is not created in contemplation of or in connection with such
acquisition, and (ii) such Lien does not apply to any other property or
assets of the Borrower or any Subsidiary;
(d) Liens for taxes not yet due or which are being contested in
compliance with Section 5.03;
(e) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations that are not due and payable or which are being contested in
compliance with Section 5.03;
(f) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(g) Liens and deposits to secure the performance of bids, contracts
(other than for Indebtedness), leases (other than Capital Lease
Obligations), statutory obligations, surety, indemnity and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(i) Liens relating to Indebtedness described in Section 6.01(e);
(j) any interest or title of a lessor or any Lien encumbering such
lessor's interest with respect to any lease to the Borrower or any
Subsidiary;
(k) judgment Liens that do not otherwise constitute an Event of
Default; and
(l) unperfected Liens of any vendor on inventory sold by such vendor
securing the unpaid purchase price of such inventory, to the extent such
Liens are stated to be reserved
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in such vendor's sale documents (and not granted by separate agreement of
the Borrower or any Subsidiary).
SECTION 6.03. Investments, Loans and Advances. The Borrower will not, and
will not permit any Restricted Subsidiary to, make or permit to exist any
Investment in any other person, except:
(a) Investments by the Borrower existing on the date hereof in the
capital stock of the Subsidiaries;
(b) Permitted Investments;
(c) Investments in Unrestricted Subsidiaries not to exceed $20,000 in
the aggregate; and
(d) Investments in Restricted Subsidiaries;
(e) Investments made in connection with Permitted Investments;
(f) Investments which would be permitted as Indebtedness pursuant to
Section 6.01;
(g) loans and advances to employees of the Borrowers and any
Restricted Subsidiary made in the ordinary course of business consistent
with past practices of the Borrower or such Restricted Subsidiary; provided
that the aggregate principal amount of such loans, advances and Employee
Notes payable shall not exceed $1,000,000 at any one time outstanding;
(h) loans and advances to, or Employee Notes received from, employees
of the Borrower or any of its Subsidiaries made or received in connection
with the substantially concurrent purchase of common stock of the Borrower
by such employees; provided that the aggregate principal amount of such
loans, advances and Employee Notes payable shall not exceed $1,000,000 at
any one time outstanding;
(i) Investments by Subsidiaries in the Borrower;
(j) Investments in purchasing cooperatives required of members arising
in the ordinary course of the Borrower's business consistent with past
practice, not to exceed $2,000,000 in the aggregate at any time; and
(k) other Investments in an aggregate amount not in excess of
$500,000 at any one time outstanding.
SECTION 6.04. Mergers, Consolidations, Sales of Assets and Acquisitions.
(a)The Borrower will not merge, consolidate or amalgamate with or into any other
person (other than a merger of a wholly owned Restricted Subsidiary into the
Borrower) unless: (i) the Borrower shall be the surviving person (the
"Surviving Person") or the Surviving Person (if other than the Borrower) formed
by such merger, consolidation or amalgamation shall be a corporation organized
and existing under the laws of the State of Delaware, (ii) the Surviving Person
(if other than the Borrower) shall expressly assume, by an agreement
satisfactory in form and substance to the Agents, executed and delivered to the
Agents by the Surviving Person, the due and punctual performance of all of the
obligations and agreements of the Borrower under this Agreement, (iii)
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immediately after giving effect to such merger, consolidation or amalgamation,
no Default or Event of Default shall have occurred, and (iv) the Borrower shall
have carried out any acts necessary to ensure that any security interest
purported to be created by any Security Document shall continue to be a valid,
perfected, first priority (except as otherwise expressly provided in this
Agreement or such Security Document) security interest in the applicable
Collateral.
(b) The Borrower will not permit any Restricted Subsidiary to merge into,
consolidate with, or liquidate or dissolve into, any other person, or permit any
other person to merge into, consolidate with, or be liquidated or dissolved
into, such Restricted Subsidiary, except that if at the time thereof and
immediately after giving effect thereto no Event of Default or Default shall
have occurred and be continuing (i) any wholly owned Restricted Subsidiary may
merge into, consolidate with, or be liquidated or dissolved into, the Borrower
in a transaction in which the Borrower is the surviving corporation, (ii) any
wholly owned Restricted Subsidiary may merge into, consolidate with, or
liquidate or dissolve into, any other wholly owned Restricted Subsidiary in a
transaction in which the surviving entity is a wholly owned Restricted
Subsidiary and no person other than the Borrower or a wholly owned Restricted
Subsidiary receives any consideration; provided, however, that the surviving
wholly owned Restricted Subsidiary assumes all of the obligations of the non-
surviving wholly owned Restricted Subsidiary under the Credit Documents.
(c) The Borrower will not, and will not permit any Restricted Subsidiary
to, purchase, lease, or otherwise acquire (in one transaction or a series of
transactions) any Assets or Capital Stock of any person other than in the
ordinary course of the Borrower's business.
(d) The Borrower will not, and will not permit any Restricted Subsidiary
to, enter into any Asset Disposition or Sale/Leaseback Transaction, except for
(i) Unrestricted Asset Dispositions, (ii) Unrestricted Sale/Leaseback
Transactions permitted by Section 6.01(e), (iii) Restricted Asset Dispositions,
the Net Cash Proceeds of which are applied in accordance with Section 2.13(b),
and (iv) Restricted Sale/Leaseback Transactions which are permitted by Section
6.01(e) and the Net Cash Proceeds of which are applied in accordance with
Section 2.13(b).
SECTION 6.05. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends. The Borrower shall not, and the Borrower shall
not permit any Restricted Subsidiary to,
(a) (1) directly or indirectly, declare or pay any dividend or make any
distribution (whether in cash, securities or other Property) on or with respect
to the Capital Stock of the Borrower or any Restricted Subsidiary (including any
payment in connection with any merger or consolidation with or into the Borrower
or any Restricted Subsidiary) except for
(x) any dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock), or
(y) any dividend or distribution which is made to the Borrower or a
wholly owned Restricted Subsidiary, or
(2) purchase, repurchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Borrower or any Affiliate of the Borrower held by persons
other than the Borrower or a Restricted Subsidiary or any Securities
exchangeable for or convertible into any such Capital Stock (other than for or
into Capital Stock of the Borrower that is not Disqualified Stock), or
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior
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to scheduled maturity, scheduled repayment or scheduled sinking fund payment any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition, or the refinancing of any
Subordinated Obligations with Refinancing Indebtedness), or
(4) make any Investment (other than pursuant to Section 6.03) in any person
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment"); provided, however, that
(i) the Borrower may purchase, repurchase, redeem, legally defease,
acquire or retire for value, shares of, or options to purchase shares of,
its Capital Stock from employees or former employees of the Borrower or any
of its Subsidiaries (or their estates or beneficiaries thereof) (A) in
connection with the Recapitalization in an amount not to exceed $4,020,000
in the aggregate representing the repurchase of outstanding stock options
from employees of the Borrower and its Subsidiaries, and (B) upon death,
disability, retirement or termination pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the board of directors of the Borrower under which
such individuals purchase or sell, or are granted the option to purchase or
sell, shares of such Capital Stock; provided, that (i) the aggregate amount
of such purchases, repurchases, redemptions, defeasances, acquisitions or
retirements under clause (i)(B) shall not exceed $2,500,000 in any fiscal
year and $5,000,000 in the aggregate after the Closing Date, except that
(x) such amounts shall be increased by the aggregate net amount of cash
received by the Borrower after the Closing Date from the sale of such
Capital Stock to, or the exercise of options to purchase such shares by,
employees of the Borrower or any of its Subsidiaries, and (y) the Borrower
may forgive or return Employee Notes without regard to the limitations set
forth in clause (i)(B) and such forgiveness or return shall not be treated
as a Restricted Payment for purpose of determining compliance with clause
(i)(B);
(ii) the Borrower may redeem the Exchangeable Preferred Stock
(including accreted PIK liquidation preference) with Net Cash Proceeds of
an Equity Issuance pursuant to Section 2.13(c)(i) in accordance with its
terms; or
(iii) beginning on the fifth anniversary of the Closing Date, the
Borrower may pay cash dividends on Exchangeable Preferred Stock to the
extent provided by the terms of the Exchangeable Preferred Stock; provided,
however, that after giving effect to such payment, the Debt/Adjusted EBITDA
Ratio on a pro forma basis (taking account of such payment) shall not
exceed 1.5:1.0; or
(b) Permit its subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any such subsidiary to (i) pay any
dividends or make any other distributions on its capital stock or any other
interest or (ii) make or repay any loans or advances to the Borrower of such
subsidiary.
SECTION 6.06. Transactions with Affiliates. Except as set forth in Schedule
6.06, the Borrower shall not, and the Borrower shall not permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into or
suffer to exist any transaction or series of transactions (including the
purchase, sale, transfer, assignment, lease, conveyance or exchange of any
Property or the rendering of any service) with, or for the benefit of, any
Affiliate of the Borrower, other than the payment of Transaction Costs approved
by the Syndication Agent prior to the Closing Date (an "Affiliate Transaction"),
unless the terms of such Affiliate Transaction are
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(i) set forth in writing, (ii) in the interests of the Borrower or such
Restricted Subsidiary as the case may be, and (iii) no less favorable to the
Borrower or such Restricted Subsidiary, as the case may be, than those that
could be obtained in a comparable arm's length transaction with a person that is
not an Affiliate of the Borrower. Notwithstanding the foregoing limitations, the
Borrower or any Restricted Subsidiary may enter into or permit to exist the
following:
(a) any transaction permitted pursuant to Section 6.03 or Section
6.05;
(b) the issuance of Capital Stock for cash; or
(c) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Borrower or any of the Restricted Subsidiaries, so
long as the board of directors of the Borrower in good faith shall have
approved the terms thereof and deemed the services theretofore or
thereafter to be performed for such compensation to be fair consideration
therefor.
SECTION 6.07. Business of Borrower and Subsidiaries. The Borrower will not,
and will not permit any Restricted Subsidiary to, engage at any time in any
business or business activity other than the business currently conducted by it
and business activities reasonably related or complementary thereto.
SECTION 6.08. Use of Proceeds. (a) The proceeds of the Term Loans shall be
used solely to pay a portion of the Conversion Amount in connection with the
Recapitalization, to repay the Indebtedness to be Paid, and pay a portion of the
Transaction Costs.
(b) The proceeds of the Revolving Loans may be used for working capital
and general corporate purposes of the Borrower (including Permitted
Acquisitions, subject to clause (b) of the definition of Permitted Acquisition);
provided, however, that (i) no more than $0 of Revolving Loans may be borrowed
on the Closing Date, and (ii)] the proceeds of any Revolving Loan made pursuant
to Section 2.22(e) shall be applied only to repay Swingline Loans.
(c) The proceeds of the Swingline Loans may be used for working capital
and general corporate purposes of the Borrower; provided, however, that no
Swingline Loans may be borrowed on the Closing Date.
(d) The Letters of Credit may be used for general corporate purposes.
(e) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation T, U
or X.
SECTION 6.09. Capital Expenditures. The Borrower will not, and will not
permit any Restricted Subsidiary to, or make Capital Expenditures if the
aggregate amount thereof would exceed the following limits in the following
fiscal years; provided, that the unused portion of the scheduled limit for any
fiscal year may be carried forward to be used in the following fiscal year.
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<TABLE>
<CAPTION>
FISCAL YEAR LIMIT
- ----------- -------------
<S> <C>
1998 $2,000,000
1999 $2,000,000
2000 $2,000,000
2001 $2,000,000
2002 $2,500,000
2003 $2,500,000
2004 $2,500,000
2005 $2,500,000
</TABLE>
SECTION 6.10. Debt/Adjusted EBITDA Ratio. The Debt/Adjusted EBITDA Ratio
shall not exceed the following amounts as of the ends of fiscal quarters of the
Borrower ending nearest to the following dates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FISCAL QUARTER DEBT/ADJUSTED EBITDA RATIO
ENDING ---------------------------------------------------------
NEAREST TO 1998 1999 2000 2001 2002 2003 2004 2005
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 4.25 3.50 2.75 2.00 2.00 2.00 2.00
- -------------------------------------------------------------------------
June 30 4.25 3.50 2.75 2.00 2.00 2.00 2.00
- -------------------------------------------------------------------------
September 30 4.25 4.25 3.50 2.75 2.00 2.00 2.00 2.00
- -------------------------------------------------------------------------
December 31 4.25 3.50 2.75 2.00 2.00 2.00 2.00 2.00
- -------------------------------------------------------------------------
</TABLE>
and thereafter, 2.00.
SECTION 6.11. Minimum EBITDA. The EBITDA for the fiscal year of the
Borrower shall not be less than the following amounts as of the end of the
following fiscal years:
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<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NEAREST TO
DECEMBER 31, MINIMUM EBITDA
- -------------------- ------------------
<S> <C>
1998 $23,000,000
1999 $28,500,000
2000 $34,000,000
2001 $40,000,000
2002 $45,000,000
2003 $50,000,000
2004 and thereafter $55,000,000
</TABLE>
SECTION 6.12. Interest Coverage Ratio. (a) The ratio of
(i) the Adjusted EBITDA for the period of four fiscal quarters ending
nearest to September 30, 1998 to
(ii) the product of 4 times the Consolidated Interest Expense for the
period of the fiscal quarter ending nearest to September 30, 1998,
shall not be less than 2.25:1.00.
(a) The ratio of
(i) the Adjusted EBITDA for the period of four fiscal quarters ending
nearest to December 31, 1998 to
(ii) the product of 2 times the Consolidated Interest Expense for the
period of two fiscal quarters ending nearest to December 31, 1998,
shall not be less than 2.25:1.00.
(c) The ratio of
(i) the Adjusted EBITDA for the period of four fiscal quarters ending
nearest to March 31, 1999 to
(ii) the product of 1.33 times the Consolidated Interest Expense for
the period of three fiscal quarters ending nearest to March 31, 1999,
shall not be less than 2.25:1.00.
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(d) The ratio of Adjusted EBITDA to Consolidated Interest Expense for the
period of four fiscal quarters ending nearest to each of the following dates,
shall not be less than the following ratios:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
CONSOLIDATED INTEREST COVERAGE RATIO
FISCAL QUARTER -------------------------------------------------
ENDING NEAREST TO 1999 2000 2001 2002 2003 2004 2005
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31 2.75 3.75 4.50 4.50 4.50 4.50
- ----------------------------------------------------------------------
June 30 2.25 2.75 3.75 4.50 4.50 4.50 4.50
- ----------------------------------------------------------------------
September 30 2.25 2.75 3.75 4.50 4.50 4.50 4.50
- ----------------------------------------------------------------------
December 31 2.75 3.75 4.50 4.50 4.50 4.50 4.50
- ----------------------------------------------------------------------
</TABLE>
and thereafter, 4.50.
SECTION 6.13. Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio as of the end of any period of four fiscal quarters shall not be less than
1.2:1.0, beginning with the fiscal quarter ending nearest to March 31, 1999.
SECTION 6.14. Modification of Certain Agreements. Neither the Borrower nor
any Restricted Subsidiary shall consent to any amendment, supplement or other
modification of any of the terms or provisions contained in the Exchangeable
Preferred Stock, or any document or instrument evidencing or applicable to any
Subordinated Obligation, other than any amendment, supplement or other
modification which extends the date or reduces the amount of any required
repayment or redemption.
ARTICLE VII
Defaults and Remedies
SECTION 7.01. Events of Default. In case of the happening of any of the
following events ("Events of Default"):
(a) any representation or warranty made or deemed made in or in
connection with any Credit Document or the borrowings or issuances of
Letters of Credit hereunder, or any representation, warranty, statement or
information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to any Credit
Document, shall prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
or the reimbursement with respect to any L/C Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan
or any Fee or L/C Disbursement (after demand for such reimbursement) or any
other amount (other than an amount referred to in clause (b)) due under any
Credit Document, when and as the same shall become due and payable, and
such default shall continue unremedied for a
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period of three Business Days;
(d) default shall be made in the due observance or performance by the
Borrower or any Restricted Subsidiary of any covenant, condition or
agreement contained in Section 5.01(a), 5.05 or 5.07(b) or in Article VI;
(e) default shall be made in the due observance or performance by the
Borrower or any Restricted Subsidiary of any covenant, condition or
agreement contained in any Credit Document (other than those specified in
clause (b), (c) or (d) ) and such default shall continue unremedied for a
period of 15 days after notice thereof from the Administrative Agent or any
Lender to the Borrower;
(f) the Borrower or any Restricted Subsidiary shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $2,500,000, when and as the
same shall become due and payable, or (ii) fail to observe or perform any
other term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness if the effect of
any failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their behalf
(with or without the giving of notice, the lapse of time or both) to cause,
such Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Borrower or any Material Subsidiary, or of a
substantial part of the property or assets of the Borrower or a Material
Subsidiary, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Material Subsidiary or for a substantial part of
the property or assets of the Borrower or a Material Subsidiary, (iii) the
winding-up or liquidation of the Borrower or any Material Subsidiary; and
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered, or (iv) any similar relief is granted under any foreign laws;
(h) the Borrower or any Material Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any petition
described in clause (g), (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Material Subsidiary or for a substantial part of
the property or assets of the Borrower or any Material Subsidiary, (iv)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing its inability or
fail generally to pay its debts as they become due or (vii) take any action
for the purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $2,500,000 shall be rendered against the Borrower, any
Restricted Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall
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<PAGE>
be legally taken (and not stayed) by a judgment creditor to levy upon
assets or properties of the Borrower or any Subsidiary to enforce any such
judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events,
could reasonably be expected to result in liability of the Borrower and its
ERISA Affiliates in an aggregate amount exceeding $1,000,000 or requires
payments exceeding $500,000 in any year;
(k) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by the Borrower or any
other Credit Party not to be, a valid, perfected, first priority (except as
otherwise expressly provided in this Agreement or such Security Document)
security interest in securities, assets or properties with an aggregate
Fair Market Value of $500,000 or more and purported to be covered thereby,
except to the extent that any such loss of perfection or priority results
from the failure of the Collateral Agent to maintain possession of
certificates representing securities pledged under the Pledge Agreement and
except to the extent that such loss is covered by a lender's title
insurance policy and the related insurer promptly after such loss shall
have acknowledged in writing that such loss is covered by such title
insurance policy;
(l) any Credit Document shall cease, for any reason, to be in full
force and effect or any Credit Party or any of its Subsidiaries shall so
assert in writing; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h)), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Credit Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Credit Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in clause (g) or (h), the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Credit
Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other
Credit Document to the contrary notwithstanding.
ARTICLE VII
The Agents
SECTION 8.01. Appointment of Administrative and Collateral Agent. In order
to expedite the transactions contemplated by this Agreement, Citicorp USA, Inc.
is hereby appointed to act as Administrative Agent and Collateral Agent on
behalf of the Lenders and the Issuing Bank, and Salomon Brothers Inc is hereby
appointed to act as Syndication Agent on behalf of the Lenders and the Issuing
Bank (for purposes of this Article VIII, the Administrative Agent, the
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<PAGE>
Collateral Agent and the Syndication Agent are referred to collectively as the
"Agents"). Each of the Lenders and each subsequent holder of any Note by its
acceptance thereof, hereby irrevocably authorizes the Agents to take such
actions on behalf of such Lender or holder or the Issuing Bank and to exercise
such powers as are specifically delegated to the Agents by the terms and
provisions hereof and of the other Credit Documents, together with such actions
and powers as are reasonably incidental thereto. The Administrative Agent is
hereby expressly authorized by the Lenders and the Issuing Bank, without hereby
limiting any implied authority, (a) to receive on behalf of the Lenders and the
Issuing Bank all payments of principal of and interest on the Loans, all
payments in respect of L/C Disbursements and all other amounts due to the
Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank
its proper share of each payment so received; (b) to give notice on behalf of
each of the Lenders to the Borrower of any Event of Default specified in this
Agreement of which the Administrative Agent has actual knowledge acquired in
connection with its agency hereunder; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials delivered by the
Borrower or any other Credit Party pursuant to this Agreement or the other
Credit Documents as received by the Administrative Agent. Without limiting the
generality of the foregoing, the Agents are hereby expressly authorized to
execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this Agreement and the
Security Documents.
SECTION 8.02. Limitations on Liabilities. Neither the Agents nor any of
their respective directors, officers, employees or agents shall be liable as
such for any action taken or omitted by any of them except for its or his own
gross negligence or wilful misconduct, or be responsible for any statement,
warranty or representation herein or the contents of any document delivered in
connection herewith, or be required to ascertain or to make any inquiry
concerning the performance or observance by the Borrower or any other Credit
Party of any of the terms, conditions, covenants or agreements contained in any
Credit Document. The Agents shall not be responsible to the Lenders or the
holders of the Notes for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement, the Notes or any other Credit
Documents, instruments or agreements. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof until
it shall have received from the payee of such Note notice, given as provided
herein, of the transfer thereof in compliance with Section 9.04. The Agents
shall in all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Required Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders and each
subsequent holder of any Note. Each Agent shall, in the absence of knowledge to
the contrary, be entitled to rely on any instrument or document believed by it
in good faith to be genuine and correct and to have been signed or sent by the
proper person or persons. Neither the Agents nor any of their respective
directors, officers, employees or agents shall have any responsibility to the
Borrower or any other Credit Party on account of the failure of or delay in
performance or breach by any Lender or the Issuing Bank of any of its
obligations hereunder or to any Lender or the Issuing Bank on account of the
failure of or delay in performance or breach by any other Lender or the Issuing
Bank or the Borrower or any other Credit Party of any of their respective
obligations hereunder or under any other Credit Document or in connection
herewith or therewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good faith
by it in accordance with the advice of such counsel. Neither Agent shall have
any responsibility for determining the existence of a Default or Event of
Default.
SECTION 8.03. Acting at the Direction of the Required Lenders. The Lenders
hereby acknowledge that neither Agent shall be under any duty to take any
discretionary action permitted
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<PAGE>
to be taken by it pursuant to the provisions of this Agreement unless it shall
be requested in writing to do so by the Required Lenders.
SECTION 8.04. Resignation of the Administrative Agent or the Collateral
Agent. Subject to, and effective upon, the appointment and acceptance of a
successor Agent as provided below, either Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor. If no successor shall have
been so appointed by the Required Lenders (subject, so long as no Event of
Default has occurred and is continuing, to the consent of the Borrower, which
consent shall not be unreasonably withheld or delayed) and shall have accepted
such appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a bank with an office in New York, New York,
having a combined capital and surplus of at least $500,000,000 or an Affiliate
of any such bank. Upon the acceptance of any appointment as Agent hereunder by
a successor bank, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations hereunder. After the
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
SECTION 8.05. Other Transactions. With respect to the Loans made by it
hereunder and the Notes issued to it, each Agent in its individual capacity and
not as Agent shall have the same rights and powers as any other Lender and may
exercise the same as though it were not an Agent, and the Agents and their
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not an Agent.
SECTION 8.06. Reimbursement and Indemnity. Each Lender agrees (a) to
reimburse the Agents, on demand, in the amount of its pro rata share (based on
its Commitments hereunder) of any expenses incurred for the benefit of the
Lenders by the Agents, including counsel fees (including the allocated costs of
in-house legal counsel) and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless each Agent and any of its
directors, officers, employees or agents, on demand, in the amount of such pro
rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against it in its capacity as Agent or any of them in any way
relating to or arising out of this Agreement or any other Credit Document or any
action taken or omitted by it or any of them under this Agreement or any other
Credit Document, to the extent the same shall not have been reimbursed by the
Borrower or any other Credit Party, provided that no Lender shall be liable to
an Agent or any such other indemnified person for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Agent or any of its directors, officers,
employees or agents. Each Revolving Credit Lender agrees to reimburse each the
Issuing Bank and its directors, employees and agents, in each case, to the same
extent and subject to the same limitations as provided above for the Agents.
SECTION 8.07. No Reliance. Each Lender acknowledges that it has,
independently and without reliance upon the Agents or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance
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upon the Agents or any other Lender and based on such documents and information
as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement or
any other Credit Document, any related agreement or any document furnished
hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower to it at 9100 Winkler Boulevard, Houston, Texas
77017 (or after notice by the Borrower to the Administrative Agent, at
10050 Cash Road, Stafford, Texas 77477), Attention of Chief Financial
Officer (telecopy: 713-943-8443) with a copy to Freeman Spogli & Co.
Incorporated, 11100 Santa Monica Boulevard, Los Angeles, CA 90025,
Attention of Jon D. Ralph (telecopy: 310-444-1870);
(b) if to the Administrative Agent with respect to notices under
Article II, to Citicorp USA, Inc., Two Penns Way, Suite 200, New Castle,
Delaware 19720, Attention of Carlos Lopez (telephone: 302-894-6007),
(telecopy: 302-894-6120);
(c) if to the Administrative Agent with respect to other notices, to
Citicorp USA, Inc., 725 South Figueroa Street, Los Angeles, California
90017, Attention of Michael Leyland (telephone: 213-239-1982), (telecopy:
213-239-1899);
(d) if to the Syndication Agent, to Salomon Smith Barney, 7 World
Trade Center, New York, NY 10048, Attention of David Wirdnam, (telecopy:
212-783-2823); and
(d) if to a Lender, to it at its address (or telecopy number) set
forth on Annex 2 or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Credit Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans, the issuance of Letters of Credit by the
Issuing Bank and the execution and delivery to the Lenders of the Notes
evidencing such Loans, regardless of any investigation made by the Lenders or
the Issuing Bank or on their behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any Fee or
any other amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not been terminated. The provisions of Sections 2.14, 2.16,
2.20 and 9.05 shall remain operative and in full
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force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Credit Document, or any investigation made by or on
behalf of the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank.
SECTION 9.03. Effectiveness; Termination. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns. This Agreement shall remain in effect and until the Commitments have
been terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Credit Document shall have been paid
in full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the permitted successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Borrower, the Administrative Agent, the
Issuing Bank or the Lenders that are contained in this Agreement shall bind and
inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it and the Notes
held by it); provided, however, that
(x) the Borrower and the Administrative Agent and (only with respect
to Revolving Credit Commitments and Revolving Credit Loans) the Swingling
Lender and the Issuing Bank must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), except in
the case of an assignment to a Lender or an Affiliate of such Lender of any
Loan or Note (when no consent of any party is required), or at any time
when an Event of Default has occurred and is continuing (when no consent of
the Borrower is required), and
(y) the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 (or, if less, the
entire remaining amount of such Lender's Commitment), (ii) each such
assignment shall be of a constant, and not a varying, percentage of all the
assigning Lender's rights and obligations with respect to the Revolving
Credit Commitments and/or the Term Loans, (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with the Note or Notes subject to such
assignment and a processing and recordation fee of $3,500 and (iv) the
assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and recording
pursuant to clause (e) of this Section, from and after the effective date
specified in each Assignment and Acceptance, (A) the assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under
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this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 2.14,
2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not
yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Tranche A Commitment, Tranche B Commitment and Revolving Credit Commitment,
and the outstanding balances of its Tranche A Term Loans, Tranche B Term Loans
and Revolving Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in clause (i), such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Credit Document or any other
instrument or document furnished pursuant hereto, or the financial condition of
the Borrower or any Subsidiary or the performance or observance by the Borrower
or any Subsidiary of any of its obligations under this Agreement, any other
Credit Document or any other instrument or document furnished pursuant hereto;
(iii) such assignee represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance; (iv) such assignee confirms that it
has received a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant to
Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Collateral Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent and the Collateral Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Administrative Agent and the Collateral Agent,
respectively, by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by the Borrower, the Issuing Bank, the Collateral
Agent and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with the Note or Notes
subject to such assignment, an Administrative Questionnaire completed in respect
of the assignee (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in clause (b) and, if required, the
written consent of the Borrower, the Administrative Agent and (only with respect
to
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Revolving Credit Commitments and Revolving Credit Loans) the Swingline Lender
and the Issuing Bank to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Lenders, the
Issuing Bank and the Swingline Lender. No assignment shall be effective unless
it has been recorded in the Register as provided in this clause. Within five
Business Days after receipt of notice, (i) the Borrower, at its own expense,
shall execute and deliver to the Administrative Agent new Notes payable to the
order of such assignee (or, if such assignee shall so request, to such assignee
or registered assigns) representing Loans made pursuant to the Commitments
assumed by it or Term Loans acquired by it, as the case may be, pursuant to such
Assignment and Acceptance and (ii) the assigning Lender, if it shall cease to be
a party hereto as provided in clause (a), shall deliver the Notes held by it to
the Borrower for cancelation. The new Notes delivered to such assignee shall be
dated the date of the original Notes issued hereunder and shall otherwise be in
substantially the form of the appropriate Exhibit or Exhibits thereto.
(f) Each Lender may without the consent of the Borrower, the Swingline
Lender, the Issuing Bank or the Administrative Agent sell participations to one
or more banks or other entities in all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it and the Notes held by it); provided, however, that (i)
such Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall be entitled to the benefit of the cost protection provisions contained in
Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv)
the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers which extend the final scheduled maturity of any Loan, Note or Letter of
Credit (unless such Letter of Credit is not extended beyond the Maturity Date)
in which such participant is participating, or reduce the rate or extend the
time of payment of interest or Fees thereon (except in connection with a waiver
of applicability of any post-default increase in interest amounts) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (provided that a waiver of
any Default or of a mandatory reduction in the Commitment shall not constitute a
change in the terms of such participation, and that an increase in any
Commitment or Loan shall be permitted without the consent of any participant if
the participant's participation is not increased thereby), or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section,
disclose to the assignee or participant or proposed assignee or participant any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure of information
designated by the Borrower as confidential, each such assignee or participant or
proposed assignee or participant shall agree (subject to customary exceptions)
to preserve the confidentiality of such confidential information on terms no
less restrictive than those applicable to the Lenders pursuant to Section 9.16.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement and the Notes issued to it to a Federal Reserve Bank to
secure extensions of credit by such Federal Reserve Bank to such Lender;
provided that no such assignment shall release a
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Lender from any of its obligations hereunder or substitute any such Bank for
such Lender as a party hereto.
(i) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank and each Lender, and any attempted assignment without such consent
shall be null and void.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
out-of-pocket expenses incurred by the Administrative Agent, the Collateral
Agent, the Issuing Bank and the Swingline Lender in connection with the
syndication of the credit facilities provided for herein and the preparation and
administration of this Agreement and the other Credit Documents or in connection
with any amendments, modifications or waivers of the provisions hereof or
thereof (whether or not the transactions hereby or thereby contemplated shall be
consummated) or incurred by the Administrative Agent, the Collateral Agent or
any Lender in connection with the enforcement or protection of its rights in
connection with this Agreement and the other Credit Documents or in connection
with the Loans made or the Notes or Letters of Credit issued hereunder,
including the fees, charges and disbursements of Cravath, Swaine & Moore,
counsel for the Administrative Agent and the Collateral Agent, and, in
connection with any such enforcement or protection, the fees, charges and
disbursements of any other counsel for the Administrative Agent, the Collateral
Agent or any Lender (including the allocated costs of in-house legal counsel).
(b) The Borrower agrees to indemnify the Administrative Agent, the
Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of the
foregoing persons and each of their respective directors, officers, employees
and agents (each such person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees (including the allocated
costs of in-house legal counsel), charges and disbursements, incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or as
a result of (i) the execution or delivery of this Agreement or any other Credit
Document or any agreement or instrument contemplated thereby, the performance by
the parties thereto of their respective obligations thereunder or the
consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of
Credit, (iii) any claim, litigation, investigation or proceeding relating to any
of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any
actual or alleged presence or Release of Hazardous Materials on any property
owned or operated by the Borrower or any of the Subsidiaries, or any
Environmental Claim related in any way to the Borrower or the Subsidiaries;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.
(c) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the expiration of the Commitments, the expiration of any Letter of
Credit, the invalidity or unenforceability of any term or provision of this
Agreement or any other Credit Document, or any investigation made by or on
behalf of the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank. All amounts due under this Section shall be payable on written
demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, except to the
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extent prohibited by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Agreement and other Credit Documents held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement or such other Credit Document and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER CREDIT
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER
CREDIT DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment; Replacement Lenders. (a) No failure or
delay of the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank in exercising any power or right hereunder or under any other
Credit Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Collateral Agent, the
Issuing Bank and the Lenders hereunder and under the other Credit Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or any other
Credit Document or consent to any departure by the Borrower or any other Credit
Party therefrom shall in any event be effective unless the same shall be
permitted by clause (b), and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Required Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the date of any
scheduled payment or mandatory prepayment of principal of, or the date of any
payment of any interest on, any Loan or any date for reimbursement of an L/C
Disbursement, or waive or excuse any such payment or any part thereof, or
decrease the rate of interest on any Loan or L/C Disbursement, without the prior
written consent of each Lender affected thereby, (ii) change or extend the
Commitment or decrease or extend the date for payment of the Commitment Fees of
any Lender without the prior written consent of each Lender affected thereby,
(iii) amend or modify the provisions of Section 2.17 or 9.04(i), the provisions
of this Section, the definition of the term "Required Lenders" or release any
Guarantor or all or any substantial part of the Collateral, without the prior
written consent of each Lender, (iv) change the allocation between Tranche A
Term Loans and Tranche B Term Loans of any prepayment pursuant to Section 2.12
or 2.13 without the prior written consent of (A) Lenders holding Tranche A Term
Loans representing more than 50% of the aggregate outstanding principal amount
of the Tranche A Term Loans and (B) Lenders holding Tranche B Term Loans
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representing more than 50% of the aggregate outstanding principal amount of the
Tranche B Term Loans, (v) amend Section 2.13(j) without the prior written
consent of Lenders holding Tranche B Term Loans representing more than 50% of
the aggregate outstanding principal amount of the Tranche B Term Loans; (vi)
waive or amend any condition precedent to any Credit Event without the prior
written consent of each Lender with a Commitment relating to such Credit Event;
(vii) amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline
Lender hereunder or under any other Loan Document without the prior written
consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or
the Swingline Lender, as the case may be. Each Lender and each holder of a Note
shall be bound by any waiver, amendment or modification authorized by this
Section regardless of whether its Note shall have been marked to make reference
thereto, and any consent by any Lender or holder of a Note pursuant to this
Section shall bind any person subsequently acquiring a Note from it, whether or
not such Note shall have been so marked.
(c) If a Lender refuses to consent to a proposed change, waiver, discharge
or termination with respect to this Agreement which requires the consent of all
of the Lenders and has been approved by the Required Lenders, the Borrower shall
have the right for a 60 day period following such refusal, to replace such
Lender (a "Replaced Lender") with one or more assignees permitted pursuant to
Section 9.04 (collectively, the "Replacement Lender") acceptable to
Administrative Agent and identified by the Borrower, provided that
(i) at the time of any replacement pursuant to this clause, the
Replacement Lender and Replaced Lender shall enter into one or more
Assignment and Acceptances pursuant to Section 9.04(b) (and with all fees
payable pursuant to Section 9.04(b) to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire all of the
outstanding Loans and Commitments (including principal, interest and
Commitment Fees) of, and in each case participations in Letters of Credit
and Swingline Loans by, the Replaced Lender,
(ii) the Replacement Lender shall pay to the Replaced Lender in
respect thereof an amount equal to the sum of (A) an amount equal to the
principal of, and all unpaid interest on, all outstanding Loans of the
Replaced Lender, and all unpaid Commitment Fees payable to the Replaced
Lender, (B) an amount equal to all unpaid drawings with respect to Letters
of Credit that have been funded by (and not reimbursed to) such Replaced
Lender, together with all unpaid interest thereon, (C) an amount equal to
such Replaced Lender's funded participations in any Swingline Loans, and
(D) an amount equal to all unpaid fees owing to the Replaced Lender with
respect thereto,
(iii) the Replacement Lender shall pay to the appropriate Issuing Bank
an amount equal to such Replaced Lender's Applicable Percentage of any
unpaid drawings with respect to Letters of Credit issued by it to the
extent such amount was not theretofore funded by such Replaced Lender, and
(iv) the Replacement Lender shall pay to the Swingline Lender an
amount equal to the unfunded amount of any participation of the Replaced
Lender in a Swingline Loan which is required to be funded; and
(v) all obligations of the Borrower owing to the Replaced Lender other
than principal, interest and Commitment Fees, shall be paid in full to such
Replaced Lender concurrently with such replacement.
Upon the execution of the respective Assignment and Acceptance, recordation of
such assignment
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in the Register by Administrative Agent, and the payment of foregoing amounts,
the Replacement Lender shall become a Lender hereunder and the Replaced Lender
shall cease to constitute a Lender hereunder except with respect to
indemnification provisions under this Agreement which by the terms of this
Agreement survive the termination of this Agreement, which indemnification
provisions shall survive as to such Replaced Lender. Notwithstanding anything to
the contrary contained above, no Issuing Bank may be replaced hereunder at any
time while it has Letters of Credit outstanding hereunder unless arrangements
satisfactory to such Issuing Bank (including the furnishing of a standby letter
of credit in form and substance, and issued by an issuer satisfactory to such
Issuing Bank or the furnishing of cash collateral in amounts and pursuant to
arrangements satisfactory to such Issuing Bank) have been made with respect to
such outstanding Letters of Credit.
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein or
in the Notes to the contrary, if at any time the interest rate applicable to any
Loan or participation in any L/C Disbursement, together with all fees, charges
and other amounts which are treated as interest on such Loan or participation in
such L/C Disbursement under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan or
participation in accordance with applicable law, the rate of interest payable in
respect of such Loan or participation hereunder or under the Note held by such
Lender, together with all Charges payable in respect thereof, shall be limited
to the Maximum Rate and, to the extent lawful, the interest and Charges that
would have been payable in respect of such Loan or participation but were not
payable as a result of the operation of this Section shall be cumulated and the
interest and Charges payable to such Lender in respect of other Loans or
participations or periods shall be increased (but not above the Maximum Rate
therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received
by such Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Credit Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Credit Documents. Nothing in this Agreement or in the
other Credit Documents, expressed or implied, is intended to confer upon any
party other than the parties hereto and thereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement or the other
Credit Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.12. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Credit Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
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and therein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision in
any other jurisdiction). The parties shall endeavor in good-faith negotiations
to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract, and shall become effective as provided in Section 9.03.
Delivery of an executed signature page to this Agreement by telecopy
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Credit Documents against the Borrower or its respective properties in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Credit Documents in
any New York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral
Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and
to use its best efforts to cause its respective agents and representatives to
keep confidential) in accordance with its customary practices the Information
(as defined below) and all copies thereof, extracts therefrom and analyses or
other materials based thereon, except that the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose
Information (a) to such of its respective officers, directors, employees,
agents, affiliates and representatives as need to know such Information, (b) to
the extent requested by any regulatory authority, (c) to the extent otherwise
required by applicable laws and regulations or by any subpoena or similar legal
process,
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(d) in connection with any suit, action or proceeding relating to the
enforcement of its rights hereunder or under the other Credit Documents, (e) to
assignees or participants and prospective assignees or participants who agree to
be bound by the terms of this Section, or (f) to the extent such Information (i)
becomes publicly available other than as a result of a breach of this Section or
(ii) becomes available to the Administrative Agent, the Issuing Bank, any Lender
or the Collateral Agent on a nonconfidential basis from a source other than the
Borrower. For the purposes of this Section, "Information" means all financial
statements, certificates, reports, agreements and information (including all
analyses, compilations and studies prepared by the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing)
that are received from the Borrower and related to the Borrower, any shareholder
of the Borrower or any employee, customer or supplier of the Borrower, other
than any of the foregoing that were available to the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to its disclosure thereto by the Borrower, and which are in the case of
Information provided after the date hereof, clearly identified at the time of
delivery as confidential. The provisions of this Section shall remain operative
and in full force and effect until the second anniversary of the termination of
this Agreement.
89
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CENTURY MAINTENANCE SUPPLY, INC.
by
/s/ Richard E. Penick
------------------------------------
Name: Richard E. Penick
Title: Vice President
CITICORP USA, INC., as Administrative Agent,
Collateral Agent, Swingline Lender and Issuing
Bank,
by
/s/ J. Gregory Davis
------------------------------------
Name: J. Gregory Davis
Title: Attorney-in-Fact
SALOMON BROTHERS INC, as Arranger, Advisor and
Syndication Agent,
by
/s/ R. H. Ivers
---------------------------------------
Name: R. H. Ivers
Title: MA
90
<PAGE>
LENDERS:
SALOMON BROTHERS HOLDING COMPANY INC,
by
/s/ R. H. Ivers
----------------------------------------
Name: R. H. Ivers
Title: MA
<PAGE>
CITICORP USA, INC.,
by
/s/ J. Gregory Davis
-----------------------------------
Name: J. Gregory Davis
Title: Attorney-in-Fact
<PAGE>
FLOATING RATE PORTFOLIO,
by INVESCO SENIOR SECURED MANAGEMENT INC.,
as Attorney-in-Fact
by
/s/ Anne M. McCarthy
----------------------------------
Name: Anne M. McCarthy
Title: Authorized Signatory
<PAGE>
FIRST UNION NATIONAL BANK,
by
/s/ George L. Woolsey
--------------------------------
Name: George L. Woolsey
Title: Vice President
<PAGE>
ING HIGH INCOME PRINCIPAL PRESERVATION FUND
HOLDINGS, LDC
by ING Capital Advisors, Inc.,
as Investment Advisor
by
/s/ Jane M. Nelson
------------------------------
Name: Jane M. Nelson
Title: Senior Vice President & Portfolio
Manager
<PAGE>
ROYAL BANK OF CANADA,
by
/s/ John Lustgarten
--------------------------------
Name: John Lustgarten
Title: Manager
<PAGE>
KZH - SOLEIL - 2 CORPORATION,
by
/s/ Virginia Conway
--------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY,
by
John M. Casparian
------------------------------
Name: John M. Casparian
Title: Investment Officer
<PAGE>
WELLS FARGO BANK,
by
/s/ Delia B. Fance
-----------------------------
Name: Delia B. Fance
Title: Vice President
<PAGE>
EXHIBIT 10.2
SECURITY AGREEMENT dated as of July 8, 1998, among CENTURY
MAINTENANCE SUPPLY, INC., a Delaware corporation (the
"Borrower"), each subsidiary of the Borrower listed on Schedule I
hereto (each such subsidiary individually a "Subsidiary
Guarantor" and collectively, the "Subsidiary Guarantors"; the
Subsidiary Guarantors and the Borrower are referred to
collectively herein as the "Grantors") and CITICORP USA, INC., as
collateral agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of July 8, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders"), Citicorp USA, Inc., as administrative agent for the Lenders
(in such capacity, the "Administrative Agent") and Collateral Agent and as
issuing bank (in such capacity, the "Issuing Bank") and (b) the Subsidiary
Guarantee Agreement dated as of July 8, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Subsidiary Guarantee Agreement"),
among the Subsidiary Guarantors and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Subsidiary Guarantors has agreed to guarantee, among
other things, all the obligations of the Borrower under the Credit Agreement.
The obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Grantors of an agreement in the form hereof to secure (a) the
due and punctual payment by the Borrower of (i) the principal of and premium, if
any, and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Borrower to the Secured Parties under the Credit Agreement and the other
Credit Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the
Credit Agreement and the other Credit Documents, (c) the due and punctual
payment and performance of all the covenants, agreements, obligations and
liabilities of each Credit Party under or pursuant to this Agreement and the
other Credit Documents and (d) the due and punctual payment and performance of
all obligations of the Borrower under each Interest Rate Agreement entered into
with any counterparty that was a Lender (or an Affiliate thereof) at the time
such Interest Rate Agreement was entered into (all the monetary and other
obligations described in the preceding clauses (a) through (d) being
collectively called the "Obligations").
<PAGE>
2
Accordingly, the Grantors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts,
(g) Proceeds and (h) Investment Property.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the
<PAGE>
3
ordinary course of its business provides clearance or settlement services for a
board of trade that has been designated as a contract market pursuant to federal
commodities laws.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the New York Uniform Commercial Code, such
person is the Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a person
or a share, participation or other interest in a person or in property or an
enterprise of a person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term "Financial Asset" shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
<PAGE>
4
"General Intangibles" shall mean all chooses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including corporate or other business records, indemnification
claims, contract rights (including rights under leases, whether entered into as
lessor or lessee, Interest Rate Agreements and other agreements), Intellectual
Property, goodwill, registrations, franchises, tax refund claims and any letter
of credit, guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of any of the
Accounts Receivable.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses,
Trademarks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records describing or used in connection with, any of the
foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as licensee
thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any
<PAGE>
5
other country, including registrations, recordings and pending applications in
the United States Patent and Trademark Office or any similar offices in any
other country, including those listed on Schedule IV, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof,
and the inventions disclosed or claimed therein, including the right to make,
use and/or sell the inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any payment or distribution of money or property received or
receivable with respect to any Collateral, any value received as a consequence
of the possession of any Collateral and any payment received from any insurer or
other person or entity as a result of the destruction, loss, theft, damage or
other involuntary conversion of whatever nature of any asset or property which
constitutes Collateral, and shall include (a) any claim of any Grantor against
any third party for (and the right to sue and recover for and the rights to
damages or profits due or accrued arising out of or in connection with) (i)
past, present or future infringement of any Patent now or hereafter owned by any
Grantor, or licensed under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned by any Grantor
or licensed under a Trademark License or injury to the goodwill associated with
or symbolized by any Trademark now or hereafter owned by any Grantor, (iii)
past, present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to an
Interest Rate Agreement entered into with the Borrower if such counterparty was
a Lender (or an Affiliate thereof) at the time the Interest Rate Agreement was
entered into, (f) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Credit Document and (g) the successors and
assigns of each of the foregoing.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or trade on securities exchanges or securities markets or (ii) are a medium
for investment and by their terms expressly provide that they are a security
governed by Article 8 of the Uniform Commercial Code.
"Securities Account" shall mean an account to which a Financial Asset is
or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
<PAGE>
6
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
"Security Entitlements" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"Security Intermediary" shall mean (a) a clearing corporation or (b) a
person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
mortgages, pledges, hypothecates and transfers as security for the Obligations
as contemplated hereunder to the Collateral Agent, its successors and assigns,
for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in, all of such Grantor's right, title and
interest in, to and under the Collateral (the "Security Interest"); provided,
however, that no mortgage, pledge, hypothecation or security interest shall be
created or granted hereunder if such creation or grant would constitute a
violation of a valid and enforceable restriction on such creation or grant,
unless and until any required consents shall have been obtained. Without
limiting the foregoing, the Collateral Agent is hereby authorized to file one or
more financing statements (including fixture filings), continuation statements,
filings with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any other
country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the
<PAGE>
7
signature of any Grantor, and naming any Grantor or the Grantors as debtors and
the Collateral Agent as secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors severally represent and warrant to the Collateral Agent and
the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant to
the Collateral Agent the Security Interest in such Collateral pursuant hereto
and to execute, deliver and perform its obligations in accordance with the terms
of this Agreement, without the consent or approval of any other person other
than any consent or approval which has been obtained.
SECTION 3.02. Filings. The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete in all material respects. Fully executed Uniform Commercial
Code financing statements (including fixture filings, as applicable) or other
appropriate filings, recordings or registrations containing a description of the
Collateral have been delivered to the Collateral Agent for filing in each
governmental, municipal or other office specified in Schedule 6 to the
Perfection Certificate, which are all the filings, recordings and registrations
(other than filings required to be made in the United States Patent and
Trademark Office and the United States Copyright Office in order to perfect the
Security Interest in Collateral consisting of United States Patents, Trademarks
and Copyrights) that are necessary to publish notice of and protect the validity
of and to establish a legal, valid and perfected security interest in favor of
the Collateral Agent (for the ratable benefit of the Secured Parties) in respect
of all Collateral in which the Security Interest may be perfected by filing,
recording or registration in the United States (or any political subdivision
thereof) and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law with
respect to the filing of continuation statements.
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the
<PAGE>
8
United States Patent and Trademark Office and the United States Copyright
Office, as applicable, within the three month period (commencing as of the date
hereof) pursuant to 35 U.S.C. (S) 261 or 15 U.S.C. (S) 1060 or the one month
period (commencing as of the date hereof) pursuant to 17 U.S.C. (S) 205 and
otherwise as may be required pursuant to the laws of any other necessary
jurisdiction. The Security Interest is and shall be prior to any other Lien on
any of the Collateral, other than Liens expressly permitted to be prior to the
Security Interest pursuant to Section 6.02 of the Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility)
other than (A) with respect to goods in transit between facilities, whether in
vehicles owned by the applicable Grantor or on common carriers, (B) in the case
of temporary warehousing which will last for no longer than one month [and (C)
as set forth on Schedule VI hereto], (iii) in its identity or corporate
structure or (iv) in its Federal Taxpayer Identification Number. Each Grantor
agrees not to effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or otherwise
that are required in order for the Collateral Agent to continue at all times
following such change to have a valid, legal and perfected first priority
security interest in all the Collateral. Each Grantor agrees promptly to notify
the Collateral Agent if any material portion of the Collateral owned or held by
such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds
<PAGE>
9
received with respect to any part of the Collateral, and, at such time or times
as the Collateral Agent may reasonably request, promptly to prepare and deliver
to the Collateral Agent a duly certified schedule or schedules in form and
detail satisfactory to the Collateral Agent showing the identity, amount and
location of any and all Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.04 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by a Financial Officer of the
Borrower (a) setting forth the information required pursuant to Section 2 of the
Perfection Certificate or confirming that there has been no change in such
information since the date of such certificate or the date of the most recent
certificate delivered pursuant to Section 4.02 and (b) certifying that all
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations, including
all refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (a) to the
extent necessary to protect and perfect the Security Interest for a period of
not less than 18 months after the date of such certificate (except as noted
therein with respect to any continuation statements to be filed within such
period). Each certificate delivered pursuant to this Section 4.02 shall
identify in the format of Schedule II, III, IV or V, as applicable, all Patents,
Trademarks, Copyrights and Licenses of any Grantor in existence on the date
thereof and not then listed on such Schedules or previously so identified to the
Collateral Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
promptly pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 10 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its best efforts to
take such
<PAGE>
10
action as shall be necessary in order that all representations and warranties
hereunder shall be true and correct with respect to such Collateral within 30
days after the date it has been notified by the Collateral Agent of the specific
identification of such Collateral.
SECTION 4.05. Inspection and Verification. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate shall have the right,
subject to compliance with Section 5.07 of the Credit Agreement, to inspect the
Collateral, all records related thereto (and to make extracts and copies from
such records) and the premises upon which any of the Collateral is located, to
discuss the Grantors' affairs with the officers of the Grantors and their
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to, the Collateral, including, in the case of Accounts or Collateral in
the possession of any third person, by contacting Account Debtors or the third
person possessing such Collateral for the purpose of making such a verification;
provided, however, that the Collateral Agent shall give the applicable Grantor
reasonable notice of proposed discussions with such Grantor's accountants and
representatives of such Grantor shall be entitled to participate in such
discussions. The Collateral Agent shall have the absolute right to share any
information it gains from such inspection or verification with any Secured Party
(it being understood that any such information shall be deemed to be
"Information" subject to the provisions of Section 9.16 of the Credit
Agreement).
SECTION 4.06. Taxes; Encumbrances. At its option and after notice to the
applicable Grantor, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Credit Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any
Grantor shall take a security interest in any property of an Account Debtor or
any other person to secure payment and performance of an Account, such Grantor
shall promptly assign such security interest to the Collateral Agent. Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
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11
SECTION 4.09. Limitation on Possession of Inventory by Bailee. Each
Grantor agrees that it shall not permit any Inventory to be in the possession or
control of any warehouseman, bailee, agent or processor at any time unless such
warehouseman, bailee, agent or processor shall have been notified of the
Security Interest and shall have agreed in writing to hold the Inventory subject
to the Security Interest and the instructions of the Collateral Agent and to
waive and release any Lien held by it with respect to such Inventory, whether
arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts Receivable, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and in accordance with such prudent and standard practices used in industries
that are the same as or similar to those in which such Grantor is engaged.
SECTION 4.11. Insurance. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.02 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.11, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be payable, upon demand, by the
Grantors to the Collateral Agent and shall be additional Obligations secured
hereby.
SECTION 4.12. Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its Accounts Receivable and its books,
records and documents evidencing or pertaining thereto with an appropriate
reference to the fact that such Accounts Receivable have been assigned to the
Collateral Agent for the benefit of the Secured Parties and that the Collateral
Agent has a security interest therein.
SECTION 4.13. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any
of its licensees to, do any act, or omit to do any act, whereby any Patent which
is material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
<PAGE>
12
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a material Copyright, continue to publish, reproduce, display, adopt
and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party,
<PAGE>
13
such Grantor promptly shall notify the Collateral Agent and shall, if consistent
with good business judgment, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are appropriate
under the circumstances to protect such Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts to obtain all requisite consents or approvals by the
licensor of each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and interest
thereunder to the Collateral Agent or its designee.
(i) Each Grantor shall ensure that fully executed security agreements in
the form hereof and containing a description of all Collateral consisting of
Intellectual Property shall have been received and recorded within three months
after the execution of this Agreement with respect to United States Patents,
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Collateral Agent for recording by the United States
Patent and Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. (S) 261, 15 U.S.C. (S) 1060 or 17 U.S.C. (S) 205 and the regulations
thereunder, as applicable, and otherwise as may be required pursuant to the laws
of any other necessary jurisdiction, to protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral
consisting of Patents, Trademarks and registered Copyrights in which a security
interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).]
ARTICLE V
Power of Attorney
Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent)
as such Grantor's true and lawful agent and attorney-in-fact, and in such
capacity the Collateral Agent shall have the right, with power of substitution
for each Grantor and in each Grantor's name or otherwise, for the use and
benefit of the Collateral Agent and the Secured Parties, upon the occurrence and
during the continuance of an Event of Default (a) to receive, endorse, assign
and/or deliver any and all notes, acceptances, checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof; (b)
to demand, collect, receive payment of, give receipt for and give discharges and
releases of all or any of the Collateral; (c) to sign the name of any Grantor on
any invoice or bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Collateral or to enforce any rights in respect of any Collateral; (f) to
settle, compromise, compound, adjust or defend any
<PAGE>
14
actions, suits or proceedings relating to all or any of the Collateral; (g) to
notify, or to require any Grantor to notify, Account Debtors to make payment
directly to the Collateral Agent; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as requiring or
obligating the Collateral Agent or any Secured Party to make any commitment or
to make any inquiry as to the nature or sufficiency of any payment received by
the Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted to be taken by the Collateral Agent or
any Secured Party with respect to the Collateral or any part thereof shall give
rise to any defense, counterclaim or offset in favor of any Grantor or to any
claim or action against the Collateral Agent or any Secured Party. It is
understood and agreed that the appointment of the Collateral Agent as the agent
and attorney-in-fact of the Grantors for the purposes set forth above is coupled
with an interest and is irrevocable. The provisions of this Section shall in no
event relieve any Grantor of any of its obligations hereunder or under any other
Credit Document with respect to the Collateral or any part thereof or impose any
obligation on the Collateral Agent or any Secured Party to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Secured Party of any other
or further right which it may have on the date of this Agreement or hereafter,
whether hereunder, under any other Credit Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized
<PAGE>
15
at any such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and appraisal which such
Grantor now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or
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16
decree of a court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Credit Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Credit Document on behalf of
any Grantor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Credit
Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral
Agent shall be exercised, at the option of the Collateral Agent, upon the
occurrence and during the continuation of an Event of Default; provided that any
license, sub-license or other transaction entered into by the Collateral Agent
in accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
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17
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Guarantor shall be given to it at its
address or telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Credit Document,
any agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Credit Document or any other agreement or
instrument, (c) any exchange, release or non-perfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This
Agreement shall be construed as a separate agreement with respect to each
Grantor and may be amended, modified, supplemented, waived or released with
respect to any Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and
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18
assigns of such party; and all covenants, promises and agreements by or on
behalf of any Grantor or the Collateral Agent that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon any of the Collateral, (iii)
the exercise, enforcement or protection of any of the rights of the Collateral
Agent hereunder or (iv) the failure of any Grantor to perform or observe any of
the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Credit Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnities against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Credit Document,
the consummation of the transactions contemplated hereby, the repayment of any
of the Loans, the invalidity or unenforceability of any term or provision of
this Agreement or any other Credit Document, or any investigation made by or on
behalf of the Collateral Agent or any Lender. All amounts due under this
Section 7.06 shall be payable on written demand therefor.
SECTION 7.07. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Credit Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Credit Document or consent to
<PAGE>
19
any departure by any Grantor therefrom shall in any event be effective unless
the same shall be permitted by clause (b), and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on any Grantor in any case shall entitle such Grantor or
any other Grantor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.08 of the Credit Agreement.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to Section 7.04),
and shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United
<PAGE>
20
States of America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Credit Documents, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Collateral Agent, the Administrative Agent, the Issuing Bank or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or
the other Credit Documents against any Grantor or its properties in the courts
of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Credit Documents in
any New York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 7.14. Termination; Release of Collateral. (a) This Agreement
and the Security Interest shall terminate when all the Obligations (other than
inchoate rights to indemnification and reimbursement) have been indefeasibly
paid in full, the Lenders have no further commitment to lend, the L/C Exposure
has been reduced to zero and the Issuing Bank has no further commitment to issue
Letters of Credit under the Credit Agreement, at which time the Collateral Agent
shall execute and deliver to the Grantors, at the Grantors' expense, all Uniform
Commercial Code termination statements and similar documents which the Grantors
shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section 7.14
shall be without recourse to or warranty by the Collateral Agent. A Subsidiary
Guarantor shall automatically be released from its obligations hereunder and the
Security Interest in the Collateral of such Subsidiary Guarantor shall be
automatically released in the event that all the capital stock of such
Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a
person that is not an Affiliate of the Borrower in accordance with the terms of
the Credit Agreement; provided that the Required Lenders shall have consented to
such sale, transfer or other disposition (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.
(b) In the event any Collateral is sold or transferred in an Asset Sale or
other transaction permitted by the Credit Agreement or is to be subject to a
Lien permitted by Section 6.02(i) of the Credit Agreement, the Administrative
Agent shall (i) concurrently with the consummation of such Asset Sale or other
transaction release the Collateral that is subject of such sale or transfer free
and clear of the Lien and security interest under this Agreement, or (ii) in
connection with a financing contemplated by Sections 6.01___ and
<PAGE>
21
6.02(i) of the Credit Agreement, at the request of the lender providing the
financing and at such lender's election, either (A) subordinate the Lien and
security interest under this Agreement on any assets being financed to the Lien
and security interest of such lender pursuant to an intercreditor and/or
subordination agreement in form and substance satisfactory to such lender, the
Administrative Agent and the Grantor, or (B) release the Lien and security
interest under this Agreement on any such assets to the extent required by such
lender. In connection with any release or subordination pursuant to this Section
7.14(b), the Administrative Agent shall execute and deliver, at the Grantors'
expense, any Uniform Commercial Code termination statements or other documents
necessary to effect and evidence such release or subordination as may be
reasonably requested by the Grantors.
SECTION 7.15. Additional Grantors. Pursuant to Section 5.11 of the
Credit Agreement, each Domestic Subsidiary of the Borrower that was not in
existence or not a Subsidiary on the date of the Credit Agreement is required to
enter into this Agreement as a Grantor upon becoming a Subsidiary. Upon
execution and delivery by the Collateral Agent and a Subsidiary of an instrument
in the form of Annex 2 hereto, such Subsidiary shall become a Grantor hereunder
with the same force and effect as if originally named as a Grantor herein. The
execution and delivery of any such instrument shall not require the consent of
any Grantor hereunder. The rights and obligations of each Grantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Grantor as a party to this Agreement.
SECTION 7.16. Certain Other Rights. (a) The Grantors authorize the
Collateral Agent, without notice or demand and without affecting their liability
hereunder, from time to time, either before or after revocation hereof, to (i)
renew, compromise, extend, accelerate, or otherwise change the time for payment
of, or otherwise change the terms of the indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (ii) receive and
hold security for the payment of the Obligations, and exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any such security; (iii)
apply such security and direct the order or manner of sale thereof as the
Collateral Agent in its discretion may determine; and (iv) release or substitute
any one or more of the endorsers or guarantors.
(b) The Grantors waive any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Grantors waive any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Grantors'
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Grantors' liability hereunder, the Grantors will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Agreement, and until such payment in full, the Grantors will not pursue any
right to enforce any remedy which the Collateral Agent and the Lenders now have
or may hereafter have against the Borrower and will not pursue any benefit of,
and any right to participate in, any security now or hereafter held by the
Collateral Agent. The Grantors waive all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of
<PAGE>
22
acceptance of this Agreement and of the existence, creation, or incurring of new
or additional indebtedness.
(c) To the extent that any Collateral is located in California, and with
respect to such Collateral: (i) The Grantors understand and acknowledge that if
the Collateral Agent forecloses, either by judicial foreclosure or by exercise
of power of sale, any deed of trust securing the Obligations, that foreclosure
could impair or destroy any ability that the Grantors may have to seek
reimbursement, contribution, or indemnification from the Borrower or others
based on any right the Grantors may have of subrogation, reimbursement,
contribution, or indemnification for any amounts paid by the Grantors under this
Agreement. The Grantors further understand and acknowledge that in the absence
of this paragraph, such potential impairment or destruction of the Grantors'
rights, if any, may entitle the Grantors to assert a defense to this Agreement
based on Section 580d of the California Code of Civil Procedure as interpreted
in Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968). By executing this
---------------------
Agreement, the Grantors freely, irrevocably, and unconditionally: (A) waive and
relinquish that defense and agree that the Grantors will be fully liable under
this Agreement even though the Collateral Agent may foreclose, either by
judicial foreclosure or by exercise of power of sale, any deed of trust securing
the Obligations; (B) agree that the Grantors will not assert that defense in any
action or proceeding which the Collateral Agent may commence to enforce this
Agreement; (C) acknowledge and agree that the rights and defenses waived by the
Grantors in this Agreement include any right or defense that the Grantors may
have or be entitled to assert based upon or arising out of any one or more of
Sections 580a, 580b, 580d, or 726 of the California Civil Code; and (iv)
acknowledge and agree that the Collateral Agent and the Lenders are relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which the Collateral Agent and the Lenders are
receiving for creating the indebtedness.
(ii) The Grantors waive any rights and defenses that are or may
become available to the Grantors by reason of Sections 2787 to 2855, inclusive,
of the California Civil Code.
(iii) The Grantors waive all rights and defenses that the Grantors may
have because any of the indebtedness is secured by real property. This means,
among other things: (A) the Collateral Agent may collect from the Grantors
without first foreclosing on any real or personal property collateral pledged by
the Borrower; and (B) if the Collateral Agent forecloses on any real property
collateral pledged by the Borrower: (x) the amount of the indebtedness may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price, and (y) the
Collateral Agent may collect from the Grantors even if the Collateral Agent, by
foreclosing on the real property collateral, has destroyed any right the
Grantors may have to collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses the Grantors may have because any
of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Grantors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
<PAGE>
23
(v) No provision or waiver in this Agreement shall be construed as
limiting the generality of any other waiver contained in this Agreement.]
(d) The Grantors acknowledge and agree that they shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Grantors may
require, and that the Collateral Agent has no duty at any time to disclose to
the Grantors any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
24
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CENTURY MAINTENANCE SUPPLY,
INC.,
by
/s/ Richard E. Penick
------------------------------
Name: Richard E. Penick
Title: Vice President
EACH OF THE SUBSIDIARY
GUARANTORS LISTED ON SCHEDULE
I HERETO,
by
/s/ Richard E. Penick
------------------------------
Name: Richard E. Penick
Title: Authorized Officer
CITICORP USA, INC., as Collateral Agent,
by
/s/ J. Gregory Davis
--------------------------------
Name: J. Gregory Davis
Title: Authorized Officer
<PAGE>
EXHIBIT 10.3
PLEDGE AGREEMENT dated as of July 8, 1998, among CENTURY
MAINTENANCE SUPPLY, INC., a Delaware corporation (the
"Borrower"), each Subsidiary of the Borrower listed on Schedule I
hereto (each such Subsidiary individually a "Subsidiary Pledgor"
and collectively, the "Subsidiary Pledgors"; the Borrower, and
the Subsidiary Pledgors are referred to collectively herein as
the "Pledgors") and CITICORP USA, INC., as collateral agent (in
such capacity, the "Collateral Agent") for the Secured Parties
(as defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of July 8, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders"), Citicorp USA, Inc., as administrative agent for the Lenders,
Collateral Agent, swingline lender and as issuing bank (in such capacity, the
"Issuing Bank") and (b) the Subsidiary Guarantee Agreement dated as of July 8,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Subsidiary Guarantee Agreement" among the Subsidiary Pledgors and the
Collateral Agent. All capitalized terms used herein but not defined herein shall
have the meaning ascribed to them in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Subsidiary Guarantors have agreed to guarantee, among other
things, all the obligations of the Borrower under the Credit Agreement. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Pledgors of a Pledge Agreement in the form hereof to secure (a)
the due and punctual payment by the Borrower of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrower to the Secured Parties under the
Credit Agreement and the other Credit Documents and (b) the due and punctual
payment and performance of all monetary obligations of the Borrower under each
Interest Rate Agreement entered into with any counterparty that was a Lender (or
an Affiliate thereof) at the time such Interest Rate Agreement was entered into
(all the monetary obligations referred to in the preceding clauses (a) through
(b) being referred to collectively as the "Obligations"). Capitalized terms
used herein and not defined herein shall have meanings assigned to such terms in
the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
<PAGE>
2
SECTION 1. Pledge. As security for the payment and performance, as the
case may be, in full of the Obligations, each Pledgor hereby grants,
hypothecates and pledges to the Collateral Agent, its successors and assigns,
and hereby grants to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest in all of the
Pledgor's right, title and interest in, to and under (a) the shares of capital
stock owned by it and listed on Schedule II hereto and any shares of capital
stock of the Borrower or any Subsidiary obtained in the future by the Pledgor
and the certificates representing all such shares (the "Pledged Stock");
provided that the Pledged Stock shall not include (i) more than 65% of the
issued and outstanding shares of stock of any Foreign Subsidiary or (ii) to the
extent that applicable law requires that a Subsidiary of the Pledgor issue
directors' qualifying shares, such qualifying shares; (b)(i) the debt securities
listed opposite the name of the Pledgor on Schedule II hereto, (ii) any debt
securities or instruments in the future held the Pledgor and (iii) the
promissory notes and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other property that may be delivered to and
held by the Collateral Agent pursuant to the terms hereof; (d) subject to
Section 5, all payments of principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed, in respect of, in exchange for or upon the conversion of the
securities referred to in clauses (a) and (b); (e) subject to Section 5, all
rights and privileges of the Pledgor with respect to the securities and other
property referred to in clauses (a), (b), (c) and (d); and (f) all proceeds of
any of the foregoing (the items referred to in clauses (a) through (f) being
collectively referred to as the "Collateral"). Upon delivery to the Collateral
Agent, (a) any stock certificates, notes or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be accompanied by
stock powers duly executed in blank or other instruments of transfer
satisfactory to the Collateral Agent and by such other instruments and documents
as the Collateral Agent may reasonably request and (b) all other property
comprising part of the Collateral shall be accompanied by proper instruments of
assignment duly executed by the applicable Pledgor and such other instruments or
documents as the Collateral Agent may reasonably request. Each delivery of
Pledged Securities shall be accompanied by a schedule describing the securities
theretofore and then being pledged hereunder, which schedule shall be attached
hereto as Schedule II and made a part hereof. Each schedule so delivered shall
supersede any prior schedules so delivered.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly
to deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to the
Pledgor by any person (except for Indebtedness representing advances made to
persons other than customers in the ordinary cause of business) to be evidenced
by a duly executed promissory note that is pledged and delivered to the
Collateral Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor
hereby represents, warrants and covenants, as to itself and the Collateral
pledged by it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged Securities indicated on Schedule II, (ii)
holds the same free and clear of all
<PAGE>
3
Liens (other than Liens permitted under Section 6.02 of the Credit
Agreement), (iii) will make no assignment, pledge, hypothecation or
transfer of, or create or permit to exist any security interest in or other
Lien on, the Collateral, other than pursuant hereto, and (iv) subject to
Section 5, will cause any and all Pledged Securities, whether for value
paid by the Pledgor or otherwise, to be forthwith deposited with the
Collateral Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all persons
whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Pledged Securities are delivered to the
Collateral Agent in accordance with this Agreement, the Collateral Agent
will obtain a valid and perfected first lien upon and security interest in
such Pledged Securities as security for the payment and performance of the
Obligations;
(f) upon delivery of the Pledged Securities to the Collateral Agent,
the pledge effected hereby is effective to vest in the Collateral Agent, on
behalf of the Secured Parties, the rights of the Collateral Agent in the
Pledged Securities as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable and none of the Pledged Stock is
subject to preemptive rights;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent.
Each Pledgor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent shall at all times
have the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit
<PAGE>
4
Agreement and the other Credit Documents; provided, however, that such
Pledgor will not be entitled to exercise any such right if the result
thereof would reasonably be expected to materially and adversely affect the
rights inuring to a holder of the Pledged Securities or the rights and
remedies of any of the Secured Parties under this Agreement or the Credit
Agreement or any other Credit Document or the ability of the Secured
Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subclause (i) and to receive the cash dividends it is entitled to receive
pursuant to subclause (iii).
(iii) Each Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal paid on the Pledged Securities to
the extent and only to the extent that such cash dividends, interest and
principal are permitted by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Credit Documents.
All noncash dividends, interest and principal, and all dividends, interest
and principal paid or payable in cash or otherwise in connection with a
partial or total liquidation or dissolution, return of capital, capital
surplus or paid-in surplus, and all other distributions (other than
distributions referred to in the preceding sentence) made on or in respect
of the Pledged Securities, whether paid or payable in cash or otherwise,
whether resulting from a subdivision, combination or reclassification of
the outstanding capital stock of the issuer of any Pledged Securities or
received in exchange for Pledged Securities or any part thereof, or in
redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party
or otherwise, shall be and become part of the Collateral, and, if received
by any Pledgor, shall not be commingled by such Pledgor with any of its
other funds or property but shall be held separate and apart therefrom,
shall be held in trust for the benefit of the Collateral Agent and shall be
forthwith delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest or principal that such Pledgor
is authorized to receive pursuant to clause (a)(iii) shall cease, and all such
rights shall thereupon become vested in the Collateral Agent, which shall have
the sole and exclusive right and authority to receive and retain such dividends,
interest or principal. All dividends, interest or principal received by the
Pledgor contrary to the provisions of this Section 5 shall be held in trust for
the benefit of the Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the Collateral Agent
upon demand in the same form as so received (with any necessary endorsement).
Any and all money and other property paid over to or received by the Collateral
Agent pursuant to the provisions of this clause (b) shall be retained by the
Collateral Agent in an account to be established by the Collateral Agent upon
receipt of such money or other property and shall be applied in accordance with
the provisions of Section 7. After all Events of Default have been cured or
waived, the Collateral Agent shall, within five Business Days after all such
Events of Default have been cured or waived, repay to each Pledgor all cash
dividends, interest or principal (without interest), that such Pledgor would
otherwise be permitted to retain pursuant to the terms of clause (a)(iii) and
which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to
<PAGE>
5
exercise pursuant to clause (a)(i) of this Section 5, and the obligations of the
Collateral Agent under clause (a)(ii) of this Section 5, shall cease, and all
such rights shall thereupon become vested in the Collateral Agent, which shall
have the sole and exclusive right and authority to exercise such voting and
consensual rights and powers, provided that, unless otherwise directed by the
Required Lenders, the Collateral Agent shall have the right from time to time
following and during the continuance of an Event of Default to permit the
Pledgors to exercise such rights. After all Events of Default have been cured or
waived, such Pledgor will have the right to exercise the voting and consensual
rights and powers that it would otherwise be entitled to exercise pursuant to
the terms of clause (a)(i).
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate. The Collateral Agent shall be authorized at any such
sale (if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a
public sale, shall state the time and place for such sale and, in the case of a
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Collateral,
or portion thereof, will first be offered for sale at such board or exchange.
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Collateral Agent may fix and
state in the notice of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Collateral Agent may (in its sole and absolute discretion)
determine. The Collateral Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Collateral Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or any
part of the Collateral is made on credit or for future delivery, the Collateral
so sold may be retained by the Collateral Agent until the sale price is paid in
full by the purchaser or purchasers thereof, but the Collateral Agent shall not
incur any liability in case any such purchaser or purchasers shall fail to take
up and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. At any public (or, to the extent
permitted by applicable law, private) sale made pursuant to this Section 6, any
Secured Party may bid for or purchase, free from any right of redemption, stay
or appraisal on the part of any Pledgor (all said rights being also hereby
waived and released), the Collateral or any part thereof offered for sale and
may make payment on account thereof by using any claim then due and payable to
it from such Pledgor as a credit against the purchase price, and it may, upon
compliance with the
<PAGE>
6
terms of sale, hold, retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a) a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof, (b) the Collateral Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Collateral Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Collateral Agent may proceed by a suit or suits at law or in equity
to foreclose upon the Collateral and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale
pursuant to the provisions of this Section 6 shall be deemed to conform to the
commercially reasonable standards as provided in Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its equivalent in other
jurisdictions.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by the
Collateral Agent in connection with such sale or otherwise in connection
with this Agreement, any other Credit Document or any of the Obligations,
including all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Credit Document on behalf of
any Pledgor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Credit
Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees
to pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
<PAGE>
7
(b) Without limitation of its indemnification obligations under the other
Credit Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.05 of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Credit Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Credit
Document or any investigation made by or on behalf of the Collateral Agent or
any other Secured Party. All amounts due under this Section 8 shall be payable
on written demand therefor and shall bear interest at the rate specified in
Section 2.06 of the Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
irrevocably makes, constitutes and appoints the Collateral Agent (and all
officers, employees or agents designated by the Collateral Agent) as such
Pledgor's true and lawful agent and attorney-in-fact, and in such capacity the
Collateral Agent shall have the right, with power of substitution for each
Pledgor and in each Pledgor's name or otherwise, for the use and benefit of the
Collateral Agent and the Secured Parties, upon the occurrence and during the
continuance of an Event of Default, to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due or to become due under
and by virtue of any Collateral, to endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgor representing any
interest or dividend or other distribution payable in respect of the Collateral
or any part thereof or on account thereof and to give full discharge for the
same, to settle, compromise, prosecute or defend any action, claim or proceeding
with respect thereto, and to sell, assign, endorse, pledge, transfer and to make
any agreement respecting, or otherwise deal with, the same; provided, however,
that nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Pledgor for
any act or failure to act hereunder, except for their own gross negligence or
wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
<PAGE>
8
exercise of any other right or power. The rights and remedies of the Collateral
Agent hereunder and of the other Secured Parties under the other Credit
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provisions of this Agreement or
consent to any departure by any Pledgor therefrom shall in any event be
effective unless the same shall be permitted by clause (b), and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice or demand on any Pledgor in any case shall entitle
such Pledgor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the Pledgor or Pledgors with respect to which such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.08 of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the Pledgors
in relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
and agrees that in light of such restrictions and limitations, the Collateral
Agent, in its sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of registering such
Pledged Securities or part thereof shall have been filed under the Federal
Securities Laws and (b) may approach and negotiate with a single potential
purchaser to effect such sale. Each Pledgor acknowledges and agrees that any
such sale might result in prices and other terms less favorable to the seller
than if such sale were a public sale without such restrictions. In the event of
any such sale, the Collateral Agent shall incur no responsibility or liability
for selling all or any part of the Pledged Securities at a price that the
Collateral Agent, in its sole and absolute discretion, may in good faith deem
commercially reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might have been realized if the sale were
deferred until after registration as aforesaid or if more than a single
purchaser were approached. The provisions of this Section 11 will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities of
the Borrower at a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its best efforts to take or to
cause the issuer of such Pledged Securities to take such action and prepare,
distribute and/or file such documents, as are required or advisable in the
reasonable
<PAGE>
9
opinion of counsel for the Collateral Agent to permit the public sale of such
Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold
harmless the Collateral Agent, each other Secured Party, any underwriter and
their respective officers, directors, affiliates and controlling persons from
and against all loss, liability, expenses, costs of counsel (including, without
limitation, reasonable fees and expenses to the Collateral Agent of legal
counsel), and claims (including the costs of investigation) that they may incur
insofar as such loss, liability, expense or claim arises out of or is based upon
any alleged untrue statement of a material fact contained in any prospectus (or
any amendment or supplement thereto) or in any notification or offering
circular, or arises out of or is based upon any alleged omission to state a
material fact required to be stated therein or necessary to make the statements
in any thereof not misleading, except insofar as the same may have been caused
by any untrue statement or omission based upon information furnished in writing
to such Pledgor or the issuer of such Pledged Securities by the Collateral Agent
or any other Secured Party expressly for use therein. Each Pledgor further
agrees, upon such written request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged Securities to
qualify, file or register, any of the Pledged Securities under the Blue Sky or
other securities laws of such states as may be requested by the Collateral Agent
and keep effective, or cause to be kept effective, all such qualifications,
filings or registrations. Each Pledgor will bear all costs and expenses of
carrying out its obligations under this Section 12. Each Pledgor acknowledges
that there is no adequate remedy at law for failure by it to comply with the
provisions of this Section 12 and that such failure would not be adequately
compensable in damages, and therefore agrees that its agreements contained in
this Section 12 may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Credit Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Credit
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the security
interests granted hereby shall terminate when all the Obligations (other than
inchoate indemnification and expense reimbursement obligations) have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the L/C Exposure has been reduced to zero and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.08(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) In connection with any termination or release pursuant to clause (a)
or (b), the Collateral Agent shall execute and deliver to any Pledgor, at such
Pledgor's expense, all
<PAGE>
10
documents that such Pledgor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this
Section 14 shall be without recourse to or warranty by the Collateral Agent.
SECTION 15. Notices. All communications and notices hereunder shall be
in writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it in care of the Borrower.
SECTION 16. Further Assurances. Each Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of such Pledgor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Pledgor shall have the right to assign its rights hereunder or any interest
herein or in the Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Credit
Documents. If all of the capital stock of a Pledgor is sold, transferred or
otherwise disposed of to a person that is not an Affiliate of the Borrower
pursuant to a transaction permitted by Section 6.04 of the Credit Agreement,
such Pledgor shall be released from its obligations under this Agreement without
further action. This Agreement shall be construed as a separate agreement with
respect to each Pledgor and may be amended, modified, supplemented, waived or
released with respect to any Pledgor without the approval of any other Pledgor
and without affecting the obligations of any other Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Credit Document shall be considered
to have been relied upon by the Collateral Agent and the other Secured Parties
and shall survive the making by the Lenders of the Loans, the issuance of the
Letters of Credit by the Issuing Bank and the execution and delivery to the
Lenders of the Notes evidencing such Loans, regardless of any investigation made
by the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any
<PAGE>
11
other jurisdiction). The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement. Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard and determined
in such New York State court or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent or
any other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or the other Credit Documents against any Pledgor or
its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Credit Documents in
any New York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
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12
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.11 of the Credit
Agreement, each Restricted Subsidiary of the Borrower that was not in existence
or not a Subsidiary on the date of the Credit Agreement is required to enter in
this Agreement as a Subsidiary Pledgor upon becoming a Restricted Subsidiary if
such Subsidiary owns or possesses property of a type that would be considered
Collateral hereunder. Upon execution and delivery by the Collateral Agent and a
Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become
a Subsidiary Pledgor hereunder with the same force and effect as if originally
named as a Subsidiary Pledgor herein. The execution and delivery of such
instrument shall not require the consent of any Pledgor hereunder. The rights
and obligations of each Pledgor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Pledgor as a party to this
Agreement.
SECTION 25. Certain Other Rights. (a) The Pledgors authorize the
Collateral Agent, without notice or demand and without affecting their liability
hereunder, from time to time, either before or after revocation hereof, to (i)
renew, compromise, extend, accelerate, or otherwise change the time for payment
of, or otherwise change the terms of the indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (ii) receive and
hold security for the payment of the Obligations, and exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any such security; (iii)
apply such security and direct the order or manner of sale thereof as the
Collateral Agent in its discretion may determine; and (iv) release or substitute
any one or more of the endorsers or guarantors.
(b) The Pledgors waive any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Pledgors waive any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Pledgors'
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Pledgors' liability hereunder, the Pledgors will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Agreement, and until such payment in full, the Pledgors will not pursue any
right to enforce any remedy which the Collateral Agent and the Lenders now have
or may hereafter have against the Borrower and will not pursue any benefit of,
and any right to participate in, any security now or hereafter held by the
Collateral Agent. The Pledgors waive all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of acceptance of this Agreement and of the existence, creation, or
incurring of new or additional indebtedness.
(c) (i) The Pledgors understand and acknowledge that if the Collateral
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the Obligations, that foreclosure could impair
or destroy any ability that the Pledgors may have to seek reimbursement,
contribution, or indemnification from the Borrower or others based on any right
the Pledgors may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by the Pledgors under this Agreement.
<PAGE>
13
The Pledgors further understand and acknowledge that in the absence of this
paragraph, such potential impairment or destruction of the Pledgors' rights, if
any, may entitle the Pledgors to assert a defense to this Agreement based on
Section 580d of the California Code of Civil Procedure as interpreted in Union
-----
Bank v. Gradsky, 265 Cal. App. 2d 40 (1968). By executing this Agreement, the
- ---------------
Pledgors freely, irrevocably, and unconditionally: (A) waive and relinquish
that defense and agree that the Pledgors will be fully liable under this
Agreement even though the Collateral Agent may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
Obligations; (B) agree that the Pledgors will not assert that defense in any
action or proceeding which the Collateral Agent may commence to enforce this
Agreement; (C) acknowledge and agree that the rights and defenses waived by the
Pledgors in this Agreement include any right or defense that the Pledgors may
have or be entitled to assert based upon or arising out of any one or more of
Sections 580a, 580b, 580d, or 726 of the California Civil Code; and (iv)
acknowledge and agree that the Collateral Agent and the Lenders are relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which the Collateral Agent and the Lenders are
receiving for creating the indebtedness.
(ii) The Pledgors waive any rights and defenses that are or may
become available to the Pledgors by reason of Sections 2787 to 2855, inclusive,
of the California Civil Code.
(iii) The Pledgors waive all rights and defenses that the Pledgors may
have because any of the indebtedness is secured by real property. This means,
among other things: (A) the Collateral Agent may collect from the Pledgors
without first foreclosing on any real or personal property collateral pledged by
the Borrower; and (B) if the Collateral Agent forecloses on any real property
collateral pledged by the Borrower: (x) the amount of the indebtedness may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price, and (y) the
Collateral Agent may collect from the Pledgors even if the Collateral Agent, by
foreclosing on the real property collateral, has destroyed any right the
Pledgors may have to collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses the Pledgors may have because any
of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Pledgors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(v) No provision or waiver in this Agreement shall be construed as
limiting the generality of any other waiver contained in this Agreement.
(d) The Pledgors acknowledge and agree that they shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Pledgors may
require, and that the Collateral Agent has no duty at any time to disclose to
the Pledgors any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CENTURY MAINTENANCE SUPPLY, INC.,
by
/s/ Richard E. Penick
------------------------------------
Name: Richard E. Penick
Title: Vice President
THE SUBSIDIARY PLEDGORS LISTED ON SCHEDULE I
HERETO,
by
/s/ Richard E. Penick
------------------------------------
Name: Richard E. Penick
Title: Authorized Officer
CITICORP USA, INC., as Collateral Agent,
by
/s/ J. Gregory Davis
-----------------------------------
Name: J. Gregory Davis
Title: Attorney-in-Fact
<PAGE>
EXHIBIT 10.4
SUBSIDIARY GUARANTEE AGREEMENT dated as of July 8, 1998,
among each of the subsidiaries listed on Schedule I hereto (each
such subsidiary individually, a "Guarantor" and collectively, the
"Guarantors") of CENTURY MAINTENANCE SUPPLY, INC., a Delaware
corporation (the "Borrower"), and CITICORP USA, INC., as
collateral agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined in the Credit Agreement referred
to below).
Reference is made to the Credit Agreement dated as of July 8, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders"), Citicorp USA, Inc., as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent and issuing
bank (in such capacity, the "Issuing Bank"). Capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Guarantors is a Subsidiary of the Borrower and
acknowledges that it will derive substantial benefit from the making of the
Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing
Bank. The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit are conditioned on, among other things, the execution
and delivery by the Guarantors of a Subsidiary Guarantee Agreement in the form
hereof. As consideration therefor and in order to induce the Lenders to make
Loans and the Issuing Bank to issue Letters of Credit, the Guarantors are
willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally guarantees, jointly
with the other Guarantors and severally, as a primary obligor and not merely as
a surety, (a) the due and punctual payment of (i) the principal of and premium,
if any, and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Loan Parities to the Secured Parties under the Credit Agreement and the
other Credit Documents and (b) unless otherwise agreed upon in writing by the
applicable Lender party thereto, all monetary obligations of the Borrower under
each Interest Rate Agreement entered into with a counterparty that was a Lender
(or an Affiliate thereof) at the time such Interest Rate Agreement was entered
into (all the monetary obligations referred to in the preceding clauses (a)
through (b) being collectively called the "Obligations"). Each
<PAGE>
2
Guarantor further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon its guarantee notwithstanding any extension or renewal of any
Obligation.
Anything contained in this Agreement to the contrary notwithstanding, the
obligations of each Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the greatest amount that would not render such Guarantor's
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
provisions of applicable state law (collectively, the "Fraudulent Transfer
Laws"), in each case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (a) in respect of intercompany indebtedness to the Borrower or
Affiliates of the Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by such Guarantor hereunder and
(b) under any Guarantee of senior unsecured indebtedness or Indebtedness
subordinated in right of payment to the Obligations which Guarantee contains a
limitation as to maximum amount similar to that set forth in this clause,
pursuant to which the liability of such Guarantor hereunder is included in the
liabilities taken into account in determining such maximum amount) and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
contribution, reimbursement, indemnity or similar rights of such Guarantor
pursuant to (i) applicable law or (ii) any agreement providing for an equitable
allocation among such Guarantor and other Affiliates of the Borrower of
obligations arising under Guarantees by such parties (including the Indemnity,
Subrogation and Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of each Guarantor
hereunder shall not be affected by (a) the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to enforce or exercise
any right or remedy against the Borrower or any other Guarantor under the
provisions of the Credit Agreement, any other Credit Document or otherwise, (b)
any rescission, waiver, amendment or modification of, or any release from any of
the terms or provisions of this Agreement, any other Credit Document, any
Guarantee or any other agreement, including with respect to any other Guarantor
under this Agreement or (c) the failure to perfect any security interest in, or
the release of, any of the security held by or on behalf of the Collateral Agent
or any other Secured Party.
SECTION 3. Security. Each of the Guarantors authorizes the Collateral
Agent and each of the other Secured Parties, to (a) take and hold security for
the payment of this Guarantee and the Obligations and exchange, enforce, waive
and release any such security, (b) apply such security and direct the order or
manner of sale thereof as they in their sole discretion may determine and (c)
release or substitute any one or more endorsees, other guarantors of other
obligers.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
<PAGE>
3
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce any remedy under the Credit
Agreement, any other Credit Document or any other agreement, by any waiver or
modification of any provision of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by any other act
or omission that may or might in any manner or to any extent vary the risk of
any Guarantor or that would otherwise operate as a discharge of each Guarantor
as a matter of law or equity (other than the indefeasible payment in full in
cash of all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
by applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible payment in full
in cash of the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with the Borrower or any other
guarantor or exercise any other right or remedy available to them against the
Borrower or any other guarantor, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any other Guarantor or guarantor, as the
case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Borrower or any other Credit Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such other Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by any Guarantor of any sums to the Collateral
Agent or any Secured Party as provided above, all rights of such Guarantor
against the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by any Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations. If any amount shall
erroneously be paid to any Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against
<PAGE>
4
the payment of the Obligations, whether matured or unmatured, in accordance with
the terms of the Credit Documents.
SECTION 8. Information. Each of the Guarantors assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks that
such Guarantor assumes and incurs hereunder, and agrees that none of the
Collateral Agent or the other Secured Parties will have any duty to advise any
of the Guarantors of information known to it or any of them regarding such
circumstances or risks.
SECTION 9. Representations and Warranties. Each of the Guarantors
represents and warrants as to itself that all representations and warranties
relating to it contained in the Credit Agreement are true and correct.
SECTION 10. Termination. The Guarantees made hereunder (a) shall
terminate when all the Obligations (other than inchoate indemnification and
expense reimbursement obligations) have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit Agreement, the L/C
Exposure has been reduced to zero and the Issuing Bank has no further obligation
to issue Letters of Credit under the Credit Agreement and (b) shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Obligation is rescinded or must otherwise be restored
by any Secured Party or any Guarantor upon the bankruptcy or reorganization of
the Borrower, any Guarantor or otherwise.
SECTION 11. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Guarantor shall have the right
to assign its rights or obligations hereunder or any interest herein (and any
such attempted assignment shall be void). If all of the capital stock of a
Guarantor is sold, transferred or otherwise disposed of pursuant to a
transaction permitted by Section 6.04 of the Credit Agreement, such Guarantor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Guarantor and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.
SECTION 12. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Credit Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of this Agreement or consent to any
<PAGE>
5
departure by any Guarantor therefrom shall in any event be effective unless the
same shall be permitted by clause (b), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors with respect to which such waiver, amendment or modification relates
and the Collateral Agent, with the prior written consent of the Required Lenders
(except as otherwise provided in the Credit Agreement).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 14. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Guarantor shall be given to it in
care of the Borrower.
SECTION 15. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Credit Document shall be considered
to have been relied upon by the Collateral Agent and the other Secured Parties
and shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Credit Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitment have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Credit Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 11. Delivery of an executed signature page to this Agreement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE>
6
SECTION 18. Jurisdiction; Consent to Service of Process. (a) Each
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Credit Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Collateral Agent or any other Secured Party may otherwise have to bring any
action or proceeding relating to this Agreement or the other Credit Documents
against any Guarantor or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Credit Documents in
any New York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
SECTION 20. Additional Guarantors. Pursuant to Section 5.11 of the Credit
Agreement, each Restricted Subsidiary of the Borrower that was not in existence
on the date of the Credit Agreement is required to enter into this Agreement as
a Guarantor upon becoming a Restricted Subsidiary. Upon execution and delivery
after the date hereof by the Collateral Agent and such a Subsidiary of an
instrument in the form of Annex 1, such Subsidiary shall become a Guarantor
hereunder with the same force and effect as if originally named as a Guarantor
herein. The execution and delivery of any instrument adding an additional
Guarantor as a party to this Agreement shall not require the consent of any
other Guarantor hereunder. The rights and obligations of each Guarantor
<PAGE>
7
hereunder shall remain in full force and effect notwithstanding the addition of
any new Guarantor as a party to this Agreement.
SECTION 21. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Guarantor against any or all the
obligations of such Guarantor now or hereafter existing under this Agreement and
the other Credit Documents held by such Secured Party, irrespective of whether
or not such Secured Party shall have made any demand under this Agreement or any
other Credit Document and although such obligations may be unmatured. The
rights of each Secured Party under this Section 21 are in addition to other
rights and remedies (including other rights of setoff) which such Secured Party
may have.
SECTION 22. Certain Other Rights. (a) The Guarantor authorizes the
Collateral Agent, without notice or demand and without affecting its liability
hereunder, from time to time, either before or after revocation hereof, to (i)
renew, compromise, extend, accelerate, or otherwise change the time for payment
of, or otherwise change the terms of the indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (ii) receive and
hold security for the payment of the Obligations, and exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any such security; (iii)
apply such security and direct the order or manner of sale thereof as the
Collateral Agent in its discretion may determine; and (iv) release or substitute
any one or more of the endorsers or guarantors.
(b) The Guarantor waives any right to require the Collateral Agent to (i)
proceed against the Borrower; (ii) proceed against or exhaust any security held
from the Borrower; or (iii) pursue any other remedy in the Collateral Agent's
power whatsoever. The Guarantor waives any defense arising by reason of any
disability or other defense of the Borrower, or the cessation from any cause
whatsoever of the liability of the Borrower, or any claim that the Guarantor's
obligations exceed or are more burdensome than those of the Borrower. Until the
indebtedness shall have been paid in full, even though the indebtedness is in
excess of the Guarantor's liability hereunder, the Guarantor will not pursue any
right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory, or otherwise) including, without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11, United States Code)
or any successor statute, arising from the existence or performance of this
Guarantee Agreement, and until such payment in full, the Guarantor will not
pursue any right to enforce any remedy which the Collateral Agent and the
Lenders now have or may hereafter have against the Borrower and will not pursue
any benefit of, and any right to participate in, any security now or hereafter
held by the Collateral Agent. The Guarantor waives all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guarantee Agreement and
of the existence, creation, or incurring of new or additional indebtedness.
(c) (i) The Guarantor understands and acknowledges that if the Collateral
Agent forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the Obligations, that foreclosure could impair
or destroy any ability that the Guarantor may have to seek reimbursement,
contribution, or indemnification from the Borrower or others based on any right
the Guarantor may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by the Guarantor under this Guarantee
Agreement. The Guarantor further understands and acknowledges that in the
absence of this paragraph, such potential impairment or destruction of the
<PAGE>
8
Guarantor's rights, if any, may entitle the Guarantor to assert a defense to
this Guarantee Agreement based on Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968).
---------------------
By executing this Guarantee Agreement, the Guarantor freely, irrevocably, and
unconditionally: (A) waives and relinquishes that defense and agree that the
Guarantors will be fully liable under this Guarantee Agreement even though the
Collateral Agent may foreclose, either by judicial foreclosure or by exercise of
power of sale, any deed of trust securing the Obligations; (B) agrees that the
Guarantor will not assert that defense in any action or proceeding which the
Collateral Agent may commence to enforce this Guarantee Agreement; (C)
acknowledges and agrees that the rights and defenses waived by the Guarantor in
this Guarantee Agreement include any right or defense that the Guarantor may
have or be entitled to assert based upon or arising out of any one or more of
Sections 580a, 580b, 580d, or 726 of the California Civil Code; and (iv)
acknowledges and agrees that the Collateral Agent and the Lenders are relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which the Collateral Agent and the Lenders are
receiving for creating the indebtedness.
(ii) The Guarantor waives any rights and defenses that are or may
become available to the Guarantor by reason of Sections 2787 to 2855, inclusive,
of the California Civil Code.
(iii) The Guarantor waive all rights and defenses that the Guarantor
may have because any of the indebtedness is secured by real property. This
means, among other things: (A) the Collateral Agent may collect from the
Guarantor without first foreclosing on any real or personal property collateral
pledged by the Borrower; and (B) if the Collateral Agent forecloses on any real
property collateral pledged by the Borrower: (x) the amount of the indebtedness
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price, and
(y) the Collateral Agent may collect from the Guarantor even if the Collateral
Agent, by foreclosing on the real property collateral, has destroyed any right
the Guarantor may have to collect from the Borrower. This is an unconditional
and irrevocable waiver of any rights and defenses the Guarantor may have because
any of the indebtedness is secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(iv) The Guarantor waives any right or defense they may have at law
or equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(v) No provision or waiver in this Guarantee Agreement shall be
construed as limiting the generality of any other waiver contained in this
Guarantee Agreement.
(d) The Guarantor acknowledges and agrees that it shall have the sole
responsibility for obtaining from the Borrower such information concerning the
Borrower's financial conditions or business operations as the Guarantor may
require, and that the Collateral Agent has no duty at any time to disclose to
the Guarantor any information relating to the business operations or financial
conditions of the Borrower.
<PAGE>
9
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
by
/s/ Richard E. Penick
-----------------------------
Name: Richard E. Penick
Title: Authorized Officer
CITICORP USA, INC., as Collateral Agent,
by
/s/ J. Gregory Davis
--------------------------------
Name: J. Gregory Davis
Title: Attorney-in-Fact
<PAGE>
EXHIBIT 10.5
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as
of July 8, 1998, among CENTURY MAINTENANCE SUPPLY, INC., a
Delaware corporation (the "Borrower"), each Subsidiary of the
Borrower listed on Schedule I hereto (each such subsidiary
individually a "Subsidiary Guarantor" and collectively the
"Subsidiary Guarantors") and CITICORP USA, INC., as collateral
agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of July 8, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders") and Citicorp USA, Inc., as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent, swingline
lender and issuing bank (in such capacity, the "Issuing Bank") and (b) the
Subsidiary Guarantee Agreement dated as of July 8, 1998, among the Subsidiary
Guarantors and the Collateral Agent (the "Subsidiary Guarantee Agreement").
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Subsidiary Guarantors have guaranteed such Loans and the other
Obligations (as defined in the Subsidiary Guarantee Agreement) of the Borrower
under the Credit Agreement pursuant to the Subsidiary Guarantee Agreement;
certain Subsidiary Guarantors have granted Liens on and security interests in
certain of their assets to secure such guarantees. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are
conditioned on, among other things, the execution and delivery by the Borrower
and the Subsidiary Guarantors of an agreement in the form hereof.
Accordingly, the Borrower, each Subsidiary Guarantor and the Collateral
Agent agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Subsidiary Guarantors may have under applicable
law (but subject to Section 3), the Borrower agrees that (a) in the event a
payment shall be made by any Subsidiary Guarantor under the Subsidiary Guarantee
Agreement, the Borrower shall indemnify such Subsidiary Guarantor for the full
amount of such payment and such Subsidiary Guarantor shall be subrogated to the
rights of the person to whom such payment shall have been made to the extent of
such payment and (b) in the event any assets of any Subsidiary Guarantor shall
be sold pursuant to any Security Document to satisfy a claim of any Secured
Party, the Borrower shall indemnify such Subsidiary Guarantor in an amount equal
to the greater of the book value or the fair market value of the assets so sold.
SECTION 2. Contribution and Subrogation. Each Subsidiary Guarantor (a
"Contributing Guarantor") agrees (subject to Section 3) that, in the event a
payment shall be made by any other Subsidiary Guarantor under the Subsidiary
Guarantee Agreement or assets of any other Subsidiary Guarantor shall be sold
pursuant to any Security
<PAGE>
2
Document to satisfy a claim of any Secured Party and such other Subsidiary
Guarantor (the "Claiming Guarantor") shall not have been fully indemnified by
the Borrower as provided in Section 1, the Contributing Guarantor shall
indemnify the Claiming Guarantor in an amount equal to the amount of such
payment or the greater of the book value or the fair market value of such
assets, as the case may be, in each case multiplied by a fraction of which the
numerator shall be the net worth of the Contributing Guarantor on the date
hereof and the denominator shall be the aggregate net worth of all the
Subsidiary Guarantors on the date hereof (or, in the case of any Subsidiary
Guarantor becoming a party hereto pursuant to Section 12, the date of the
Supplement hereto executed and delivered by such Guarantor). Any Contributing
Guarantor making any payment to a Claiming Guarantor pursuant to this Section 2
shall be subrogated to the rights of such Claiming Guarantor under Section 1 to
the extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Subsidiary Guarantors under
Sections 1 and 2 and all other rights of indemnity, contribution or subrogation
under applicable law or otherwise shall be fully subordinated to the
indefeasible payment in full in cash of the Obligations. No failure on the part
of the Borrower or any Subsidiary Guarantor to make the payments required by
Sections 1 and 2 (or any other payments required under applicable law or
otherwise) shall in any respect limit the obligations and liabilities of any
Subsidiary Guarantor with respect to its obligations hereunder, and each
Subsidiary Guarantor shall remain liable for the full amount of the obligations
of such Subsidiary Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the L/C Exposure has not been
reduced to zero or any of the Commitments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Subsidiary
Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary
Guarantor or otherwise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Subsidiary Guarantor to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by the Collateral Agent or any Subsidiary Guarantor preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. None of the Collateral Agent and the Subsidiary
Guarantors shall be deemed to have waived any rights hereunder unless such
waiver shall be in writing and signed by such parties.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Borrower, the Subsidiary Guarantors and the Collateral Agent, with the prior
written consent of the Required Lenders (except as otherwise provided in the
Credit Agreement).
<PAGE>
3
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in the Subsidiary Guarantee Agreement and
addressed as specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither the Borrower nor any Subsidiary Guarantor may assign or
transfer any of its rights or obligations hereunder (and any such attempted
assignment or transfer shall be void) without the prior written consent of the
Required Lenders. Notwithstanding the foregoing, at the time any Subsidiary
Guarantor is released from its obligations under the Subsidiary Guarantee
Agreement in accordance with such Subsidiary Guarantee Agreement and the Credit
Agreement, such Subsidiary Guarantor will cease to have any rights or
obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Subsidiary Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Credit Documents shall be considered to have been relied
upon by the Collateral Agent, the other Secured Parties and each Subsidiary
Guarantor and shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit by the Issuing Bank, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loans or any other fee or amount payable under the Credit Agreement or this
Agreement or under any of the other Credit Documents is outstanding and unpaid
or the L/C Exposure does not equal zero and as long as the Commitments have not
been terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 10. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect to any
Subsidiary Guarantor when a counterpart bearing the signature of such Subsidiary
Guarantor shall have been delivered to the Collateral Agent. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 12. Jurisdiction; Consent to Service of Process. (a) Each
Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State court
or Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in
<PAGE>
4
any action or proceeding arising out of or relating to this Agreement or the
other Credit Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that,
to the extent permitted by applicable law, all claims in respect of any such
action or proceeding may be heard and determined in such New York State court
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or the other Credit
Documents against any Subsidiary Guarantor or its properties in the courts of
any jurisdiction.
(b) Each Subsidiary Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the other
Credit Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 13. Additional Subsidiary Guarantors. Pursuant to Section 5.11
of the Credit Agreement, each Domestic Subsidiary of the Borrower that was not
in existence or not such a Subsidiary on the date of the Credit Agreement is
required to enter into the Subsidiary Guarantee Agreement as a Subsidiary
Guarantor upon becoming such a Subsidiary. Upon execution and delivery, after
the date hereof, by the Collateral Agent and such a Subsidiary of an instrument
in the form of Annex 1 hereto, such Subsidiary shall become a Subsidiary
Guarantor hereunder with the same force and effect as if originally named as a
Subsidiary Guarantor hereunder. The execution and delivery of any instrument
adding an additional Subsidiary Guarantor as a party to this Agreement shall not
require the consent of any Subsidiary Guarantor hereunder. The rights and
obligations of each Subsidiary Guarantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Subsidiary Guarantor as a
party to this Agreement.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
CENTURY MAINTENANCE
SUPPLY, INC.,
by
/s/ Richard E. Penick
--------------------------------------
Name: Richard E. Penick
Title: Vice President
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
as a Guarantor,
by
/s/ Richard E. Penick
--------------------------------------
Name: Richard E. Penick
Title: Vice President
CITICORP USA, INC., as Collateral
Agent,
by
/s/ J. Gregory Davis
--------------------------------------
Name: J. Gregory Davis
Title: Attorney-in-Fact
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
BETWEEN
CENTURY MAINTENANCE SUPPLY, INC.
AND CERTAIN OF ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I NATURE AND PURPOSES OF AGREEMENT..................................... 1
ARTICLE II DEFINITIONS.......................................................... 1
2.1 Board................................................................ 2
2.2 Cash................................................................. 2
2.3 Commission........................................................... 2
2.4 Confidential Information............................................. 2
2.5 Control.............................................................. 2
2.6 Immediate Family..................................................... 2
2.7 Initial Public Offering.............................................. 2
2.8 Offering Stockholder................................................. 2
2.10 Other Stockholder.................................................... 2
2.11 Permitted Transferee................................................. 3
2.12 Required Interest.................................................... 3
2.13 Securities Act....................................................... 3
2.14 Share................................................................ 3
2.15 Stockholder.......................................................... 3
2.16 Transfer............................................................. 3
ARTICLE III TRANSFER RESTRICTIONS GENERALLY...................................... 3
3.1 Stockholders' Agreement.............................................. 3
3.2 New Stockholders..................................................... 3
3.3 Pre-Transfer Notice Requirement...................................... 4
3.4 Transfer by Pledge................................................... 4
3.5 Credit Agreement..................................................... 5
ARTICLE IV PERMITTED TRANSFERS.................................................. 5
4.1 Permitted Transfers.................................................. 5
4.2 Transfers by Permitted Transferees................................... 5
4.3 Restrictions on Permitted Transfers by Sale.......................... 5
ARTICLE V VOLUNTARY TRANSFER RESTRICTIONS...................................... 6
5.1 Transfers to Non-Stockholders........................................ 6
5.2 Buy-Out Offers....................................................... 8
5.3 Two-Year Restriction................................................. 9
5.4 Transfer of Shares by FSEP IV; Rights of Inclusion................... 9
ARTICLE VI INVOLUNTARY TRANSFER RESTRICTIONS.................................... 11
6.1 Involuntary Transfers................................................ 11
6.2 Transfers in Bankruptcy.............................................. 12
ARTICLE VII PURCHASE UPON DEATH, DIVORCE OR TERMINATION OF EMPLOYMENT............ 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
7.1 Death of Stockholder's Spouse........................................ 12
7.2 Death of Stockholder................................................. 12
7.3 Life Insurance....................................................... 13
7.4 Divorce of Stockholder and Stockholder's Spouse...................... 13
7.5 Termination of Employment............................................ 14
ARTICLE VIII PURCHASE PRICE AND TERMS............................................. 14
8.1 Purchase Price....................................................... 14
8.2 Payment of Purchase Price............................................ 14
ARTICLE IX EFFECTIVE DATES...................................................... 15
9.1 Closing Date......................................................... 15
9.2 Notices; Offers; Acceptances......................................... 16
ARTICLE X ENFORCEMENT.......................................................... 16
10.1 Creation of Sufficient Surplus....................................... 16
10.2 Endorsements on Stock Certificates................................... 16
10.3 Breach............................................................... 17
10.4 Governing Law........................................................ 17
10.5 Severability......................................................... 17
ARTICLE XI EFFECT............................................................... 17
11.1 Previous Agreements Superseded....................................... 17
11.2 Binding Effect....................................................... 17
11.3 Stockholders' Spouses................................................ 18
11.4 Representations and Warranties....................................... 18
11.5 Effectiveness........................................................ 18
ARTICLE XII AMENDMENT AND TERMINATION............................................ 18
12.1 Amendment............................................................ 18
12.2 Termination.......................................................... 18
12.3 Notice............................................................... 19
ARTICLE XIII OTHER AGREEMENTS..................................................... 19
13.1 "Market Stand-Off" Agreement......................................... 19
ARTICLE XIV MISCELLANEOUS........................................................ 19
14.1 Gender and Certain References........................................ 19
14.2 Counterparts......................................................... 19
SCHEDULE 1 ......................................................................... 1
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT 3.2 ADOPTION OF AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT........... 1
- -----------
EXHIBIT 8.2(a) PROMISSORY NOTE............................................Page 1 of 3
- --------------
EXHIBIT 8.2(b) STOCK PLEDGE AND PURCHASE MONEY SECURITY AGREEMENT.........Page 1 of 7
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT ("AGREEMENT") is entered
into as of May 5, 1998, by and among Century Maintenance Supply, Inc., a
Delaware corporation having its principal place of business at 9100 Winkler
Drive, Houston, Texas 77017 (the "COMPANY"), the stockholders listed in Schedule
--------
1 ("STOCKHOLDERS"), and the spouses of the Stockholders listed on the following
- -
execution pages ("STOCKHOLDERS' SPOUSES"), Dennis Bearden, and FS Equity
Partners IV, L.P. ("FSEP IV").
ARTICLE I
NATURE AND PURPOSES OF AGREEMENT
The Company, the Stockholders, the Stockholders Spouses, and Dennis Bearden
executed that certain Stockholders Agreement dated June 30, 1997 (the "EXISTING
AGREEMENT"). The Stockholders and Dennis Bearden currently own beneficially and
of record all of the Company's issued and outstanding shares of common stock,
par value $.001 per share, being a total of 10,000,000 shares, as shown on
Schedule 1.
- ----------
The Stockholders, Dennis Bearden and FSEP IV currently contemplate entering
into a recapitalization transaction and, in connection therewith, desire to
amend and restate the Existing Agreement on the terms contemplated herein, such
amendment to be effective concurrent with and only upon the consummation of the
transactions contemplated by that certain Agreement and Plan of Merger entered
into as of May 5, 1998 by and among Century Acquisition Corporation, a Delaware
corporation, FSEP IV, the Stockholders, the Company and Dennis Bearden (the
"MERGER AGREEMENT").
As used in this Agreement, the term "STOCKHOLDER'S SPOUSE" means a spouse
of a Stockholder if and only to the extent that such spouse does not own Shares
of record.
In consideration of the premises and mutual covenants of this Agreement,
and the execution of this Agreement by the Company, the Stockholders, the
Stockholders' Spouses, Dennis Bearden and FSEP IV, the parties to this Agreement
covenant and agree as follows:
ARTICLE II
DEFINITIONS
As used in this Agreement, each parenthetically or otherwise defined
capitalized term in the recitals to, and in other Articles of, this Agreement
shall have the meaning so ascribed to it (either in this Agreement or in the
Merger Agreement), and each of the following terms shall have the meaning
ascribed to it in this Article II:
<PAGE>
2.1 BOARD. "BOARD" shall mean the members of the Board of Directors of
the Company.
2.2 CASH. "CASH" shall include cash or other immediately available funds
constituting or payable in legal tender of the United States of America.
2.3 COMMISSION. "COMMISSION" shall mean the United States Securities and
Exchange Commission, or any federal agency administering the Securities Act at
any given time.
2.4 CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" shall mean and
include, but is not limited to, the following forms of information relating to
the Company and other information of a similar nature (whether reduced to a
tangible manifestation): discoveries; ideas; concepts; designs; drawings;
specifications; techniques; computer flow charts, programs and software; models;
data; documentation; diagrams; research; development; processes; procedures;
"know-how;" marketing, licensing and franchising techniques; materials; plans;
customer names and lists; agents names and lists; files and other information
related to past and prospective customers or agents; con tracts; cost data,
pricing policies and financial information; and any information specifically
designated as Confidential Information. Confidential Information also shall
include any information described in the preceding sentence that the Company
obtains from another party and which the Company treats or has agreed to treat
as confidential.
2.5 CONTROL. "CONTROL" shall mean possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
person, whether through ownership of voting securities, by contract or
otherwise.
2.6 IMMEDIATE FAMILY. "IMMEDIATE FAMILY" shall mean parents, siblings,
spouse during marriage and not incident to divorce, lineal descendants
(including those by adoption) and spouses of lineal descendants.
2.7 INITIAL PUBLIC OFFERING. "INITIAL PUBLIC OFFERING" shall mean the
consummation of the sale of Common Stock to the general public in a bona fide
firm commitment underwritten public offering pursuant to a registration
statement filed with, and declared or ordered effective by, the Commission under
the Securities Act, pursuant to which the Company receives net proceeds of at
least $5,000,000.
2.8 OFFERING STOCKHOLDER. "OFFERING STOCKHOLDER" shall mean a Stockholder
who intends to Transfer all or any portion of his Shares to any person other
than a Permitted Transferee.
2.9 1998 OPTION PLANS. "1998 OPTION PLANS" shall mean the Century
Maintenance 1998 Stock Option Plan and the Century Maintenance 1998 Performance
Stock Option Plan, each as they may be amended from time to time.
2.10 OTHER STOCKHOLDER. "OTHER STOCKHOLDER" shall mean any Stockholder who
is not an Offering Stockholder and who is not a Permitted Transferee.
2.11 PERMITTED TRANSFEREE. "PERMITTED TRANSFEREE" shall mean any of the
persons listed in Section 4.1 of Article IV.
2
<PAGE>
2.12 REQUIRED INTEREST. "REQUIRED INTEREST" shall mean the stockholders of
the Company, including FSEP IV, who, at any given time, own of record and
beneficially more than 50% of the then issued and outstanding Shares; provided,
that FSEP IV shall no longer be included within the "Required Interest" once
FSEP IV's percentage ownership in the Company (calculated on the fully diluted
basis) drops below 20%.
2.13 SECURITIES ACT. "SECURITIES ACT" shall mean the Securities Act of
1933, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any given time.
2.14 SHARE. "SHARE" shall mean a share of common stock of the Company, par
value $.001 per share, now outstanding or subsequently acquired by the
Stockholders, and any instrument convertible into or constituting an option to
acquire Shares (other than options outstanding under the 1998 Option Plan, and
shares issued upon exercise thereof). All references to Shares owned by a
Stockholder include the community interest, if any, of the spouse of that
Stockholder.
2.15 STOCKHOLDER. "STOCKHOLDER" shall mean the persons listed in Schedule
--------
1 as well as any person or entity (other than Dennis Bearden or FSEP IV) that
- -
becomes a Stockholder of the Company in accordance with the provision of Section
3.2 hereof; if the Stockholder is deceased, the executor or legal representative
of the deceased Stockholder's estate, the Trustee of a trust created under the
deceased Stockholder's Last Will and Testament, or a legatee, beneficiary, heir
or successor in interest; and any other persons who become parties to this
Agreement pursuant to the terms of this Agreement.
2.16 TRANSFER. "TRANSFER" shall mean any direct or indirect sale,
assignment, gift, devise, pledge, hypothecation or other encumbrance, or any
other disposition of Shares (or any interest in or voting power of Shares)
either voluntarily or by operation of law.
ARTICLE III
TRANSFER RESTRICTIONS GENERALLY
3.1 STOCKHOLDERS' AGREEMENT. Each Stockholder and Stockholder's Spouse
covenants and agrees that he or she will not Transfer or permit to be
Transferred all or any portion of the Shares now owned or subsequently acquired
by him or her, except in accordance with and subject to the terms and conditions
of this Agreement. A counterpart of this Agreement, as it may be amended from
time to time, shall be maintained by the Company at its principal place of
business.
3.2 NEW STOCKHOLDERS. Notwithstanding any other provision of this
Agreement, other than as contemplated by the Merger Agreement, no Shares shall
be issued or Transferred to any person who is not a party to this Agreement. As
a condition precedent to the acquisition of Shares by any proposed transferee
(other than Dennis Bearden or FSEP IV), each Stockholder authorizes and directs
the Company, prior to Transferring or issuing Shares to any transferee, to
execute, on its behalf and as agent for each Stockholder and Stockholder's
Spouse, with that transferee and, if applicable, that transferee's spouse, an
adoption agreement pursuant to which he or they agree to be bound by this
Agreement in substantially in the form attached hereto as EXHIBIT 3.2. By
executing
3
<PAGE>
the adoption agreement, that transferee, transferee's spouse, heirs, legatees
and legal representatives consent and agree to be bound by the terms and
conditions of this Agreement. Upon execution of the adoption agreement, that
transferee and transferee's spouse shall become a "STOCKHOLDER" and a
"STOCKHOLDER'S SPOUSE" for all purposes of this Agreement as if an original
party. The Company agrees that it will not issue or Transfer any Shares to any
proposed transferee without first executing such an adoption agreement with the
transferee and transferee's spouse, and further agrees to affix the endorsements
required by Section 10.2 to the stock certificate(s) issued to the new
Stockholder. The Company also agrees that it will attach a copy of the adoption
agreement to the Company's copy of this Agreement.
3.3 PRE-TRANSFER NOTICE REQUIREMENT. Prior to attempting any Transfer of
Shares, each Stockholder shall:
(a) give written notice to the Company, Dennis Bearden and the Other
Stockholders describing the proposed Transfer and the proposed transferee in
detail, describing the number of Shares owned by the Stockholder, the number of
Shares the Stockholder proposes to Transfer, the consideration and terms of the
Transfer and any other specific information which may be required elsewhere in
this Agreement; and
(b) provide whatever other information the Company reasonably
requests.
3.4 TRANSFER BY PLEDGE. No Shares shall be pledged or otherwise
voluntarily encumbered unless the Board approves the pledge or other
encumbrance. The Board shall have sole discretion to allow any Shares to be
pledged for any purpose. If the Board approves a pledge of Shares, then the
following procedure will be followed:
(a) The Company, Dennis Bearden and the Other Stockholders will
receive at least sixty (60) days notice prior to any pledge or encumbrance of
Shares specifying the person to whom the Shares will be pledged or otherwise
encumbered, and the location at which the certificates representing the Shares
will be held;
(b) The Company, Dennis Bearden and the Other Stockholders shall be
provided, promptly upon execution by the pledging Stockholder, with copies of
all security agreements relating to the pledged Shares and a summary of any oral
agreements affecting the Shares, all as amended from time to time; and
(c) The pledging Stockholder and the secured party under the pledge or
encumbrance (including any trustees or agents for the secured party) shall
execute and deliver an amendment to this Agreement in form and substance
satisfactory to the non-pledging Stockholders and Company to the effect that (i)
those persons agree to be bound by the terms of this Agreement, (ii) the secured
party shall notify the Company and non-pledging Stockholders of the date, time
and location of any foreclosure upon pledged or encumbered Shares at least sixty
(60) days prior to the foreclosure, (iii) that any notice of foreclosure shall
be deemed to be an offer by the pledging Stockholder to sell the pledged Shares
to the secured party at the price established under Section 8.1 and on the terms
described under Section 8.2, which offer shall entitle the Company and the non-
pledging Stockholders to purchase the pledged Shares pursuant to Section 5.1,
and (iv) if the
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Company and/or the non-pledging Stockholders elect to purchase the pledged
Shares within the sixty (60) day period, the foreclosure shall not be held and
the pledged Shares shall be sold and delivered by the pledging Stockholder and
the secured party to the Company and/or the non-pledging Stockholders, as
applicable, at the price and on the terms established in accordance with
Sections 8.1 and 8.2 of this Agreement.
If for any reason the pledged Shares are foreclosed upon, the foreclosure shall
be considered an involuntary Transfer and the provisions of Article VI shall
govern.
3.5 CREDIT AGREEMENT. Notwithstanding any other provision of this
Agreement, a Transfer of Shares shall not be permitted if, in the Company's
reasonable judgment (as evidenced conclusively by a resolution of the Board),
that Transfer would cause an event of default under any credit agreement or loan
agreement to which the Company is a party as a borrower, and the lender in the
credit agreement or loan agreement has not waived the default which would result
from the proposed Transfer.
ARTICLE IV
PERMITTED TRANSFERS
4.1 PERMITTED TRANSFERS.
(a) Subject to the provisions of Section 4.2, the provisions of
Article V shall not apply to any Transfer by any Stockholder during his lifetime
to another existing Stockholder whether by gift, inheritance, sale or other form
of transfer. Except as to any Permitted Transferee described in this Section
4.1 who is a Stockholder prior to a Transfer of Shares made pursuant to this
Section 4.1, a Permitted Transferee shall not be considered a Stockholder for
purposes of this Article IV but, in all other respects, the terms and provisions
of this Agreement shall bind a Permitted Transferee as a Stockholder.
(b) The provisions of Articles III and V of this Agreement shall not
apply to any Transfer by any Stockholder pursuant to the provisions of the
Merger Agreement.
4.2 TRANSFERS BY PERMITTED TRANSFEREES. The provisions of Article V shall
not apply to any Transfer by a Permitted Transferee, or to any existing
Stockholder, to another Stockholder during his lifetime.
4.3 RESTRICTIONS ON PERMITTED TRANSFERS BY SALE. Notwithstanding any
other provision of this Article IV, the provisions of Article V shall apply to a
Stockholder's Transfer by sale or other disposition for consideration of all or
any portion of his Shares to any member of his Immediate Family.
ARTICLE V
VOLUNTARY TRANSFER RESTRICTIONS
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5.1 TRANSFERS TO NON-STOCKHOLDERS. A voluntary Transfer of Shares to any
person who is not a Stockholder is subject to the following provisions (all
terms defined in this Section 5.1 apply only to the provisions of this Section
5.1):
(a) Notice Requirement. Prior to any voluntary Transfer of any Shares
------------------
to any person who is not then a Stockholder, the Offering Stockholder shall
first simultaneously send written notice to the Board, Dennis Bearden, and FSEP
IV and the Other Stockholders of his intention to Transfer all or a portion of
his Shares to a transferee who has a bona fide intent and the ability to acquire
the subject shares, (the "OFFERING NOTICE"). The Offering Notice shall contain
a conformed copy of the proposed transferee's offer to purchase, and shall
describe the number of Shares involved (the "OFFERED SHARES"), the price per
Share which the proposed transferee will pay, the terms and conditions of
payment to be made by the proposed transferee, and the name of the proposed
transferee. The Offering Notice shall constitute an offer to sell the Offered
Shares in whole or in part to the Company. The Offering Stockholder promptly
shall notify the Board, Dennis Bearden, FSEP IV and the Other Stockholders in
writing of any changes in the terms of the Offering Notice, which subsequent
notice shall constitute a new offer for purposes of this Section 5.1. Unless
the Offering Stockholder and his proposed transferee mutually agree in writing
to terminate the proposed Transfer, all offers to the Company, Dennis Bearden,
FSEP IV and the Other Stockholders under this Section 5.1 shall be irrevocable
during the Option Period, as defined below.
(b) Right of First Refusal. Subject to Section 5.1(c), (d), (e) and
----------------------
(g), for a maximum period of sixty (60) days after the date on which the Board
receives the Offering Notice (the "OPTION PERIOD"), the Company shall have the
right to elect to purchase all or any portion of the Offered Shares, Dennis
Bearden and FSEP IV shall have the pro rata right to elect to purchase all or
any portion of the Offered Shares which the Company does not elect to purchase,
and the Other Stockholders shall have the right to elect to purchase all or any
portion of the Offered Shares which the Company, Dennis Bearden and FSEP IV have
elected not to purchase, in either case (1) at the lesser of (i) the offering
price specified in the Offering Notice, or (ii) the purchase price as determined
under Section 8.1, and (2) on the terms described in the Offering Notice or on
the terms described in Section 8.2.
(c) Company's First Option. During the first twenty (20) days of the
----------------------
Option Period, the Company shall have an exclusive option to purchase all or any
portion of the Offered Shares. If the Company desires to exercise its option in
whole or in part, then no later than 11:59 P.M. Houston, Texas time on the
twentieth (20th) day of the Option Period, the Company shall deliver to the
Offering Stockholder, Dennis Bearden, FSEP IV and the Other Stockholders a
written notice which indicates its acceptance of the offer to purchase Offered
Shares, and specifies the number of Offered Shares which it has elected to
purchase, and its selection of offering price and terms.
(d) Option of Dennis Bearden and FSEP IV. If the Company does not
------------------------------------
timely deliver the written notice contemplated by Section 5.1(c) or such notice
indicates that the Company has committed to purchase less than 100% of the
Offered Shares, then during the period beginning at 12:00 A.M. Houston, Texas
time on the twenty-first (21st) day of the Option Period and ending at 11:59
P.M. Houston, Texas time on the forty-fifth (45th) day of the Option Period,
Dennis Bearden and FSEP IV shall have an exclusive option to purchase, on a pro
rata basis based on the
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percentage of the outstanding capital stock of the Company (calculated on a
fully diluted basis) then held by each of such stockholders, all or any portion
of the Offered Shares which the Company did not commit to purchase during the
first twenty (20) days of the Option Period. If either FSEP IV or Dennis Bearden
desires to exercise its option in whole or in part, then no later than 11:59
P.M. Houston, Texas time on the forty-fifth (45th) day of the Option Period, it
shall deliver written notice to the Company and the Offering Stockholder which
indicates its acceptance of the offer to purchase Offered Shares, and specifies
the maximum number of Offered Shares which it has elected to purchase, and its
selection of offering price and terms.
(e) Other Stockholders' Option. During the period beginning at 12:00
--------------------------
A.M. Houston, Texas time on the forty-sixth (46th) day of the Option Period and
ending at 11:59 P.M. Houston, Texas time on the sixtieth (60th) day of the
Option Period, the Other Stockholders shall have an exclusive option to purchase
all or any portion of the Offered Shares which Dennis Bearden and FSEP IV did
not commit to purchase on or before the forty-fifth (45th) day of the Option
Period. If any Other Stockholder desires to exercise his option under this
Section 5.1(e) in whole or in part, then no later than 11:59 P.M. Houston, Texas
time on the sixtieth (60th) day of the Option Period, the Other Stockholder
shall deliver to the Offering Stockholder and the Board a written notice which
indicates his acceptance of the offer to purchase Offered Shares, and specifies
the total number of Offered Shares which he has elected to purchase and his
selection of offering price and terms. The actual number of Offered Shares
which each Other Stockholder who has delivered such notice will be entitled to
purchase shall be pro rata. If as a result of such allocation any Other
Stockholder is allocated a number of Offered Shares to purchase which is greater
than the number of Offered Shares which he committed to purchase, then the
excess Shares shall be reallocated on a pro rata basis among the remaining Other
Stockholders who were not allocated the full number of Shares which they
committed to purchase.
(f) Remaining Shares. If the Company, Dennis Bearden, FSEP IV and the
----------------
Other Stockholders do not timely deliver the written notice(s) contemplated by
Section 5.1, or if such written notice(s) indicates that the Company, Dennis
Bearden, FSEP IV or the Other Stockholders committed to purchase less than 100%
of the Offered Shares, then the maximum number of Offered Shares which the
Offering Stockholder will be entitled to sell pursuant to the terms of the
Offering Notice shall be equal to the difference between the total number of
Offered Shares, less the total number of Offered Shares which the Company,
Dennis Bearden, FSEP IV and/or the Other Stockholders elected to purchase (the
"REMAINING SHARES").
(g) Lapse. If the Company, Dennis Bearden, FSEP IV or the Other
-----
Stockholders fail to notify the Offering Stockholder of their respective
elections under this Section 5.1, or if the Company's, FSEP IV, Dennis Bearden's
and Other Stockholders' notice(s) to the Offering Stockholder shall specify for
purchase less than 100% of the Offered Shares, then the offer by the Offering
Stockholder to the Other Stockholders, Dennis Bearden, FSEP IV and the Company
to the extent not accepted shall lapse sixty (60) days after the date on which
the Board receives the Offering Notice.
(h) Continuation of Restrictions. Upon the lapse in whole or in part
----------------------------
of the offer to the Other Stockholders, Dennis Bearden, FSEP IV and the Company,
the Offering Stockholder shall be free to Transfer the Remaining Shares in
strict compliance with the terms of the Offering
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Notice for a period of sixty (60) days thereafter, but after such sixty (60) day
period, the restrictions of this Agreement shall again apply. Shares so
Transferred shall be subject to the terms and conditions of this Agreement in
accordance with the provisions of Section 3.2.
5.2 BUY-OUT OFFERS. Notwithstanding any other provision of this Article
V, if any Stockholder, Dennis Bearden, FSEP IV or the Company receives a Buy-Out
Offer (as defined below) and a Required Interest elects to accept such offer as
to their Shares, then the Required Interest shall have the right to require that
all Stockholders sell 100% of their Shares to the Buy-Out Offer or (as defined
below) on the same terms and subject to the same conditions of purchase and
sale. A "BUY-OUT OFFER" means an offer made by any person who is not then a
Stockholder to purchase all but not less than all of the then issued and
outstanding Shares. A "BUY-OUT OFFEROR" means the person(s) who makes a Buy-Out
Offer. Notwithstanding the foregoing, if FSEP IV proposes to sell to a third
party buyer all or (in a transaction which contemplates the partial retention by
the Company's existing securityholders of a portion of the Company's issued and
outstanding securities) a substantial portion of the shares of common stock,
preferred stock and other securities held by it (whether such sale is by way of
purchase, merger, recapitalization or other form of transaction) and (including,
in each case, its permitted transferees and assignees), upon the request of FSEP
IV, each of the Stockholders shall sell the same percentages of shares of common
stock, preferred stock and other securities beneficially owned by such
Stockholder to such third party buyer pursuant to the terms and conditions
negotiated by FSEP IV for the sale of the securities held by FSEP IV. Each of
the Stockholders agrees to such sale and to execute such agreements, powers of
attorney, voting proxies or other documents and instruments as may be necessary
or desirable to consummate such sale. Each of the Stockholders further agrees
to timely take such other actions as FSEP IV may reasonably request as necessary
in connection with the approval of the consummation of such sale, including
voting all securities in favor of such sale and waiving any dissenters' rights
and, din the event such transaction is structured as a recapitalization,
agreeing to transfer and retain those percentages of securities as are requested
by FSEP IV. Each Stockholder shall be required to make customary
representations and warranties in connection with such transfer with respect to
its own authority to transfer and its title to the securities transferred.
The obligations of the Stockholders pursuant to this Section 5.2 shall
continue after the consummation of an initial public offering but shall
terminate once FSEP IV (including its permitted transferee's) percentage
ownership of voting securities in the Company (calculated on a fully diluted
basis) falls below 10%. The rights of FSEP IV under this Section 5.2 shall be
assignable to a permitted transferee or to an entity which purchases at least
50% of the shares of Common Stock then held by FSEP IV and agrees to hold such
Shares subject to the terms and conditions of this Agreement.
5.3 TWO-YEAR RESTRICTION. Notwithstanding any other provision of this
Article V, no Stockholder shall attempt to affect any Transfer of Shares to any
person who is not a Stockholder for a period of two years beginning on the date
of consummation of the transactions contemplated by the Merger Agreement.
5.4 TRANSFER OF SHARES BY FSEP IV; RIGHTS OF INCLUSION.
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(a) Right of Inclusion. FSEP IV agrees not to (i) sell all or any
------------------
portion of the shares of Common Stock of the Company it holds (the "FS SHARES")
to any person that is not an affiliate of FSEP IV (individually, a "THIRD PARTY"
and, collectively, "THIRD PARTIES") or (ii) exercise its rights of inclusion
with respect to any shares of the Company's Common Stock transferred by Dennis
Bearden to a Third Party, unless each Stockholder is given an opportunity to
sell to the Third Party such number of Shares owned by such Stockholder as is
determined in accordance with Section 5.4(c).
(b) Third-Party Offer. Prior to the consummation of any sale of all
-----------------
or any portion of the FS Shares to a Third Party pursuant to Section 5.4(a),
FSEP IV and/or Dennis Bearden shall cause each bona fide offer from such Third
Party to purchase such FS Shares from FSEP IV (an "FS THIRD-PARTY OFFER") to be
reduced to writing and shall send written notice of such FS Third-Party Offer
(the "FS INITIAL OFFER NOTICE") to the Stockholders. Each FS Third-Party Offer
shall include an offer to purchase Shares from the Stockholders in the amounts
determined in accordance with Section 5.4(c), at the same time, at the same
price and on the same terms as the sale by FSEP IV and, if applicable, Dennis
Bearden, to the Third Party, and according to the terms and conditions of this
Agreement. The FS Initial Offer Notice shall be accompanied by a true copy of
the FS Third-Party Offer. If any Stockholder desires to accept the offer
contained in the FS Initial Offer Notice, such Stockholder shall furnish written
notice to FSEP IV, within 20 days after its receipt of the FS Initial Offer
Notice, indicating such Stockholder's irrevocable acceptance of the offer
included in the FS Initial Offer Notice and setting forth the maximum number of
Shares such Stockholder agrees to sell to the Third Party (the "FS ACCEPTANCE
NOTICE"). If such Stockholder does not furnish an FS Acceptance Notice to FSEP
IV in accordance with these provisions by the end of such 20-day period, such
Stockholder shall be deemed to have irrevocably rejected the offer contained in
the FS Initial Offer Notice. All Shares set forth in the FS Acceptance Notice
of such Stockholder together with the Shares proposed to be sold by FSEP IV and,
if applicable, Dennis Bearden to the Third Party are referred to collectively as
"ALL OFFERED SHARES". Within three days after the date on which the Third Party
informs FSEP IV of the total number of Shares which such Third Party has agreed
to purchase in accordance with the terms specified in the FS Initial Offer
Notice, FSEP IV shall send written notice (the "FS FINAL NOTICE") to such
Stockholder setting forth the number of Shares such Stockholder shall sell to
the Third Party as determined in accordance with Section 5.4(c), which number
shall not exceed the maximum number specified by such Stockholder in its FS
Acceptance Notice. Within five days after the date of the FS Final Notice (or
such shorter period as may reasonably be requested by FSEP IV to facilitate the
sale), such Stockholder shall furnish to FSEP IV (i) a written undertaking to
deliver, upon the consummation of the sale of Shares to the Third Party as
indicated in the FS Final Notice, the certificates representing the Shares held
by such Stockholder which will be transferred pursuant to such FS Third-Party
Offer (such shares shall be referred to herein as the "STOCKHOLDER INCLUDED
SHARES") and (ii) a limited power-of-attorney authorizing FSEP IV to transfer
the Stockholder Included Shares pursuant to the terms of such FS Third-Party
Offer. Each of FSEP IV, Dennis Bearden, if applicable, and such Stockholder
shall be required to make representations and warranties in connection with such
transfer with respect to its own authority to transfer and its title to the
Shares transferred. In any such transaction, such Stockholder will cooperate
with FSEP IV, Dennis Bearden, if applicable, and the Company to facilitate the
transaction.
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(c) Allocation of Included Shares. The maximum number of Shares that
-----------------------------
may be sold by FSEP IV, Dennis Bearden, if applicable, the Stockholders and all
other holders of the Company's Common Stock who have rights to participate in
sales of FS Shares pursuant to written agreements by and between FSEP IV and any
such holder (the "OTHER FS TAG-ALONG RIGHTS HOLDERS") in any sale governed by
this Section 5.4 shall be (i) All Offered Shares in the event the Third Party
has agreed to purchase All Offered Shares as well as all shares of the Company's
Common Stock that the Other FS Tag-Along Rights Holders who have elected to
participate in such sale seek to include in such sale, or (ii) such number of
shares of the Company's Common Stock equal to the product of (A) the total
number of shares of the Company's Common Stock which the Third Party has agreed
to purchase times (B) a fraction, the numerator of which is the total number of
shares of the Company's Common Stock owned by FSEP IV, Dennis Bearden, the
Stockholders, or each Other FS Tag-Along Rights Holder who has elected to
participate in such sale, as the case may be, specified in the FS Final Notice
on the date of the FS Final Notice, and the denominator of which is the total
number of shares of the Company's Common Stock, in the aggregate, owned on the
date of the FS Final Notice by FSEP IV, Dennis Bearden, the Stockholders and the
Other FS Tag-Along Rights Holders who have elected to participate in such sale;
provided, however, that, in the event FSEP IV, Dennis Bearden, the Stockholders
- -------- -------
or any Other FS Tag-Along Rights Holder elects to sell a number of shares of the
Company's Common Stock which is less than the number of shares such holder could
sell pursuant to clause (ii) above, the shares of the Company's Common Stock
that the others of such holders can sell in such transaction shall be increased
by an aggregate amount equal to the number of shares which any of the FSEP IV,
Dennis Bearden, the Stockholders or any Other FS Tag-Along Rights Holder could
have sold in such transaction but chose not to sell, and any such increase shall
be allocated among such other holders on a pro rata basis based upon the total
number of shares of the Company's Common Stock owned on the date of the FS Final
Notice by such other holders.
(d) Consummation. FSEP IV shall have 180 days from the date of the FS
------------
Final Notice in which to sell to the Third Party the shares owned by FSEP IV,
Dennis Bearden, if applicable, and the Stockholder Included Shares on terms
which are not materially less favorable to the sellers of Shares than those
specified in the applicable FS Initial Offer Notice; provided, however, that in
-------- -------
the event there is a decrease in the price to be paid by the Third Party for the
Shares to be sold from the price set forth in the FS Initial Offer Notice, which
decrease is acceptable to FSEP IV, other than material change in terms which are
less favorable to FSEP IV, but which are acceptable to FSEP IV, FSEP IV shall
notify the selling Stockholder of such decrease or change in terms, and such
Stockholder shall have five business days from the date of receipt of the notice
of such decrease or change in terms to reduce the number of Shares it will sell
to such Third Party as previously indicated in the applicable FS Acceptance
Notice, and the number of shares that all other participating stockholders
(including Other FS Tag-Along Rights Holders) may transfer shall be increased in
accordance with the provisions of Section 5.4(c). FSEP IV shall act as agent
for such Stockholder in connection with such sale and shall cause to be remitted
to such Stockholder the total sales price of the Stockholder Included Shares
sold pursuant thereto, which consideration shall be in the same form as the
consideration received by FSEP IV and as specified in the applicable FS Initial
Offer Notice, net of such Stockholder's pro rata portion (based on the total
value of the consideration received by such Stockholder compared to the
aggregate consideration received by all stockholders in the transaction) of the
reasonable out-of-pocket expenses (not including any expenses paid or payable to
an affiliate of FSEP IV) incurred and paid by FSEP IV in connection with such
sale. If
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and to the extent that, at the end of 180 days following the date of the FS
Final Notice, FSEP IV has not completed the sale contemplated thereby, FSEP IV
shall return to such Stockholder all certificates representing the Stockholder
Included Shares and all powers-of-attorney which such Stockholder may have
transmitted pursuant to the terms hereof.
(e) Termination and Assignment. The obligations of FSEP IV pursuant
--------------------------
to the provisions of this Section 5.4 shall terminate upon the consummation of
an Initial Public Offering. The rights granted to the Stockholders under this
Section 5.4 shall not be assignable except to a Permitted Transferee in
accordance with Article IV, provided that the Permitted Transferee executes a
written undertaking to be and becomes bound by this Agreement in the same manner
and to the same extent as the other Stockholders. A liquidating distribution by
FSEP IV to its partners of the FS Shares shall not give rise to any rights under
this Section 5.4.
ARTICLE VI
INVOLUNTARY TRANSFER RESTRICTIONS
6.1 INVOLUNTARY TRANSFERS. Whenever a Stockholder has any notice or
knowledge of any attempted, impending or consummated involuntary Transfer of, or
lien or charge upon any of, his Shares, whether by operation of law or
otherwise, he shall give immediate written notice to the Company, Dennis
Bearden, FSEP IV and the Other Stockholders specifying the number of Shares
which are subject to such involuntary Transfer. Whenever the Company has notice
or knowledge of any such attempted, impending or consummated involuntary
Transfer, lien or charge, it shall give written notice to the Stockholder,
Dennis Bearden and the Other Stockholders specifying the number of Shares which
are subject to such involuntary Transfer. In either case, the Stockholder
agrees to immediately disclose to the Company, Dennis Bearden and the Other
Stockholders all pertinent information in his possession relating to the
Transfer. If any Share is subjected to an involuntary Transfer, lien or charge,
the Stockholder(s) and/or other record owner of such Shares shall be deemed an
Offering Stockholder(s), and the Company shall at all times have the immediate
and continuing option to purchase the subject Shares in accordance with Section
5.1 for each successive sixty (60) day period, except that the purchase price
shall be as specified in Section 8.1 and the terms shall be as described in
Section 8.2, and any Shares so purchased shall in every case be free and clear
of the Transfer, lien or charge. The purchase price shall first be paid
directly to the holder of the encumbrance on the Shares in an amount
sufficient to discharge the obligation underlying, and release, the encumbrance.
The balance of the purchase price, if any, shall be paid to the selling
Stockholder.
6.2 TRANSFERS IN BANKRUPTCY. If a Stockholder or Stockholder's Spouse is
the named debtor in bankruptcy or receivership proceedings and a Transfer of
Shares is proposed or directed, the Company shall have an exclusive right of
first refusal to purchase the named debtor Stockholder's Shares to the same
extent as if such Transfer constituted an offer to sell Shares under Section
5.1, and the provisions of Section 5.1, except the purchase price shall be
determined pursuant to Section 8.1 and the terms shall be as described in
Section 8.2, shall accordingly control the exercise of this right of first
refusal.
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ARTICLE VII
PURCHASE UPON DEATH,
DIVORCE OR TERMINATION OF EMPLOYMENT
7.1 DEATH OF STOCKHOLDER'S SPOUSE. If any Shares are owned by a
Stockholder and his Stockholder's Spouse jointly and the Stockholder's Spouse
predeceases the Stockholder, then the Stockholder immediately shall
simultaneously send written notice to the Company, Dennis Bearden and the Other
Stockholders specifying the date of death of his Stockholder's Spouse and the
nature of the deceased Stockholder Spouse's interest in the Shares. Such
interest may be Transferred directly to the Stockholder. If the Stockholder's
Spouse predeceases the Stockholder and the Stockholder's Spouse's interest in
the Shares is not Transferred directly to the Stockholder, then the Company,
Dennis Bearden, FSEP IV and the Other Stockholders shall have the option to
purchase the Stockholder's Spouse's interest in the Shares under the terms of
Section 7.2 as if the Stockholder rather than the Stockholder's Spouse had died,
and all provisions of Section 7.2 shall apply. Upon the exercise of any such
option, the legal representative or trustee of the deceased Stockholder's
Spouse's estate shall be obligated to sell such interest, and perform any
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. In all other
respects, the interest in the Shares of the Stockholder's Spouse shall be
subject to the restrictions and terms of this Agreement.
7.2 DEATH OF STOCKHOLDER. Upon learning of the death of any Stockholder,
the Company immediately shall simultaneously send written notice to Dennis
Bearden and the surviving Other Stockholders, specifying the date of death and
the number of Shares owned by the deceased Stockholder (the "NOTICE"). For a
period of sixty (60) days after the date on which the Notice is sent, Dennis
Bearden, FSEP IV the surviving Other Stockholders and the Company shall have the
option to purchase all or any portion of the Shares owned by such deceased
Stockholder on the date of his death, in accordance with the provisions of
Section 5.1, except that the Offering Stockholder shall be the legal
representative or trustee of the deceased Stockholder's estate, the purchase
price shall be determined pursuant to Section 8.1, and the terms shall be as
described in Section 8.2. Upon the exercise of any option under this Section
7.2, the legal representative or trustee of the deceased Stockholder's estate
shall sell the deceased Stockholder's Shares to the Company, Dennis Bearden,
FSEP IV and/or the Other Stockholders, as the case may be, and perform any
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. If the Company, Dennis
Bearden, FSEP IV and/or surviving Other Stockholder do not purchase all of such
deceased Stockholders' Shares, then his estate and any beneficiaries of his
estate to whom the estate distributes Shares shall be subject to the
restrictions and provisions of this Agreement, and shall be treated as Permitted
Transferees under the provisions of Article IV.
7.3 LIFE INSURANCE. In order to fund the payment of the purchase price
for the Shares which may be purchased under this Agreement on the death of any
Stockholder, the Company may apply for and maintain permanent and/or term life
insurance policies on the lives of any or all of such Stockholders in such
amounts as it may deem appropriate and necessary. Each policy shall belong
solely to the Company and, subject to the provisions of this Agreement, the
Company reserves all the powers and rights of ownership of such insurance. The
Company shall be named as the primary beneficiary of each policy and shall pay
all premiums as they become due. No Stockholder shall
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exercise any of the powers of ownership of any policy by changing the named
beneficiary, canceling the policy, electing optional methods of payment,
converting the policy, borrowing against it, or in any way changing its nature,
value, or the rights under the policy or policies. No proceeds of any insurance
policy funded by the Company shall be available to the Other Stockholders for
the purchase of Shares. Any dividends paid on any policy or policies before
maturity or the insured's death shall be paid to the Company and shall not be
subject to this Agreement. Upon an insured Stockholder's death, the Company
shall file the necessary proofs of death and collect the proceeds of any
outstanding policies of life insurance. All insurance proceeds obtained pursuant
to this Section 7.3 shall be applied to pay the purchase price of the Shares in
cash at the time of purchase, and any excess shall be added to the Company's
working capital.
7.4 DIVORCE OF STOCKHOLDER AND STOCKHOLDER'S SPOUSE. If any Shares are
owned by a Stockholder and his Stockholder Spouse jointly, and the marriage of
that Stockholder and his Stockholder Spouse is terminated by divorce or
annulment, and that Stockholder does not obtain all of his Stockholder Spouse's
interest in the Shares incident to the divorce or annulment, then the
Stockholder shall simultaneously give written notice to the Company, Dennis
Bearden, FSEP IV and the Other Stockholders within thirty (30) days after the
effective date of the final, nonappealable divorce decree or of the annulment.
The written notice shall specify the effective date of termination of the
marriage and the number of Shares to which any interest retained by the
Stockholder's former Stockholder Spouse relates. For a period of sixty (60)
days after the effective date of termination of the marriage, the Stockholder
shall have an exclusive option to purchase all or any portion of his former
Stockholder Spouse's retained interest in the Shares at the purchase price
specified in Section 8.1 and on the terms described in Section 8.2. The
Stockholder's sixty (60) day option shall be exercised by delivering to his
former Stockholder Spouse, the Company, Dennis Bearden, FSEP IV and the Other
Stockholders a written notice specifying the number of Shares or interest in the
Shares as to which the option is being exercised. If the Stockholder does not
purchase all of his former Stockholder Spouse's interest in the Shares, then for
a period of sixty (60) days after the lapse of the Stockholder's sixty (60) day
option period, the Stockholder's Spouse shall be deemed an Offering Stockholder,
and the Company, Dennis Bearden and the Other Stockholders shall have an
exclusive option to purchase all or any portion of the former Stockholder
Spouse's retained interest in the Shares in accordance with the provisions of
Section 5.1 except that the price shall be determined pursuant to Section 8.1
and the terms shall be as described in Section 8.2. If any option is exercised
pursuant to this Section 7.4, then the former Stockholder's Spouse shall sell
any interest in the Shares retained incident to divorce or annulment.
7.5 TERMINATION OF EMPLOYMENT.
(a) If the Company's employment of a Stockholder is terminated for any
reason other than death, then such terminated person shall be deemed an Offering
Stockholder, and the Company, Dennis Bearden, FSEP IV and the Other
Stockholders, excluding the terminated person, shall have an exclusive option,
but not the obligation, to purchase all or any portion of the Shares owned by
the Offering Stockholder in the priorities of, and in accordance with, the
provisions of Section 5.1, except that the price shall be determined pursuant to
Section 8.1 and the terms shall be as described in Section 8.2.
13
<PAGE>
(b) On termination of such a Stockholder-employee, the Company shall
promptly give written notice to Dennis Bearden, FSEP IV and the Other
Stockholders, as applicable, such notice specifying the termination date and the
number of Shares owned by the Offering Stockholder.
(c) For purposes of this Section 7.5, the term "Company" means the
Company and its subsidiaries.
ARTICLE VII
PURCHASE PRICE AND TERMS
8.1 PURCHASE PRICE.
(a) Whenever any Shares shall be offered at the "PURCHASE PRICE", or
at any offering price determined with reference to the purchase price, the
purchase price shall be the product of (i) quotient of (A) the Company's net
book value as determined pursuant to generally accepted accounting principles
(provided, that the calculation of the Company's net book value shall not
include the effects of the recapitalization transactions contemplated by the
Merger Agreement), divided by (B) the total number of Shares then issued and
outstanding, determined in accordance with the Company's stock records,
multiplied by (ii) the number of Offered Shares The calculations required by
each of (A) and (B) of this Section 8.1 shall be made as of the last day of the
month which immediately precedes the month during which the event occurs making
it necessary or advisable to calculate the purchase price under this Section
8.1.
8.2 PAYMENT OF PURCHASE PRICE. Payment of the purchase price for Shares
purchased pursuant to this Agreement shall be made as follows provided that, (i)
if Article V applies, the Company, Dennis Bearden, FSEP IV and the Other
Stockholders may elect to purchase on terms specified in the notice of proposed
Transfer instead of on the following terms, and (ii) the purchasing party,
whether the Company, Dennis Bearden, FSEP IV or an Other Stockholder, may always
elect to pay all or an additional part of the purchase price in cash instead of
on the following terms:
(a) On the closing date, the Company, Dennis Bearden, FSEP IV or the
Other Stockholder(s) purchasing Shares shall deliver to the Offering Stockholder
a down payment in cash equal to at least twenty percent (20%) of the total
purchase price. The balance of the total purchase price shall be paid in
accordance with the terms of a five (5) year recourse promissory note bearing
interest at a rate equal to the lowest applicable federal interest rate for
midterm notes as published by the Internal Revenue Service pursuant to Internal
Revenue Code Section 1274(d), payable in sixty (60) equal monthly installments
of principal and interest. The promissory note shall be substantially in the
form of the attached EXHIBIT 8.2(a).
(b) Upon receipt of the cash down payment and the five (5) year
promissory note, the selling Stockholder shall deliver to the Company, Dennis
Bearden, FSEP IV or the Other Stockholder(s) purchasing Shares, as the case may
be, the number of Shares purchased, properly endorsed to the purchaser, or in
the event of a purchase by a party other than the Company, accompanied by an
executed stock transfer power.
14
<PAGE>
(c) The payment of all sums due under the promissory note shall be
secured by a pledge of all of the Shares purchased in the transaction to which
the promissory note relates. In the event of a default in payment of the
principal or interest of the promissory note, the selling Stockholder shall have
recourse against the Shares being held as collateral and shall have recourse
against the purchaser of the Shares. The pledge agreement shall be
substantially in the form of the attached EXHIBIT 8.2(b).
(d) In the event the Company is the beneficiary of life insurance
proceeds payable upon the death of a Stockholder, if the successor in interest
of a Stockholder sells the Shares of the deceased Stockholder to the Company,
the Company will utilize one hundred percent (100%) of the life insurance
proceeds as a down payment for the Shares. The down payment will be payable on
the Closing Date and the principal amount of the promissory note will be
correspondingly reduced. If the life insurance proceeds are less than the
twenty percent (20%) cash down payment described in Section 8.2(a), then the
Company shall pay the difference in cash.
ARTICLE IX
EFFECTIVE DATES
9.1 CLOSING DATE. Whenever the Other Stockholders, FSEP IV, Dennis
Bearden or the Company agree to purchase Shares under the terms of this
Agreement, the closing date of the transaction shall be a business day and
hour specified by the Company at a designated location. Unless the parties
agree to the contrary, the closing date shall not be more than sixty (60) days
after the occurrence of the event or notice which fixed the obligation to
Transfer the Shares. Notice of the details of closing shall be furnished by the
Company no later than ten (10) days prior to the closing date. At the specified
time of closing, certificates for the Shares purchased shall be delivered,
together with stock transfer instruments sufficient to effect the Transfer, duly
endorsed by the transferring Stockholder and transferred of record to the
respective purchasers against payment to the transferring Stockholder in cash or
by certified check of the purchase price or the offering price.
9.2 NOTICES; OFFERS; ACCEPTANCES. Any notice, instruction, authorization,
request or demand required hereunder shall be in writing, and shall be delivered
either by personal delivery, by telegram, telex, telecopy or similar facsimile
means, by certified or registered mail, return receipt requested, or by courier
or delivery service, addressed to the recipient at his address on file with the
Company. Notices shall be deemed given when received, if sent by facsimile
means (confirmation of such receipt by confirmed facsimile transmission being
deemed receipt of communications sent by facsimile means); and when delivered
and receipted for (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.
ARTICLE X
ENFORCEMENT
10.1 CREATION OF SUFFICIENT SURPLUS. In the event that the surplus of the
Company shall prove to be legally insufficient (under then existing law) to
enable the Company to exercise any
15
<PAGE>
options to purchase Shares, the Board, to the extent legally possible, shall
take such actions, adopt such resolutions and cause such certificates and other
documents to be filed as may be necessary to create sufficient surplus to permit
the redemption or distributions, and the Stockholders agree to perform such
acts, execute such instruments and vote their Shares in such a manner as may be
necessary to authorize or ratify any action taken to create sufficient surplus.
10.2 ENDORSEMENTS ON STOCK CERTIFICATES. Each share certificate
representing Shares now owned or hereafter owned by the Stockholders or any
transferee shall be conspicuously endorsed substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER UNDER THE TERMS OF AN AGREEMENT ENTERED INTO
BY THIS COMPANY AND ITS STOCKHOLDERS WHICH PROVIDES FOR, AMONG OTHER
THINGS, AN OPTION IN FAVOR OF THE COMPANY AND ITS STOCKHOLDERS TO PURCHASE
THESE SECURITIES IN CERTAIN INSTANCES. THE COMPANY WILL FURNISH WITHOUT
CHARGE A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE.
In addition, each Share certificate representing Shares now or subsequently
owned by the Stockholders or any transferee shall bear such legends as may be
required by the Delaware General Corporation Law, as amended, the Code and any
other applicable laws or regulations, including, without limitation, legends
substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE FEDERAL
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH STATE LAWS OR UPON DELIVERY TO THE COMPANY
OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
10.3 BREACH. Any purported Transfer in breach of any provision of this
Agreement shall be void and ineffectual; shall not operate to Transfer any
interest or title in the purported transferee; and shall constitute an offer by
the breaching Stockholder to sell his Shares to the Company, Dennis Bearden,
FSEP IV and the Other Stockholders pursuant to the provisions of Section 5.1,
provided that (a) the date of the offer for purposes of this Section 10.3 shall
be the date on which the Company has actual knowledge of the purported Transfer,
and (b) the price per Share shall be either (i) the purchase price specified in
Section 8.1 per Share at the time the offer should have been made pursuant to
the terms of this Agreement, or (ii) the price per Share at the time the offer
is made, whichever is less. In connection with any attempted Transfer in breach
of this Agreement, the Company may hold and refuse to Transfer any Shares or any
stock certificate tendered to it for Transfer, in addition to and without
prejudice to any and all other rights or remedies which may be available to the
Company, Dennis Bearden, FSEP IV or the Other Stockholders. Each party
acknowledges that a remedy at law for any breach or attempted breach of this
Agreement will be inadequate, agrees that each other party shall be entitled to
specific performance and injunctive and
16
<PAGE>
other equitable relief in case of any breach or attempted breach, and further
agrees to waive any requirement for showing the inadequacy of damages or
irreparable harm as a condition to obtaining injunctive or other equitable
relief.
10.4 GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement, including without limitation the relative
rights of the Company, Dennis Bearden, FSEP IV and the Stockholders, shall be
governed by the internal law, and not the law of conflicts, of Delaware.
10.5 SEVERABILITY. If any one or more provisions of this Agreement shall
be invalid, illegal or unenforceable in any respect, then the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
ARTICLE XI
EFFECT
11.1 PREVIOUS AGREEMENTS SUPERSEDED. This Agreement supersedes all
previous agreements by and among the Company, the Stockholders and the
Stockholders' Spouses relating to the Shares, and contains all agreements
between the parties relating to the Shares.
11.2 BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto, including the Company,
Dennis Bearden, FSEP IV and their representatives, successors and assigns, as
well as the Stockholders and the Stockholders' Spouses, their respective heirs,
legatees, legal representatives and permitted assigns. If any Stockholder
Transfers all of his Shares in conformity with the terms of this Agreement, he
shall cease to be a party to this Agreement and shall have no further rights
under this Agreement.
11.3 STOCKHOLDERS' SPOUSES. The Stockholders' Spouses are fully aware of,
understand, and fully consent and agree to the provisions of this Agreement and
its binding effect on any interest that Stockholder's Spouse may have by reason
of marriage to a Stockholder in any Shares subject to the terms of this
Agreement held in the Stockholder's name on the stock records of the Company at
or subsequent to the date of execution of this Agreement. Any obligation of a
Stockholder or his legal representative to sell or offer to sell his Shares
under the terms of this Agreement includes an obligation on the part of that
Stockholder's Spouse to sell or offer to sell any interest she may have in the
Shares in the same manner.
11.4 REPRESENTATIONS AND WARRANTIES. Since all the parties to this
Agreement are equally familiar with the business operations and financial
condition of the Company, no party is making any representations or warranties
concerning the business operations or financial condition of the Company. All
parties hereto represent, warrant and covenant that they have full power and
authority to enter into and perform this Agreement in accordance with its terms,
and that they will perform all agreements made by them hereunder in accordance
herewith.
11.5 EFFECTIVENESS. This Agreement shall be effective concurrent with and
only upon the consummation of the transactions contemplated by the Merger
Agreement.
17
<PAGE>
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by the Company (which will require Board approval) and the
stockholders of the Company (including FSEP IV) holding the number of Shares
which are required to take stockholder action under the Company's Articles of
Incorporation, provided that no amendment shall adversely affect any rights of
any party under this Agreement which have vested prior to amendment.
12.2 TERMINATION. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) Upon the written agreement of the Company (which will require
Board approval) and the stockholders of the Company (including FSEP IV) holding
the number of Shares which are required to take Stockholder action under the
Company's Articles of Incorporation, provided that no termination shall affect
adversely any rights which have vested prior to termination;
(b) Upon naming of the Company as Debtor in bankruptcy proceedings for
a period of sixty (60) days without dismissal, the execution by the Company of
an assignment for the benefit of its creditors, the appointment of a receiver
for the Company, or the voluntary or involuntary liquidation or dissolution of
the Company; or
(c) The Company's consummation of an Initial Public Offering;
provided, that the obligation contained in Section 5.2 shall survive any Initial
Public Offering until such obligation terminates in accordance with its
respective terms.
12.3 NOTICE. The Company promptly shall deliver written notice of any
termination of this Agreement to all parties hereto.
ARTICLE XII
OTHER AGREEMENTS
13.1 "MARKET STAND-OFF" AGREEMENT. Each Stockholder hereby agrees that,
(i) during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company and agreed to by a Required
Interest following the effective date of a registration statement of the Company
filed under the Securities Act, such Stockholder shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of any securities
of the Company held by him at any time during such period except securities of
the Company included in such registration and (ii) such Stockholder shall
execute any and all agreements reasonably requested by such underwriter to
enforce such lockup. In order to enforce this covenant, the Company may impose
stop-transfer instructions with respect to any Shares until the end of such
period. This Section 13.1 shall survive the termination of this Agreement.
18
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 GENDER AND CERTAIN REFERENCES. Whenever the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and plural. The
terms "HEREOF", "HEREIN" or "HEREUNDER" shall refer to this Agreement as a whole
and not to any particular Article or Section hereof. All titles and headings to
Articles and Sections in this Agreement are included for convenience and ease of
reference. Titles and headings shall not affect in any way the meaning or
interpretation of Articles or Sections of this Agreement. Any references to
specific Articles or Sections shall mean the Articles and Sections in this
Agreement.
14.2 COUNTERPARTS. This Agreement is executed in multiple counterparts,
each of which shall be considered an original but all of which shall constitute
one and the same instrument, and in making proof of this Agreement it shall not
be necessary to produce or account for more than one counterpart.
[SIGNATURE PAGE FOLLOWS]
19
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
________________________________ __________________________________
Name ___________________________ Name _____________________________
Federal Tax I.D. No. ___________ Federal Tax I.D. No.______________
Address ________________________ Address __________________________
________________________________ __________________________________
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: /s/ Jon D. Ralph
---------------------
Its: Vice President
---------------------
Address _______________________
_______________________
_______________________________
Dennis Bearden
20
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Danny N. Errico /s/ Corrine Errico
- -------------------------------- --------------------------------
Name Danny N. Errico Name Corrine Errico
--------------------------- --------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------
Address 21434 129/th/ Pl. S.E. Address 21434 129/th/ Pl. S.E.
------------------------ ------------------------
Kent, WA 98031 Kent, WA 98031
------------------------ ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ John M. Morotti /s/ Shari K. Morotti
- ---------------------------------- -----------------------------------
Name John M. Morotti Name Shari K. Morotti
------------------------------ ------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
-------------- ---------------
Address 6641 S. 38th St. Address 6641 S. 38th St.
-------------------------- ---------------------------
Phoenix, AZ 85040 Phoenix, AZ 85040
-------------------------- ---------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
2
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Daryl. D. Morse
- ---------------------------------- ---------------------------------
Name Daryl D. Morse Name
----------------------------- --------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No.
-------------- ----------------
Address 7560 W. Dewey Dr. Address
-------------------------- --------------------------
Las Vegas, NV 89113
-------------------------- --------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
3
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard Penick /s/ Patricia Penick
- -------------------------------- --------------------------------
Name Richard Penick Name Patricia Penick
--------------------------- ---------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------
Address P.O. Box 368 Address P.O. Box 368
------------------------ ------------------------
Anahuac, TX 77514 Anahuac, TX 77514
------------------------ ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
4
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Charles Lee Littlepage /s/ Lori J. Littlepage
- ---------------------------------- -----------------------------------
Name Charles Lee Littlepage Name Lori J. Littlepage
----------------------------- ------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
-------------- ------------------
Address 7505 Yaupon Address 7505 Yaupon
-------------------------- ------------------
Austin, TX 78759 Austin, TX 78759
-------------------------- ------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
5
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ R. Allan Kea /s/ Debra K. Kea
- --------------------------------- ---------------------------------
Name R. Allan Kea Name Debra K. Kea
----------------------------- ----------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------- --------------
Address 4610 Derby Lane Address 4610 Derby Lane
-------------------------- ------------------------
Smyrna, GA 30082 Smyrna, GA 30082
-------------------------- ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
6
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard A. Luke /s/ Cynthia R. Luke
- ---------------------------------- ---------------------------------
Name Richard A. Luke Name Cynthia R. Luke
----------------------------- ----------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
-------------- -----------------
Address 11670 S. Kirkwood Address 11670 S. Kirkwood
-------------------------- -------------------------
Stafford, TX 77477 Stafford, TX 77477
-------------------------- -------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
7
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard Penick, VP
- ------------------------------------------ --------------------------------
Name Century Airconditioning Supply, Inc. Name
------------------------------------- ---------------------------
Federal Tax I.D. No. 74-1842648 Federal Tax I.D. No.
---------------------- -----------
Address 6230 W. 34th St. Address
---------------------------------- ------------------------
Houston, TX 77092
--------------------------------- ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
8
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Daniel F. Firkus /s/ Jessica Firkus
- -------------------------------- ---------------------------------
Name Daniel F. Firkus Name Jessica Firkus
--------------------------- ----------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ -------------
Address 338 FM 3013 Address 338 FM 3013
------------------------ -------------------------
Sealy, TX 77474 Sealy, TX 77474
------------------------ -------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
9
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Jerry J. Muras /s/ Linda E. Muras
- --------------------------------- ----------------------------------
Name Jerry J. Muras Name Linda E. Muras
---------------------------- -----------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------- ------------------
Address 11889 Doty Dr. Address 11889 Doty Dr.
------------------------- --------------------------
Conroe, TX 77303 Conroe, TX 77303
------------------------- --------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
10
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Vickie Reynolds /s/ Hobson Reynolds
- --------------------------------- ----------------------------------
Name Vickie Reynolds Name Hobson Reynolds
----------------------------- ------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------- --------------
Address 4911 Holly Tree Address 4911 Holly Tree
------------------------- --------------------------
Dallas, TX 75287 Dallas, TX 75287
------------------------- --------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: ___________________________
Name __________________________ By: ______________________
Its: _____________________
Address _______________________
_______________________
_______________________________
Dennis Bearden
11
<PAGE>
EXHIBIT 10.7
SECOND AMENDED AND RESTATED
STOCKHOLDER'S AGREEMENT
BETWEEN
CENTURY MAINTENANCE SUPPLY, INC.
AND CERTAIN OF ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I NATURE AND PURPOSES OF AGREEMENT ....................... 1
ARTICLE II DEFINITIONS ............................................ 1
2.1 Board .................................................. 2
2.2 Cash ................................................... 2
2.3 Commission ............................................. 2
2.4 Confidential Information ............................... 2
2.5 Control ................................................ 2
2.6 Immediate Family ....................................... 2
2.7 Initial Public Offering ................................ 2
2.8 Offering Stockholder ................................... 2
2.9 Other Stockholder ...................................... 2
2.10 Permitted Transferee ................................... 2
2.11 Required Interest ...................................... 2
2.12 Securities Act ......................................... 3
2.13 Share .................................................. 3
2.14 Stockholder ............................................ 3
2.15 Transfer ............................................... 3
ARTICLE III TRANSFER RESTRICTIONS GENERALLY......................... 3
3.1 Stockholders' Agreement ................................ 3
3.2 New Stockholders ....................................... 3
3.3 Pre-Transfer Notice Requirement ........................ 4
3.4 Transfer by Pledge ..................................... 4
3.5 Credit Agreement ....................................... 5
ARTICLE IV PERMITTED TRANSFERS..................................... 5
4.1 Permitted Transfers .................................... 5
4.2 Transfers by Permitted Transferees ..................... 5
4.3 Restrictions on Permitted Transfers by Sale ............ 5
ARTICLE V VOLUNTARY TRANSFER RESTRICTIONS ........................ 5
5.1 Transfers to Non-Stockholders .......................... 6
5.2 Buy-Out Offers ......................................... 8
5.3 Two-Year Restriction ................................... 8
5.4 Transfer of Shares by FSEP IV; Rights of Inclusion ..... 8
ARTICLE VI INVOLUNTARY TRANSFER RESTRICTIONS ..................... 10
6.1 Involuntary Transfers ................................. 10
6.2 Transfers in Bankruptcy ............................... 11
ARTICLE VII PURCHASE UPON DEATH, DIVORCE OR TERMINATION
OF EMPLOYMENT ......................................... 11
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7.1 Death of Stockholder's Spouse ......................... 11
7.2 Death of Stockholder .................................. 12
7.3 Life Insurance ........................................ 12
7.4 Divorce of Stockholder and Stockholder's Spouse ....... 12
7.5 Termination of Employment ............................. 13
ARTICLE VIII PURCHASE PRICE AND TERMS .............................. 13
8.1 Purchase Price ........................................ 13
8.2 Payment of Purchase Price ............................. 14
ARTICLE IX EFFECTIVE DATES ....................................... 14
9.1 Closing Date .......................................... 14
9.2 Notices; Offers; Acceptances .......................... 15
ARTICLE X ENFORCEMENT ........................................... 15
10.1 Creation of Sufficient Surplus ........................ 15
10.2 Endorsements on Stock Certificates .................... 15
10.3 Breach ................................................ 16
10.4 Governing Law ......................................... 16
10.5 Severability .......................................... 16
ARTICLE XI EFFECT ................................................ 16
11.1 Previous Agreements Superseded ........................ 16
11.2 Binding Effect ........................................ 17
11.3 Stockholders' Spouses ................................. 17
11.4 Representations and Warranties ........................ 17
11.5 Effectiveness ......................................... 17
ARTICLE XII AMENDMENT AND TERMINATION ............................. 17
12.1 Amendment ............................................. 17
12.2 Termination ........................................... 17
12.3 Notice ................................................ 18
ARTICLE XIII OTHER AGREEMENTS ...................................... 18
13.1 "Market Stand-Off" Agreement .......................... 18
ARTICLE XIV MISCELLANEOUS ......................................... 18
14.1 Gender and Certain References ......................... 18
14.2 Counterparts .......................................... 18
SCHEDULE 1
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<PAGE>
EXHIBIT 3.2 AMENDED AND RESTATED
ADOPTION OF STOCKHOLDERS' AGREEMENT
EXHIBIT 8.2(a) PROMISSORY NOTE
EXHIBIT 8.2(b) STOCK PLEDGE AND PURCHASE MONEY SECURITY AGREEMENT
iii
<PAGE>
SECOND AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT ("AGREEMENT") is
entered into as of July 8, 1998, by and among Century Maintenance Supply, Inc.,
a Delaware corporation having its principal place of business at 9100 Winkler
Drive, Houston, Texas 77017 (the "COMPANY"), the stockholders listed in Schedule
--------
1 ("STOCKHOLDERS"), and the spouses of the Stockholders listed on the following
- -
execution pages ("STOCKHOLDERS' SPOUSES"), Dennis Bearden, and FS Equity
Partners IV, L.P. ("FSEP IV").
ARTICLE I
NATURE AND PURPOSES OF AGREEMENT
The Company, the Stockholders, the Stockholders Spouses, and Dennis Bearden
executed that certain Stockholders Agreement dated June 30, 1997 (as amended and
restated as of May 5, 1998, the "EXISTING AGREEMENT"). The Stockholders and
Dennis Bearden currently own beneficially and of record all of the Company's
issued and outstanding shares of common stock, par value $.001 per share, being
a total of 9,916,038 shares, as shown on Schedule 1.
----------
The Stockholders, Dennis Bearden and FSEP IV currently contemplate entering
into a recapitalization transaction and, in connection therewith, desire to
amend and restate the Existing Agreement on the terms contemplated herein, such
amendment to be effective concurrent with and only upon the consummation of the
transactions contemplated by that certain Agreement and Plan of Merger entered
into as of May 5, 1998 by and among Century Acquisition Corporation, a Delaware
corporation, FSEP IV, the Stockholders, the Company and Dennis Bearden (as
amended, the "MERGER AGREEMENT").
As used in this Agreement, the term "STOCKHOLDER'S SPOUSE" means a spouse
of a Stockholder if and only to the extent that such spouse does not own Shares
of record.
In consideration of the premises and mutual covenants of this Agreement,
and the execution of this Agreement by the Company, the Stockholders, the
Stockholders' Spouses, Dennis Bearden and FSEP IV, the parties to this Agreement
covenant and agree as follows:
ARTICLE II
DEFINITIONS
As used in this Agreement, each parenthetically or otherwise defined
capitalized term in the recitals to, and in other Articles of, this Agreement
shall have the meaning so ascribed to it (either in this Agreement or in the
Merger Agreement), and each of the following terms shall have the meaning
ascribed to it in this Article II:
<PAGE>
2.1 BOARD. "BOARD" shall mean the members of the Board of Directors of
the Company.
2.2 CASH. "CASH" shall include cash or other immediately available funds
constituting or payable in legal tender of the United States of America.
2.3 COMMISSION. "COMMISSION" shall mean the United States Securities and
Exchange Commission, or any federal agency administering the Securities Act at
any given time.
2.4 CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" shall mean and
include, but is not limited to, the following forms of information relating to
the Company and other information of a similar nature (whether reduced to a
tangible manifestation): discoveries; ideas; concepts; designs; drawings;
specifications; techniques; computer flow charts, programs and software; models;
data; documentation; diagrams; research; development; processes; procedures;
"know-how;" marketing, licensing and franchising techniques; materials; plans;
customer names and lists; agents names and lists; files and other information
related to past and prospective customers or agents; con tracts; cost data,
pricing policies and financial information; and any information specifically
designated as Confidential Information. Confidential Information also shall
include any information described in the preceding sentence that the Company
obtains from another party and which the Company treats or has agreed to treat
as confidential.
2.5 CONTROL. "CONTROL" shall mean possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
person, whether through ownership of voting securities, by contract or
otherwise.
2.6 IMMEDIATE FAMILY. "IMMEDIATE FAMILY" shall mean parents, siblings,
spouse during marriage and not incident to divorce, lineal descendants
(including those by adoption) and spouses of lineal descendants.
2.7 INITIAL PUBLIC OFFERING. "INITIAL PUBLIC OFFERING" shall mean the
consummation of the sale of Common Stock to the general public in a bona fide
firm commitment underwritten public offering pursuant to a registration
statement filed with, and declared or ordered effective by, the Commission under
the Securities Act, pursuant to which the Company receives net proceeds of at
least $5,000,000.
2.8 OFFERING STOCKHOLDER. "OFFERING STOCKHOLDER" shall mean a Stockholder
who intends to Transfer all or any portion of his Shares to any person other
than a Permitted Transferee.
2.9 1998 OPTION PLAN. "1998 OPTION PLAN" shall mean the Century
Maintenance Supply, Inc. 1998 Nonqualified Stock Option Plan as it may be
amended from time to time.
2.10 OTHER STOCKHOLDER. "OTHER STOCKHOLDER" shall mean any Stockholder who
is not an Offering Stockholder and who is not a Permitted Transferee.
2.11 PERMITTED TRANSFEREE. "PERMITTED TRANSFEREE" shall mean any of the
persons listed in Section 4.1 of Article IV.
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<PAGE>
2.12 REQUIRED INTEREST. "REQUIRED INTEREST" shall mean the stockholders of
the Company, including FSEP IV, who, at any given time, own of record and
beneficially more than 50% of the then issued and outstanding Shares; provided,
that FSEP IV shall no longer be included within the "Required Interest" once
FSEP IV's percentage ownership in the Company (calculated on the fully diluted
basis) drops below 20%.
2.13 SECURITIES ACT. "SECURITIES ACT" shall mean the Securities Act of
1933, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any given time.
2.14 SHARE. "SHARE" shall mean a share of common stock of the Company, par
value $.001 per share, now outstanding or subsequently acquired by the
Stockholders, and any instrument convertible into or constituting an option to
acquire Shares (other than options outstanding under the 1998 Option Plan and
shares issued upon exercise thereof). All references to Shares owned by a
Stockholder include the community interest, if any, of the spouse of that
Stockholder.
2.15 STOCKHOLDER. "STOCKHOLDER" shall mean the persons listed in Schedule
--------
1 as well as any person or entity (other than Dennis Bearden or FSEP IV) that
- -
becomes a Stockholder of the Company in accordance with the provision of Section
3.2 hereof; if the Stockholder is deceased, the executor or legal representative
of the deceased Stockholder's estate, the Trustee of a trust created under the
deceased Stockholder's Last Will and Testament, or a legatee, beneficiary, heir
or successor in interest; and any other persons who become parties to this
Agreement pursuant to the terms of this Agreement.
2.16 TRANSFER. "TRANSFER" shall mean any direct or indirect sale,
assignment, gift, devise, pledge, hypothecation or other encumbrance, or any
other disposition of Shares (or any interest in or voting power of Shares)
either voluntarily or by operation of law.
ARTICLE III
TRANSFER RESTRICTIONS GENERALLY
3.1 STOCKHOLDERS' AGREEMENT. Each Stockholder and Stockholder's Spouse
covenants and agrees that he or she will not Transfer or permit to be
Transferred all or any portion of the Shares now owned or subsequently acquired
by him or her, except in accordance with and subject to the terms and conditions
of this Agreement. A counterpart of this Agreement, as it may be amended from
time to time, shall be maintained by the Company at its principal place of
business.
3.2 NEW STOCKHOLDERS. Notwithstanding any other provision of this
Agreement, other than as contemplated by the Merger Agreement, no Shares shall
be issued or Transferred to any person who is not a party to this Agreement. As
a condition precedent to the acquisition of Shares by any proposed transferee
(other than Dennis Bearden or FSEP IV), each Stockholder authorizes and directs
the Company, prior to Transferring or issuing Shares to any transferee, to
execute, on its behalf and as agent for each Stockholder and Stockholder's
Spouse, with that transferee and, if applicable, that transferee's spouse, an
adoption agreement pursuant to which he or they agree to be bound by this
Agreement in substantially in the form attached hereto as EXHIBIT 3.2. By
executing
3
<PAGE>
the adoption agreement, that transferee, transferee's spouse, heirs, legatees
and legal representatives consent and agree to be bound by the terms and
conditions of this Agreement. Upon execution of the adoption agreement, that
transferee and transferee's spouse shall become a "STOCKHOLDER" and a
"STOCKHOLDER'S SPOUSE" for all purposes of this Agreement as if an original
party. The Company agrees that it will not issue or Transfer any Shares to any
proposed transferee without first executing such an adoption agreement with the
transferee and transferee's spouse, and further agrees to affix the endorsements
required by Section 10.2 to the stock certificate(s) issued to the new
Stockholder. The Company also agrees that it will attach a copy of the adoption
agreement to the Company's copy of this Agreement.
3.3 PRE-TRANSFER NOTICE REQUIREMENT. Prior to attempting any Transfer of
Shares, each Stockholder shall:
(a) give written notice to the Company, Dennis Bearden and the Other
Stockholders describing the proposed Transfer and the proposed transferee in
detail, describing the number of Shares owned by the Stockholder, the number of
Shares the Stockholder proposes to Transfer, the consideration and terms of the
Transfer and any other specific information which may be required elsewhere in
this Agreement; and
(b) provide whatever other information the Company reasonably
requests.
3.4 TRANSFER BY PLEDGE. No Shares shall be pledged or otherwise
voluntarily encumbered unless the Board approves the pledge or other
encumbrance. The Board shall have sole discretion to allow any Shares to be
pledged for any purpose. If the Board approves a pledge of Shares, then the
following procedure will be followed:
(a) The Company, Dennis Bearden and the Other Stockholders will
receive at least sixty (60) days notice prior to any pledge or encumbrance of
Shares specifying the person to whom the Shares will be pledged or otherwise
encumbered, and the location at which the certificates representing the Shares
will be held;
(b) The Company, Dennis Bearden and the Other Stockholders shall be
provided, promptly upon execution by the pledging Stockholder, with copies of
all security agreements relating to the pledged Shares and a summary of any oral
agreements affecting the Shares, all as amended from time to time; and
(c) The pledging Stockholder and the secured party under the pledge or
encumbrance (including any trustees or agents for the secured party) shall
execute and deliver an amendment to this Agreement in form and substance
satisfactory to the non-pledging Stockholders and Company to the effect that (i)
those persons agree to be bound by the terms of this Agreement, (ii) the secured
party shall notify the Company and non-pledging Stockholders of the date, time
and location of any foreclosure upon pledged or encumbered Shares at least sixty
(60) days prior to the foreclosure, (iii) that any notice of foreclosure shall
be deemed to be an offer by the pledging Stockholder to sell the pledged Shares
to the secured party at the price established under Section 8.1 and on the terms
described under Section 8.2, which offer shall entitle the Company and the non-
pledging Stockholders to purchase the pledged Shares pursuant to Section 5.1,
and (iv) if the
4
<PAGE>
Company and/or the non-pledging Stockholders elect to purchase the pledged
Shares within the sixty (60) day period, the foreclosure shall not be held and
the pledged Shares shall be sold and delivered by the pledging Stockholder and
the secured party to the Company and/or the non-pledging Stockholders, as
applicable, at the price and on the terms established in accordance with
Sections 8.1 and 8.2 of this Agreement.
If for any reason the pledged Shares are foreclosed upon, the foreclosure shall
be considered an involuntary Transfer and the provisions of Article VI shall
govern.
3.5 CREDIT AGREEMENT. Notwithstanding any other provision of this
Agreement, a Transfer of Shares shall not be permitted if, in the Company's
reasonable judgment (as evidenced conclusively by a resolution of the Board),
that Transfer would cause an event of default under any credit agreement or loan
agreement to which the Company is a party as a borrower, and the lender in the
credit agreement or loan agreement has not waived the default which would result
from the proposed Transfer.
ARTICLE IV
PERMITTED TRANSFERS
4.1 PERMITTED TRANSFERS.
(a) Subject to the provisions of Section 4.2, the provisions of
Article V shall not apply to any Transfer by any Stockholder during his lifetime
to another existing Stockholder whether by gift, inheritance, sale or other form
of transfer. Except as to any Permitted Transferee described in this Section
4.1 who is a Stockholder prior to a Transfer of Shares made pursuant to this
Section 4.1, a Permitted Transferee shall not be considered a Stockholder for
purposes of this Article IV but, in all other respects, the terms and provisions
of this Agreement shall bind a Permitted Transferee as a Stockholder.
(b) The provisions of Articles III and V of this Agreement shall not
apply to any Transfer by any Stockholder pursuant to the provisions of the
Merger Agreement.
4.2 TRANSFERS BY PERMITTED TRANSFEREES. The provisions of Article V shall
not apply to any Transfer by a Permitted Transferee, or to any existing
Stockholder, to another Stockholder during his lifetime.
4.3 RESTRICTIONS ON PERMITTED TRANSFERS BY SALE. Notwithstanding any
other provision of this Article IV, the provisions of Article V shall apply to a
Stockholder's Transfer by sale or other disposition for consideration of all or
any portion of his Shares to any member of his Immediate Family.
ARTICLE V
VOLUNTARY TRANSFER RESTRICTIONS
5
<PAGE>
5.1 TRANSFERS TO NON-STOCKHOLDERS. A voluntary Transfer of Shares to any
person who is not a Stockholder is subject to the following provisions (all
terms defined in this Section 5.1 apply only to the provisions of this Section
5.1):
(a) Notice Requirement. Prior to any voluntary Transfer of any Shares
------------------
to any person who is not then a Stockholder, the Offering Stockholder shall
first simultaneously send written notice to the Board, Dennis Bearden, and FSEP
IV and the Other Stockholders of his intention to Transfer all or a portion of
his Shares to a transferee who has a bona fide intent and the ability to acquire
the subject shares, (the "OFFERING NOTICE"). The Offering Notice shall contain
a conformed copy of the proposed transferee's offer to purchase, and shall
describe the number of Shares involved (the "OFFERED SHARES"), the price per
Share which the proposed transferee will pay, the terms and conditions of
payment to be made by the proposed transferee, and the name of the proposed
transferee. The Offering Notice shall constitute an offer to sell the Offered
Shares in whole or in part to the Company. The Offering Stockholder promptly
shall notify the Board, Dennis Bearden, FSEP IV and the Other Stockholders in
writing of any changes in the terms of the Offering Notice, which subsequent
notice shall constitute a new offer for purposes of this Section 5.1. Unless
the Offering Stockholder and his proposed transferee mutually agree in writing
to terminate the proposed Transfer, all offers to the Company, Dennis Bearden,
FSEP IV and the Other Stockholders under this Section 5.1 shall be irrevocable
during the Option Period, as defined below.
(b) Right of First Refusal. Subject to Section 5.1(c), (d), (e) and
----------------------
(g), for a maximum period of sixty (60) days after the date on which the Board
receives the Offering Notice (the "OPTION PERIOD"), the Company shall have the
right to elect to purchase all or any portion of the Offered Shares, Dennis
Bearden and FSEP IV shall have the pro rata right to elect to purchase all or
any portion of the Offered Shares which the Company does not elect to purchase,
and the Other Stockholders shall have the right to elect to purchase all or any
portion of the Offered Shares which the Company, Dennis Bearden and FSEP IV have
elected not to purchase, in either case (1) at the lesser of (i) the offering
price specified in the Offering Notice, or (ii) the purchase price as determined
under Section 8.1, and (2) on the terms described in the Offering Notice or on
the terms described in Section 8.2.
(c) Company's First Option. During the first twenty (20) days of the
----------------------
Option Period, the Company shall have an exclusive option to purchase all or any
portion of the Offered Shares. If the Company desires to exercise its option in
whole or in part, then no later than 11:59 P.M. Houston, Texas time on the
twentieth (20th) day of the Option Period, the Company shall deliver to the
Offering Stockholder, Dennis Bearden, FSEP IV and the Other Stockholders a
written notice which indicates its acceptance of the offer to purchase Offered
Shares, and specifies the number of Offered Shares which it has elected to
purchase, and its selection of offering price and terms.
(d) Option of Dennis Bearden and FSEP IV. If the Company does not
------------------------------------
timely deliver the written notice contemplated by Section 5.1(c) or such notice
indicates that the Company has committed to purchase less than 100% of the
Offered Shares, then during the period beginning at 12:00 A.M. Houston, Texas
time on the twenty-first (21st) day of the Option Period and ending at 11:59
P.M. Houston, Texas time on the forty-fifth (45th) day of the Option Period,
Dennis Bearden and FSEP IV shall have an exclusive option to purchase, on a pro
rata basis based on the
6
<PAGE>
percentage of the outstanding capital stock of the Company (calculated on a
fully diluted basis) then held by each of such stockholders, all or any portion
of the Offered Shares which the Company did not commit to purchase during the
first twenty (20) days of the Option Period. If either FSEP IV or Dennis Bearden
desires to exercise its option in whole or in part, then no later than 11:59
P.M. Houston, Texas time on the forty-fifth (45th) day of the Option Period, it
shall deliver written notice to the Company and the Offering Stockholder which
indicates its acceptance of the offer to purchase Offered Shares, and specifies
the maximum number of Offered Shares which it has elected to purchase, and its
selection of offering price and terms.
(e) Other Stockholders' Option. During the period beginning at 12:00
--------------------------
A.M. Houston, Texas time on the forty-sixth (46th) day of the Option Period and
ending at 11:59 P.M. Houston, Texas time on the sixtieth (60th) day of the
Option Period, the Other Stockholders shall have an exclusive option to purchase
all or any portion of the Offered Shares which Dennis Bearden and FSEP IV did
not commit to purchase on or before the forty-fifth (45th) day of the Option
Period. If any Other Stockholder desires to exercise his option under this
Section 5.1(e) in whole or in part, then no later than 11:59 P.M. Houston, Texas
time on the sixtieth (60th) day of the Option Period, the Other Stockholder
shall deliver to the Offering Stockholder and the Board a written notice which
indicates his acceptance of the offer to purchase Offered Shares, and specifies
the total number of Offered Shares which he has elected to purchase and his
selection of offering price and terms. The actual number of Offered Shares
which each Other Stockholder who has delivered such notice will be entitled to
purchase shall be pro rata. If as a result of such allocation any Other
Stockholder is allocated a number of Offered Shares to purchase which is greater
than the number of Offered Shares which he committed to purchase, then the
excess Shares shall be reallocated on a pro rata basis among the remaining Other
Stockholders who were not allocated the full number of Shares which they
committed to purchase.
(f) Remaining Shares. If the Company, Dennis Bearden, FSEP IV and the
----------------
Other Stockholders do not timely deliver the written notice(s) contemplated by
Section 5.1, or if such written notice(s) indicates that the Company, Dennis
Bearden, FSEP IV or the Other Stockholders committed to purchase less than 100%
of the Offered Shares, then the maximum number of Offered Shares which the
Offering Stockholder will be entitled to sell pursuant to the terms of the
Offering Notice shall be equal to the difference between the total number of
Offered Shares, less the total number of Offered Shares which the Company,
Dennis Bearden, FSEP IV and/or the Other Stockholders elected to purchase (the
"REMAINING SHARES").
(g) Lapse. If the Company, Dennis Bearden, FSEP IV or the Other
-----
Stockholders fail to notify the Offering Stockholder of their respective
elections under this Section 5.1, or if the Company's, FSEP IV, Dennis Bearden's
and Other Stockholders' notice(s) to the Offering Stockholder shall specify for
purchase less than 100% of the Offered Shares, then the offer by the Offering
Stockholder to the Other Stockholders, Dennis Bearden, FSEP IV and the Company
to the extent not accepted shall lapse sixty (60) days after the date on which
the Board receives the Offering Notice.
(h) Continuation of Restrictions. Upon the lapse in whole or in part
----------------------------
of the offer to the Other Stockholders, Dennis Bearden, FSEP IV and the Company,
the Offering Stockholder shall be free to Transfer the Remaining Shares in
strict compliance with the terms of the Offering
7
<PAGE>
Notice for a period of sixty (60) days thereafter, but after such sixty (60) day
period, the restrictions of this Agreement shall again apply. Shares so
Transferred shall be subject to the terms and condi tions of this Agreement in
accordance with the provisions of Section 3.2.
(i) Transfers Not Subject to Right of First Refusal. Any Transfer by
-----------------------------------------------
a Stockholder pursuant to the provisions of Section 5.2 or Section 5.4 of this
Agreement shall not be subject to the provisons of this Section 5.1.
5.2 BUY-OUT OFFERS. Notwithstanding any other provision of this Article V,
if any Stockholder, Dennis Bearden, FSEP IV or the Company receives a Buy-Out
Offer (as defined below) and a Required Interest elects to accept such offer as
to their Shares, then the Required Interest shall have the right to require that
all Stockholders sell 100% of their Shares to the Buy-Out Offeror (as defined
below) on the same terms and subject to the same conditions of purchase and
sale. A "BUY-OUT OFFER" means an offer made by any person who is not then a
Stockholder to purchase all but not less than all of the then issued and
outstanding Shares. A "BUY-OUT OFFEROR" means the person(s) who makes a Buy-Out
Offer. Notwithstanding the foregoing, if FSEP IV proposes to sell to a third
party buyer all or (in a transaction which contemplates the partial retention by
the Company's existing securityholders of a portion of the Company's issued and
outstanding securities) a substantial portion of the shares of common stock,
preferred stock and other securities held by it (whether such sale is by way of
purchase, merger, recapitalization or other form of transaction, including, in
each case, its permitted transferees and assignees), upon the request of FSEP
IV, each of the Stockholders shall sell the same percentages of shares of common
stock, preferred stock and other securities beneficially owned by such
Stockholder to such third party buyer pursuant to the terms and conditions
negotiated by FSEP IV for the sale of the securities held by FSEP IV. Each of
the Stockholders agrees to such sale and to execute such agreements, powers of
attorney, voting proxies or other documents and instruments as may be necessary
or desirable to consummate such sale. Each of the Stockholders further agrees
to timely take such other actions as FSEP IV may reasonably request as necessary
in connection with the approval of the consummation of such sale, including
voting all securities in favor of such sale and waiving any dissenters' rights
and, in the event such transaction is structured as a recapitalization, agreeing
to transfer and retain those percentages of securities as are requested by FSEP
IV. Each Stockholder shall be required to make customary representations and
warranties in connection with such transfer with respect to its own authority to
transfer and its title to the securities transferred.
The obligations of the Stockholders pursuant to this Section 5.2 shall
continue after the consummation of an initial public offering but shall
terminate once FSEP IV (including its permitted transferee's) percentage
ownership of voting securities in the Company (calculated on a fully diluted
basis) falls below 10%. The rights of FSEP IV under this Section 5.2 shall be
assignable to a permitted transferee or to an entity which purchases at least
50% of the shares of Common Stock then held by FSEP IV and agrees to hold such
Shares subject to the terms and conditions of this Agreement.
5.3 TWO-YEAR RESTRICTION. Other than in connection with a Transfer
pursuant to Section 5.2 or Section 5.4 of this Agreement, no Stockholder shall
attempt to effect any Transfer of Shares to any person who is not a Stockholder
for a period of two years beginning on the date of consummation of the
transactions contemplated by the Merger Agreement.
8
<PAGE>
5.4 TRANSFER OF SHARES BY FSEP IV; RIGHTS OF INCLUSION.
(a) Right of Inclusion. FSEP IV agrees not to (i) sell all or any
------------------
portion of the shares of Common Stock of the Company it holds (the "FS SHARES")
to any person that is not an affiliate of FSEP IV (individually, a "THIRD PARTY"
and, collectively, "THIRD PARTIES") or (ii) exercise its rights of inclusion
with respect to any shares of the Company's Common Stock transferred by Dennis
Bearden to a Third Party, unless each Stockholder is given an opportunity to
sell to the Third Party such number of Shares owned by such Stockholder as is
determined in accordance with Section 5.4(c).
(b) Third-Party Offer. Prior to the consummation of any sale of all
-----------------
or any portion of the FS Shares to a Third Party pursuant to Section 5.4(a),
FSEP IV and/or Dennis Bearden shall cause each bona fide offer from such Third
Party to purchase such FS Shares from FSEP IV (an "FS THIRD-PARTY OFFER") to be
reduced to writing and shall send written notice of such FS Third-Party Offer
(the "FS INITIAL OFFER NOTICE") to the Stockholders. Each FS Third-Party Offer
shall include an offer to purchase Shares from the Stockholders in the amounts
determined in accordance with Section 5.4(c), at the same time, at the same
price and on the same terms as the sale by FSEP IV and, if applicable, Dennis
Bearden, to the Third Party, and according to the terms and conditions of this
Agreement. The FS Initial Offer Notice shall be accompanied by a true copy of
the FS Third-Party Offer. If any Stockholder desires to accept the offer
contained in the FS Initial Offer Notice, such Stockholder shall furnish written
notice to FSEP IV, within 20 days after its receipt of the FS Initial Offer
Notice, indicating such Stockholder's irrevocable acceptance of the offer
included in the FS Initial Offer Notice and setting forth the maximum number of
Shares such Stockholder agrees to sell to the Third Party (the "FS ACCEPTANCE
NOTICE"). If such Stockholder does not furnish an FS Acceptance Notice to FSEP
IV in accordance with these provisions by the end of such 20-day period, such
Stockholder shall be deemed to have irrevocably rejected the offer contained in
the FS Initial Offer Notice. All Shares set forth in the FS Acceptance Notice
of such Stockholder together with the Shares proposed to be sold by FSEP IV and,
if applicable, Dennis Bearden to the Third Party are referred to collectively as
"ALL OFFERED SHARES". Within three days after the date on which the Third Party
informs FSEP IV of the total number of Shares which such Third Party has agreed
to purchase in accordance with the terms specified in the FS Initial Offer
Notice, FSEP IV shall send written notice (the "FS FINAL NOTICE") to such
Stockholder setting forth the number of Shares such Stockholder shall sell to
the Third Party as determined in accordance with Section 5.4(c), which number
shall not exceed the maximum number specified by such Stockholder in its FS
Acceptance Notice. Within five days after the date of the FS Final Notice (or
such shorter period as may reasonably be requested by FSEP IV to facilitate the
sale), such Stockholder shall furnish to FSEP IV (i) a written undertaking to
deliver, upon the consummation of the sale of Shares to the Third Party as
indicated in the FS Final Notice, the certificates representing the Shares held
by such Stockholder which will be transferred pursuant to such FS Third-Party
Offer (such shares shall be referred to herein as the "STOCKHOLDER INCLUDED
SHARES") and (ii) a limited power-of-attorney authorizing FSEP IV to transfer
the Stockholder Included Shares pursuant to the terms of such FS Third-Party
Offer. Each of FSEP IV, Dennis Bearden, if applicable, and such Stockholder
shall be required to make representations and warranties in connection with such
transfer with respect to its own authority to transfer and its title to the
Shares transferred. In any such transaction, such Stockholder will cooperate
with FSEP IV, Dennis Bearden, if applicable, and the Company to facilitate the
transaction.
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(c) Allocation of Included Shares. The maximum number of Shares that
-----------------------------
may be sold by FSEP IV, Dennis Bearden, if applicable, the Stockholders and all
other holders of the Company's Common Stock who have rights to participate in
sales of FS Shares pursuant to written agreements by and between FSEP IV and any
such holder (the "OTHER FS TAG-ALONG RIGHTS HOLDERS") in any sale governed by
this Section 5.4 shall be (i) All Offered Shares in the event the Third Party
has agreed to purchase All Offered Shares as well as all shares of the Company's
Common Stock that the Other FS Tag-Along Rights Holders who have elected to
participate in such sale seek to include in such sale, or (ii) such number of
shares of the Company's Common Stock equal to the product of (A) the total
number of shares of the Company's Common Stock which the Third Party has agreed
to purchase times (B) a fraction, the numerator of which is the total number of
shares of the Company's Common Stock owned by FSEP IV, Dennis Bearden, the
Stockholders, or each Other FS Tag-Along Rights Holder who has elected to
participate in such sale, as the case may be, specified in the FS Final Notice
on the date of the FS Final Notice, and the denominator of which is the total
number of shares of the Company's Common Stock, in the aggregate, owned on the
date of the FS Final Notice by FSEP IV, Dennis Bearden, the Stockholders and the
Other FS Tag-Along Rights Holders who have elected to participate in such sale;
provided, however, that, in the event FSEP IV, Dennis Bearden, the Stockholders
- -------- -------
or any Other FS Tag-Along Rights Holder elects to sell a number of shares of the
Company's Common Stock which is less than the number of shares such holder could
sell pursuant to clause (ii) above, the shares of the Company's Common Stock
that the others of such holders can sell in such transaction shall be increased
by an aggregate amount equal to the number of shares which any of the FSEP IV,
Dennis Bearden, the Stockholders or any Other FS Tag-Along Rights Holder could
have sold in such transaction but chose not to sell, and any such increase shall
be allocated among such other holders on a pro rata basis based upon the total
number of shares of the Company's Common Stock owned on the date of the FS Final
Notice by such other holders.
(d) Consummation. FSEP IV shall have 180 days from the date of the FS
------------
Final Notice in which to sell to the Third Party the shares owned by FSEP IV,
Dennis Bearden, if applicable, and the Stockholder Included Shares on terms
which are not materially less favorable to the sellers of Shares than those
specified in the applicable FS Initial Offer Notice; provided, however, that in
-------- -------
the event there is a decrease in the price to be paid by the Third Party for the
Shares to be sold from the price set forth in the FS Initial Offer Notice, which
decrease is acceptable to FSEP IV, other than material change in terms which are
less favorable to FSEP IV, but which are acceptable to FSEP IV, FSEP IV shall
notify the selling Stockholder of such decrease or change in terms, and such
Stockholder shall have five business days from the date of receipt of the notice
of such decrease or change in terms to reduce the number of Shares it will sell
to such Third Party as previously indicated in the applicable FS Acceptance
Notice, and the number of shares that all other participating stockholders
(including Other FS Tag-Along Rights Holders) may transfer shall be increased in
accordance with the provisions of Section 5.4(c). FSEP IV shall act as agent
for such Stockholder in connection with such sale and shall cause to be remitted
to such Stockholder the total sales price of the Stockholder Included Shares
sold pursuant thereto, which consideration shall be in the same form as the
consideration received by FSEP IV and as specified in the applicable FS Initial
Offer Notice, net of such Stockholder's pro rata portion (based on the total
value of the consideration received by such Stockholder compared to the
aggregate consideration received by all stockholders in the transaction) of the
reasonable out-of-pocket expenses (not including any expenses paid or payable to
an affiliate of FSEP IV) incurred and paid by FSEP IV in connection with such
sale. If
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and to the extent that, at the end of 180 days following the date of the FS
Final Notice, FSEP IV has not completed the sale contemplated thereby, FSEP IV
shall return to such Stockholder all certificates representing the Stockholder
Included Shares and all powers-of-attorney which such Stockholder may have
transmitted pursuant to the terms hereof.
(e) Termination and Assignment. The obligations of FSEP IV pursuant
--------------------------
to the provisions of this Section 5.4 shall terminate upon the consummation of
an Initial Public Offering. The rights granted to the Stockholders under this
Section 5.4 shall not be assignable except to a Permitted Transferee in
accordance with Article IV, provided that the Permitted Transferee executes a
written undertaking to be and becomes bound by this Agreement in the same manner
and to the same extent as the other Stockholders. A liquidating distribution by
FSEP IV to its partners of the FS Shares shall not give rise to any rights under
this Section 5.4.
ARTICLE VI
INVOLUNTARY TRANSFER RESTRICTIONS
6.1 INVOLUNTARY TRANSFERS. Whenever a Stockholder has any notice or
knowledge of any attempted, impending or consummated involuntary Transfer of, or
lien or charge upon any of, his Shares, whether by operation of law or
otherwise, he shall give immediate written notice to the Company, Dennis
Bearden, FSEP IV and the Other Stockholders specifying the number of Shares
which are subject to such involuntary Transfer. Whenever the Company has notice
or knowledge of any such attempted, impending or consummated involuntary
Transfer, lien or charge, it shall give written notice to the Stockholder,
Dennis Bearden and the Other Stockholders specifying the number of Shares which
are subject to such involuntary Transfer. In either case, the Stockholder
agrees to immediately disclose to the Company, Dennis Bearden and the Other
Stockholders all pertinent information in his possession relating to the
Transfer. If any Share is subjected to an involuntary Transfer, lien or charge,
the Stockholder(s) and/or other record owner of such Shares shall be deemed an
Offering Stockholder(s), and the Company shall at all times have the immediate
and continuing option to purchase the subject Shares in accordance with Section
5.1 for each successive sixty (60) day period, except that the purchase price
shall be as specified in Section 8.1 and the terms shall be as described in
Section 8.2, and any Shares so purchased shall in every case be free and clear
of the Transfer, lien or charge. The purchase price shall first be paid
directly to the holder of the encum brance on the Shares in an amount
sufficient to discharge the obligation underlying, and release, the encumbrance.
The balance of the purchase price, if any, shall be paid to the selling
Stockholder.
6.2 TRANSFERS IN BANKRUPTCY. If a Stockholder or Stockholder's Spouse is
the named debtor in bankruptcy or receivership proceedings and a Transfer of
Shares is proposed or directed, the Company shall have an exclusive right of
first refusal to purchase the named debtor Stockholder's Shares to the same
extent as if such Transfer constituted an offer to sell Shares under Section
5.1, and the provisions of Section 5.1, except the purchase price shall be
determined pursuant to Section 8.1 and the terms shall be as described in
Section 8.2, shall accordingly control the exercise of this right of first
refusal.
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ARTICLE VII
PURCHASE UPON DEATH,
DIVORCE OR TERMINATION OF EMPLOYMENT
7.1 DEATH OF STOCKHOLDER'S SPOUSE. If any Shares are owned by a
Stockholder and his Stockholder's Spouse jointly and the Stockholder's Spouse
predeceases the Stockholder, then the Stockholder immediately shall
simultaneously send written notice to the Company, Dennis Bearden and the Other
Stockholders specifying the date of death of his Stockholder's Spouse and the
nature of the deceased Stockholder Spouse's interest in the Shares. Such
interest may be Transferred directly to the Stockholder. If the Stockholder's
Spouse predeceases the Stockholder and the Stockholder's Spouse's interest in
the Shares is not Transferred directly to the Stockholder, then the Company,
Dennis Bearden, FSEP IV and the Other Stockholders shall have the option to
purchase the Stockholder's Spouse's interest in the Shares under the terms of
Section 7.2 as if the Stockholder rather than the Stockholder's Spouse had died,
and all provisions of Section 7.2 shall apply. Upon the exercise of any such
option, the legal representative or trustee of the deceased Stockholder's
Spouse's estate shall be obligated to sell such interest, and perform any
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agree ment. In all other
respects, the interest in the Shares of the Stockholder's Spouse shall be
subject to the restrictions and terms of this Agreement.
7.2 DEATH OF STOCKHOLDER. Upon learning of the death of any Stockholder,
the Company immediately shall simultaneously send written notice to Dennis
Bearden and the surviving Other Stockholders, specifying the date of death and
the number of Shares owned by the deceased Stockholder (the "NOTICE"). For a
period of sixty (60) days after the date on which the Notice is sent, Dennis
Bearden, FSEP IV the surviving Other Stockholders and the Company shall have the
option to purchase all or any portion of the Shares owned by such deceased
Stockholder on the date of his death, in accordance with the provisions of
Section 5.1, except that the Offering Stockholder shall be the legal
representative or trustee of the deceased Stockholder's estate, the purchase
price shall be determined pursuant to Section 8.1, and the terms shall be as
described in Section 8.2. Upon the exercise of any option under this Section
7.2, the legal representative or trustee of the deceased Stockholder's estate
shall sell the deceased Stockholder's Shares to the Company, Dennis Bearden,
FSEP IV and/or the Other Stockholders, as the case may be, and perform any
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. If the Company, Dennis
Bearden, FSEP IV and/or surviving Other Stockholder do not purchase all of such
deceased Stockholders' Shares, then his estate and any beneficiaries of his
estate to whom the estate distributes Shares shall be subject to the
restrictions and provisions of this Agreement, and shall be treated as Permitted
Transferees under the provisions of Article IV.
7.3 LIFE INSURANCE. In order to fund the payment of the purchase price
for the Shares which may be purchased under this Agreement on the death of any
Stockholder, the Company may apply for and maintain permanent and/or term life
insurance policies on the lives of any or all of such Stockholders in such
amounts as it may deem appropriate and necessary. Each policy shall belong
solely to the Company and, subject to the provisions of this Agreement, the
Company reserves all the powers and rights of ownership of such insurance. The
Company shall be named as the primary beneficiary of each policy and shall pay
all premiums as they become due. No Stockholder shall
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exercise any of the powers of ownership of any policy by changing the named
beneficiary, canceling the policy, electing optional methods of payment,
converting the policy, borrowing against it, or in any way changing its nature,
value, or the rights under the policy or policies. No proceeds of any insurance
policy funded by the Company shall be available to the Other Stockholders for
the purchase of Shares. Any dividends paid on any policy or policies before
maturity or the insured's death shall be paid to the Company and shall not be
subject to this Agreement. Upon an insured Stockholder's death, the Company
shall file the necessary proofs of death and collect the proceeds of any
outstanding policies of life insurance. All insurance proceeds obtained pursuant
to this Section 7.3 shall be applied to pay the purchase price of the Shares in
cash at the time of purchase, and any excess shall be added to the Company's
working capital.
7.4 DIVORCE OF STOCKHOLDER AND STOCKHOLDER'S SPOUSE. If any Shares are
owned by a Stockholder and his Stockholder Spouse jointly, and the marriage of
that Stockholder and his Stockholder Spouse is terminated by divorce or
annulment, and that Stockholder does not obtain all of his Stockholder Spouse's
interest in the Shares incident to the divorce or annulment, then the
Stockholder shall simultaneously give written notice to the Company, Dennis
Bearden, FSEP IV and the Other Stockholders within thirty (30) days after the
effective date of the final, nonappealable divorce decree or of the annulment.
The written notice shall specify the effective date of termination of the
marriage and the number of Shares to which any interest retained by the
Stockholder's former Stockholder Spouse relates. For a period of sixty (60)
days after the effective date of termination of the marriage, the Stockholder
shall have an exclusive option to purchase all or any portion of his former
Stockholder Spouse's retained interest in the Shares at the purchase price
specified in Section 8.1 and on the terms described in Section 8.2. The
Stockholder's sixty (60) day option shall be exercised by delivering to his
former Stockholder Spouse, the Company, Dennis Bearden, FSEP IV and the Other
Stockholders a written notice specifying the number of Shares or interest in the
Shares as to which the option is being exercised. If the Stockholder does not
purchase all of his former Stockholder Spouse's interest in the Shares, then for
a period of sixty (60) days after the lapse of the Stockholder's sixty (60) day
option period, the Stockholder's Spouse shall be deemed an Offering Stockholder,
and the Company, Dennis Bearden and the Other Stockholders shall have an
exclusive option to purchase all or any portion of the former Stockholder
Spouse's retained interest in the Shares in accordance with the provisions of
Section 5.1 except that the price shall be determined pursuant to Section 8.1
and the terms shall be as described in Section 8.2. If any option is exercised
pursuant to this Section 7.4, then the former Stockholder's Spouse shall sell
any interest in the Shares retained incident to divorce or annulment.
7.5 TERMINATION OF EMPLOYMENT.
(a) If the Company's employment of a Stockholder is terminated for any
reason other than death, then such terminated person shall be deemed an Offering
Stockholder, and the Company, Dennis Bearden, FSEP IV and the Other
Stockholders, excluding the terminated person, shall have an exclusive option,
but not the obligation, to purchase all or any portion of the Shares owned by
the Offering Stockholder in the priorities of, and in accordance with, the
provisions of Section 5.1, except that the price shall be determined pursuant to
Section 8.1 and the terms shall be as described in Section 8.2.
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(b) On termination of such a Stockholder-employee, the Company shall
promptly give written notice to Dennis Bearden, FSEP IV and the Other
Stockholders, as applicable, such notice specifying the termination date and the
number of Shares owned by the Offering Stockholder.
(c) For purposes of this Section 7.5, the term "Company" means the
Company and its subsidiaries.
ARTICLE VII
PURCHASE PRICE AND TERMS
8.1 PURCHASE PRICE.
(a) Whenever any Shares shall be offered at the "PURCHASE PRICE", or
at any offering price determined with reference to the purchase price, the
purchase price shall be the product of (i) quotient of (A) the Company's net
book value as determined pursuant to generally accepted accounting principles
(provided, that the calculation of the Company's net book value shall not
include the effects of the recapitalization transactions contemplated by the
Merger Agreement), divided by (B) the total number of Shares then issued and
outstanding, determined in accordance with the Company's stock records,
multiplied by (ii) the number of Offered Shares The calculations required by
each of (A) and (B) of this Section 8.1 shall be made as of the last day of the
month which immediately precedes the month during which the event occurs making
it necessary or advisable to calculate the purchase price under this Section
8.1.
8.2 PAYMENT OF PURCHASE PRICE. Payment of the purchase price for Shares
purchased pursuant to this Agreement shall be made as follows provided that, (i)
if Article V applies, the Company, Dennis Bearden, FSEP IV and the Other
Stockholders may elect to purchase on terms specified in the notice of proposed
Transfer instead of on the following terms, and (ii) the purchasing party,
whether the Company, Dennis Bearden, FSEP IV or an Other Stockholder, may always
elect to pay all or an additional part of the purchase price in cash instead of
on the following terms:
(a) On the closing date, the Company, Dennis Bearden, FSEP IV or the
Other Stockholder(s) purchasing Shares shall deliver to the Offering Stockholder
a down payment in cash equal to at least twenty percent (20%) of the total
purchase price. The balance of the total purchase price shall be paid in
accordance with the terms of a five (5) year recourse promissory note bearing
interest at a rate equal to the lowest applicable federal interest rate for
midterm notes as published by the Internal Revenue Service pursuant to Internal
Revenue Code Section 1274(d), payable in sixty (60) equal monthly installments
of principal and interest. The promissory note shall be substantially in the
form of the attached EXHIBIT 8.2(a).
(b) Upon receipt of the cash down payment and the five (5) year
promissory note, the selling Stockholder shall deliver to the Company, Dennis
Bearden, FSEP IV or the Other Stockholder(s) purchasing Shares, as the case may
be, the number of Shares purchased, properly endorsed to the purchaser, or in
the event of a purchase by a party other than the Company, accompanied by an
executed stock transfer power.
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(c) The payment of all sums due under the promissory note shall be
secured by a pledge of all of the Shares purchased in the transaction to which
the promissory note relates. In the event of a default in payment of the
principal or interest of the promissory note, the selling Stockholder shall have
recourse against the Shares being held as collateral and shall have recourse
against the purchaser of the Shares. The pledge agreement shall be
substantially in the form of the attached EXHIBIT 8.2(b).
(d) In the event the Company is the beneficiary of life insurance
proceeds payable upon the death of a Stockholder, if the successor in interest
of a Stockholder sells the Shares of the deceased Stockholder to the Company,
the Company will utilize one hundred percent (100%) of the life insurance
proceeds as a down payment for the Shares. The down payment will be payable on
the Closing Date and the principal amount of the promissory note will be
correspondingly reduced. If the life insurance proceeds are less than the
twenty percent (20%) cash down payment described in Section 8.2(a), then the
Company shall pay the difference in cash.
ARTICLE IX
EFFECTIVE DATES
9.1 CLOSING DATE. Whenever the Other Stockholders, FSEP IV, Dennis
Bearden or the Company agree to purchase Shares under the terms of this
Agreement, the closing date of the trans action shall be a business day and
hour specified by the Company at a designated location. Unless the parties
agree to the contrary, the closing date shall not be more than sixty (60) days
after the occurrence of the event or notice which fixed the obligation to
Transfer the Shares. Notice of the details of closing shall be furnished by the
Company no later than ten (10) days prior to the closing date. At the specified
time of closing, certificates for the Shares purchased shall be delivered,
together with stock transfer instruments sufficient to effect the Transfer, duly
endorsed by the transferring Stockholder and transferred of record to the
respective purchasers against payment to the transferring Stockholder in cash or
by certified check of the purchase price or the offering price.
9.2 NOTICES; OFFERS; ACCEPTANCES. Any notice, instruction, authorization,
request or demand required hereunder shall be in writing, and shall be delivered
either by personal delivery, by telegram, telex, telecopy or similar facsimile
means, by certified or registered mail, return receipt requested, or by courier
or delivery service, addressed to the recipient at his address on file with the
Company. Notices shall be deemed given when received, if sent by facsimile
means (confirmation of such receipt by confirmed facsimile transmission being
deemed receipt of communications sent by facsimile means); and when delivered
and receipted for (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.
ARTICLE X
ENFORCEMENT
10.1 CREATION OF SUFFICIENT SURPLUS. In the event that the surplus of the
Company shall prove to be legally insufficient (under then existing law) to
enable the Company to exercise any
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options to purchase Shares, the Board, to the extent legally possible, shall
take such actions, adopt such resolutions and cause such certificates and other
documents to be filed as may be necessary to create sufficient surplus to permit
the redemption or distributions, and the Stockholders agree to perform such
acts, execute such instruments and vote their Shares in such a manner as may be
necessary to authorize or ratify any action taken to create sufficient surplus.
10.2 ENDORSEMENTS ON STOCK CERTIFICATES. Each share certificate
representing Shares now owned or hereafter owned by the Stockholders or any
transferee shall be conspicuously endorsed substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER UNDER THE TERMS OF AN AGREEMENT ENTERED INTO
BY THIS cOMPANY AND ITS sTOCKHOLDERS WHICH PROVIDES FOR, AMONG OTHER
THINGS, AN OPTION IN FAVOR OF THE cOMPANY AND ITS sTOCKHOLDERS TO PURCHASE
THESE SECURITIES IN CERTAIN INSTANCES. tHE cOMPANY WILL FURNISH WITHOUT
CHARGE A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST TO THE sECRETARY OF THE cOMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGIS TERED OFFICE.
In addition, each Share certificate representing Shares now or subsequently
owned by the Stockholders or any transferee shall bear such legends as may be
required by the Delaware General Corporation Law, as amended, the Code and any
other applicable laws or regulations, including, without limitation, legends
substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE FEDERAL
sECURITIES aCT OF 1933, AS AMENDED ("aCT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE aCT AND SUCH STATE LAWS OR UPON DELIVERY TO THE cOMPANY
OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE cOMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
10.3 BREACH. Any purported Transfer in breach of any provision of this
Agreement shall be void and ineffectual; shall not operate to Transfer any
interest or title in the purported transferee; and shall constitute an offer by
the breaching Stockholder to sell his Shares to the Company, Dennis Bearden,
FSEP IV and the Other Stockholders pursuant to the provisions of Section 5.1,
provided that (a) the date of the offer for purposes of this Section 10.3 shall
be the date on which the Company has actual knowledge of the purported Transfer,
and (b) the price per Share shall be either (i) the purchase price specified in
Section 8.1 per Share at the time the offer should have been made pursuant to
the terms of this Agreement, or (ii) the price per Share at the time the offer
is made, whichever is less. In connection with any attempted Transfer in breach
of this Agreement, the Company may hold and refuse to Transfer any Shares or any
stock certificate tendered to it for Transfer, in addition to and without
prejudice to any and all other rights or remedies which may be available to the
Company, Dennis Bearden, FSEP IV or the Other Stockholders. Each party
acknowledges that a remedy at law for any breach or attempted breach of this
Agreement will be inadequate, agrees that each other party shall be entitled to
specific performance and injunctive and
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other equitable relief in case of any breach or attempted breach, and further
agrees to waive any requirement for showing the inadequacy of damages or
irreparable harm as a condition to obtaining injunctive or other equitable
relief.
10.4 GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement, including without limitation the relative
rights of the Company, Dennis Bearden, FSEP IV and the Stockholders, shall be
governed by the internal law, and not the law of conflicts, of Delaware.
10.5 SEVERABILITY. If any one or more provisions of this Agreement shall
be invalid, illegal or unenforceable in any respect, then the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
ARTICLE XI
EFFECT
11.1 PREVIOUS AGREEMENTS SUPERSEDED. This Agreement supersedes all
previous agreements by and among the Company, the Stockholders and the
Stockholders' Spouses relating to the Shares, and contains all agreements
between the parties relating to the Shares.
11.2 BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto, including the Company,
Dennis Bearden, FSEP IV and their representatives, successors and assigns, as
well as the Stockholders and the Stockholders' Spouses, their respective heirs,
legatees, legal representatives and permitted assigns. If any Stockholder
Transfers all of his Shares in conformity with the terms of this Agreement, he
shall cease to be a party to this Agreement and shall have no further rights
under this Agreement.
11.3 STOCKHOLDERS' SPOUSES. The Stockholders' Spouses are fully aware of,
understand, and fully consent and agree to the provisions of this Agreement and
its binding effect on any interest that Stockholder's Spouse may have by reason
of marriage to a Stockholder in any Shares subject to the terms of this
Agreement held in the Stockholder's name on the stock records of the Company at
or subsequent to the date of execution of this Agreement. Any obligation of a
Stockholder or his legal representative to sell or offer to sell his Shares
under the terms of this Agreement includes an obligation on the part of that
Stockholder's Spouse to sell or offer to sell any interest she may have in the
Shares in the same manner.
11.4 REPRESENTATIONS AND WARRANTIES. Since all the parties to this
Agreement are equally familiar with the business operations and financial
condition of the Company, no party is making any representations or warranties
concerning the business operations or financial condition of the Company. All
parties hereto represent, warrant and covenant that they have full power and
authority to enter into and perform this Agreement in accordance with its terms,
and that they will perform all agreements made by them hereunder in accordance
herewith.
11.5 EFFECTIVENESS. This Agreement shall be effective concurrent with and
only upon the consummation of the transactions contemplated by the Merger
Agreement.
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ARTICLE XII
AMENDMENT AND TERMINATION
12.1 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by the Company (which will require Board approval) and the
stockholders of the Company (including FSEP IV) holding the number of Shares
which are required to take stockholder action under the Company's Articles of
Incorporation, provided that no amendment shall adversely affect any rights of
any party under this Agreement which have vested prior to amendment.
12.2 TERMINATION. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) Upon the written agreement of the Company (which will require
Board approval) and the stockholders of the Company (including FSEP IV) holding
the number of Shares which are required to take Stockholder action under the
Company's Articles of Incorporation, provided that no termination shall affect
adversely any rights which have vested prior to termination;
(b) Upon naming of the Company as Debtor in bankruptcy proceedings for
a period of sixty (60) days without dismissal, the execution by the Company of
an assignment for the benefit of its creditors, the appointment of a receiver
for the Company, or the voluntary or involuntary liquidation or dissolution of
the Company; or
(c) The Company's consummation of an Initial Public Offering;
provided, that the obligation contained in Sections 5.2 and 13.1 shall survive
any Initial Public Offering until such obligation terminates in accordance with
its respective terms.
12.3 NOTICE. The Company promptly shall deliver written notice of any
termination of this Agreement to all parties hereto.
ARTICLE XII
OTHER AGREEMENTS
13.1 "MARKET STAND-OFF" AGREEMENT. Each Stockholder hereby agrees that,
(i) during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company and agreed to by a Required
Interest following the effective date of a registration statement of the Company
filed under the Securities Act, such Stockholder shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of any securities
of the Company held by him at any time during such period except securities of
the Company included in such registration and (ii) such Stockholder shall
execute any and all agreements reasonably requested by such underwriter to
enforce such lockup. In order to enforce this covenant, the Company may impose
stop-transfer instructions with respect to any Shares until the end of such
period. This Section 13.1 shall survive the termination of this Agreement.
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ARTICLE XIV
MISCELLANEOUS
14.1 GENDER AND CERTAIN REFERENCES. Whenever the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and plural. The
terms "HEREOF", "HEREIN" or "HEREUNDER" shall refer to this Agreement as a whole
and not to any particular Article or Section hereof. All titles and headings to
Articles and Sections in this Agreement are included for convenience and ease of
reference. Titles and headings shall not affect in any way the meaning or
interpretation of Articles or Sections of this Agreement. Any references to
specific Articles or Sections shall mean the Articles and Sections in this
Agreement.
14.2 COUNTERPARTS. This Agreement is executed in multiple counterparts,
each of which shall be considered an original but all of which shall constitute
one and the same instrument, and in making proof of this Agreement it shall not
be necessary to produce or account for more than one counterpart.
[SIGNATURE PAGE FOLLOWS]
19
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
- ------------------------------ ----------------------------------
Name Name
------------------------- -----------------------------
Federal Tax I.D. No. Federal Tax I.D. No.
--------- -------------
Address Address
---------------------- --------------------------
---------------------- --------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
--------------------------
Name By: /s/ Jon D. Ralph
------------------------- -----------------
Its: Vice President
-----------------
Address
----------------------
----------------------
/s/ Dennis Bearden
-------------------------------------------------
Dennis Bearden
20
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis
Bearden, FSEP IV and the Company have executed this Agreement on the day and
year first written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Danny N. Errico /s/ Corrine Errico
- --------------------------------- --------------------------------
Name Danny N. Errico Name Corrine Errico
- --------------------------------- --------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ -----------
Address 21434 129/th/ Pl. S.E. Address 21434 129/th/ Pl. S.E.
------------------------- ------------------------
Kent, WA 98031 Kent, WA 98031
------------------------- ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: By:
----------------------------- --------------------------------------
Name Its:
---------------------------- --------------------------------------
Address
--------------------------
---------------------------------
Dennis Bearden
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ John M. Morotti /s/ Shari K. Morotti
- --------------------------------- --------------------------------
Name John M. Morotti Name Shari K. Morotti
--------------------------- --------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ -----------
Address 6641 S. 38th St. Address 6641 S. 38th St.
------------------------- ------------------------
Phoenix. AZ 85040 Phoenix, AZ 85040
------------------------- ------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
------------------------------ By:
Name -----------------------
---------------------------- Its:
Address ----------------------
-------------------------
--------------------------------
Dennis Bearden
2
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Daryl D. Morse
- -------------------------------- ------------------------------------
Name Daryl D. Morse Name
-------------------------- --------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No.
----------- ----------------
Address 7560 W. Dewey Dr. Address
------------------------- ----------------------------
Las Vegas, NV 89113
------------------------- ----------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
-----------------------------
Name By:
------------------------------
----------------------------- Its:
Address ------------------------------
-------------------------
-------------------------
--------------------------------
Dennis Bearden
3
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard Penick /s/ Patricia Penick
- -------------------------------- ---------------------------------------
Name Richard Penick Name Patricia Penick
--------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
----------- ------------------
Address P. O. Box 368 Address P. O. Box 368
------------------------ -------------------------------
Anahuac, TX 77514 Anahuac, TX 77514
------------------------ -------------------------------
FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By: /s/ Richard Penick, VP
-----------------------------
Name Richard Penick By:
---------------------------- -------------------------------
Its:
-------------------------------
Address 9100 Winkler
-------------------------
Houston, TX 77514
-------------------------
--------------------------------
Dennis Bearden
4
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Charles Lee Littlepage /s/ Lori J. Littlepage
- -------------------------------- ---------------------------------------
Name Charles Lee Littlepage Name Charles Lee Littlepage
--------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
----------- -----------------
Address 7505 Yaupon Address 7505 Yaupon
------------------------ -------------------------------
Austin, TX 78759 Austin, TX 78759
------------------------ -------------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
------------------------------
Name By:
------------------------------
---------------------------- Its:
Address ------------------------------
--------------------------
--------------------------
--------------------------------
Dennis Bearden
5
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ R. Allan Kea /s/ Debra K. Kea
- --------------------------------- ---------------------------------------
Name R. Allan Kea Name Debra K. Kea
---------------------------- ---------------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------------
Address 4610 Derby Lane Address 4610 Derby Lane
------------------------- -------------------------------
Smyrna, GA 30082 Smyrna, GA 30082
------------------------- -------------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
------------------------------
Name By:
---------------------
----------------------------- Its:
Address --------------------
-------------------------
-------------------------
- ---------------------------------
Dennis Bearden
6
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard A. Luke /s/ Cynthia R. Luke
- --------------------------------- ---------------------------------------
Name Richard A. Luke Name Cynthia R. Luke
---------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------------
Address 11670 S. Kirkwood Address 11670 S. Kirkwood
------------------------- -----------------------
Stafford, TX 77477 Stafford, TX 77477
------------------------- -----------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
-----------------------------
Name By:
----------------------------- ------------------------------
Its:
------------------------------
Address
--------------------------
--------------------------
- ---------------------------------
Dennis Bearden
7
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Richard Penick, VP
- ----------------------------------------- -------------------------------
Name Century Airconditioning Supply, Inc. Name
------------------------------------ --------------------------
Federal Tax I.D. No. 74-1842648 Federal Tax I.D. No.
-------------------- -----------
Address 6230 W. 34th St. Address
--------------------------------- -----------------------
Houston, TX 77092
--------------------------------- -----------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
------------------------------
Name By:
------------------------------
---------------------------- Its:
------------------------------
Address
--------------------------
--------------------------
- ---------------------------------
Dennis Bearden
8
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Daniel F. Firkus /s/ Jessica Firkus
- -------------------------------- ---------------------------------------
Name Daniel F. Firkus Name Jessica Firkus
--------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
--------------- ------------------
Address 338 FM 3013 Address 338 FM 3013
------------------------ -------------------------------
Sealy, TX 77474 Sealy, TX 77474
------------------------ -------------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
------------------------------
Name By:
---------------------------- -------------------------------
Its:
------------------------------
Address
-------------------------
-------------------------
- ---------------------------------
Dennis Bearden
9
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Jerry J. Muras /s/ Linda E. Muras
- -------------------------------- ---------------------------------------
Name Jerry J. Muras Name Linda E. Muras
--------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------------
Address 11889 Doty Dr. Address 11889 Doty Dr.
------------------------ -------------------------------
Conroe, TX 77303 Conroe, TX 77303
------------------------ -------------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
-----------------------------
Name By:
---------------------------- ------------------------------
Its:
------------------------------
Address
-------------------------
-------------------------
-------------------------------
Dennis Bearden
10
<PAGE>
IN WITNESS WHEREOF, the Stockholders, Stockholders' Spouses, Dennis Bearden,
FSEP IV and the Company have executed this Agreement on the day and year first
written above.
STOCKHOLDER: STOCKHOLDER'S SPOUSE:
/s/ Vickie Reynolds /s/ Hobson Reynolds
- --------------------------------- ---------------------------------------
Name Vickie Reynolds Name Hobson Reynolds
---------------------------- ----------------------------------
Federal Tax I.D. No. ###-##-#### Federal Tax I.D. No. ###-##-####
------------ ------------------
Address 4911 Holly Tree Address 4911 Holly Tree
------------------------- -------------------------------
Dallas, TX 75287 Dallas, TX 75287
------------------------- -------------------------------
COMPANY: FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
Century Maintenance Supply, Inc.
BY: FS CAPITAL PARTNERS, LLC
Its: General Partner
By:
-----------------------------
Name By:
--------------------------- ------------------------------
Its:
Address ------------------------------
------------------------
------------------------
- --------------------------------
Dennis Bearden
11
<PAGE>
EXHIBIT 10.8
STOCKHOLDERS AGREEMENT
by and among
FS EQUITY PARTNERS IV, L.P.,
WILLIAM C. JOHNSON,
THE PARTHENON GROUP, INC.,
DENNIS C. BEARDEN,
CENTURY AIRCONDITIONING SUPPLY, INC.
AND
CENTURY MAINTENANCE SUPPLY, INC.
JULY 8, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Definitions....................................................... 2
2. Rights Upon Issuance of Additional Securities..................... 4
2.1 Issuance Notice............................................. 5
2.2 Response Notice............................................. 5
2.3 Revised Issuance Notice..................................... 5
2.4 Pro Rata Share.............................................. 5
2.5 Termination and Assignment.................................. 5
3. Transfer of Shares by FS Stockholder or Existing Stockholders;
Rights of Inclusion............................................... 6
3.1 Right of Inclusion.......................................... 6
3.2 Third-Party Offer........................................... 6
3.3 Allocation of Included Shares............................... 9
3.4 Consummation................................................ 9
3.5 Termination and Assignment..................................11
4. Obligation to Sell Securities.....................................11
4.1 Sale Obligation.............................................11
4.2 Termination and Assignment..................................12
5. Restrictions on Transfers of Securities; Right of First Offer.....12
5.1 Transfer Restrictions.......................................12
5.2 Right of First Offer........................................14
6. Registration Rights...............................................17
7. Representation on the Board of Directors..........................17
7.1 The Board...................................................17
7.2 Termination and Assignment..................................18
7.3 Certain Actions of the Board................................18
8. Copy of Agreement.................................................18
9. Governing Law.....................................................18
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<S> <C>
10. Representations and Warranties....................................19
11. Amendment and Waiver; Successors; After Acquired Shares...........19
12. Interpretation....................................................19
13. Notices...........................................................19
14. Legends...........................................................21
15. Further Assurances................................................22
16. Injunctive Relief; Disputes.......................................22
17. Severability......................................................22
18. Entire Agreement..................................................22
19. Counterparts......................................................23
20. Opinions..........................................................23
21. Termination.......................................................23
</TABLE>
Schedule 1 Ownership of Capital Stock by Stockholders Upon Consummation of
Transactions Contemplated by Merger Agreement
ii
<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of July 8, 1998 by and among Century Maintenance Supply, Inc., a Delaware
corporation (the "Company"), FS Equity Partners IV, L.P., a Delaware limited
partnership ("FSEP IV" or the "FS Stockholder"), William C. Johnson ("Johnson"),
The Parthenon Group, Inc., a Delaware corporation ("Parthenon", and collectively
with Johnson, the "Additional Stockholders"), Dennis C. Bearden ("Bearden") and
Century Airconditioning Supply, Inc., a Texas corporation ("CAC", and
collectively with Bearden, the "Existing Stockholders").
R E C I T A L S
- - - - - - - -
A. Pursuant to an Agreement and Plan of Merger dated as of May 5, 1998
among the Company, Century Acquisition Corporation ("Investor"), the FS
Stockholder, the Existing Stockholders and certain other stockholders of the
Company (as amended, the "Merger Agreement"), Investor will merge with and into
the Company (the "Merger"), so that after such Merger FS Stockholder will own a
majority of the Common Stock in the Company and the Existing Stockholders will
retain a substantial investment in the Company.
B. The Additional Stockholders have agreed to make an investment in
Investor, so that after the Merger the Additional Stockholders will also own
Common Stock in the Company.
C. To induce the FS Stockholder and the Existing Stockholders to
consummate the transactions contemplated by the Merger Agreement, and to induce
the Additional Stockholders to make their investment in Investor, the FS
Stockholder, the Existing Stockholders, the Additional Stockholders and the
Company desire to execute this Agreement.
D. The FS Stockholder's and the Existing Stockholders' obligation to
consummate the transactions contemplated by the Merger Agreement is conditioned
upon the execution of this Agreement by the FS Stockholder, the Existing
Stockholders and the Company.
E. Upon consummation of the transactions contemplated by the Merger
Agreement, the FS Stockholder, the Existing Stockholders, the Additional
Stockholders and the other stockholders of the Company will own the shares of
capital stock of the Company set forth on Schedule 1 hereto.
F. The Existing Stockholders, the FS Stockholder, the Additional
Stockholders and the Company wish to establish through this Agreement certain
rights, obligations and restrictions with respect to the securities of the
Company.
<PAGE>
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
-----------
terms shall have the following meanings:
Additional Securities: All Securities which are issued and sold by
---------------------
the Company other than (i) the Initial Shares, (ii) the options to purchase
1,642,500 shares of Common Stock granted or to be granted pursuant to the
Company's 1998 Nonqualified Stock Option Plan, (iii) the options to purchase
388,240 shares of Common Stock granted pursuant to the Company's 1997 Incentive
Stock Plan, (iv) any Securities issued or issuable to all of the holders of
Common Stock then outstanding on a proportionate basis, (v) any Securities
issued or issuable to any Employees pursuant to any equity incentive plan,
individual agreement, bonus, award, stock purchase plan, stock option plan or
other stock agreement or arrangement which in each event is approved by the
Board, (vi) any Securities issued in exchange for debt securities of the Company
or any Subsidiary; provided, that the overall terms of the exchange transaction
are fair and in the best interests of the Company as determined in reasonable
good faith by the Board; provided, further, that if the FS Stockholder and any
other Stockholder or their respective Affiliates each own debt Securities being
exchanged, such other Stockholders shall have the right to participate in such
exchange on the same terms as the FS Stockholder or its Affiliates, (vii) any
Securities issued to any source of, or to any party arranging, financing for the
Company or any Subsidiary of the Company; provided, that the overall terms of
the financing transaction involving the issuance of debt and Securities are fair
and in the best interests of the Company as determined in reasonable good faith
by the Board, (viii) any Securities issued pursuant to a public offering
registered under the Securities Act, (ix) any Securities that are issued or
issuable in connection with the acquisition by the Company or a Subsidiary of
any business, business assets or securities from any Person; provided, that such
Securities are not issued for less than their fair market value, as determined
in good faith by the Board, and (x) any Securities that are issued or issuable
upon the exercise of rights, options or warrants to purchase Securities
(including those referenced in (ii) and (iii) above), or upon the conversion or
exchange of Securities convertible into or exchangeable for Securities.
Additional Stockholders: Johnson and Parthenon.
-----------------------
Affiliate: Such term shall have the meaning given to such term
---------
pursuant to Rule 12b-2 of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended.
Amended Shareholders Agreement: That certain Second Amended and
------------------------------
Restated Shareholders Agreement dated as of July 8, 1998 by and among the
Company, Bearden, the FS Stockholders and certain other stockholders of the
Company that are parties thereto.
2
<PAGE>
Board: The Board of Directors of the Company.
-----
Business: The marketing, distribution and sale, at retail or
--------
wholesale or by catalog, and the rendering of services related thereto, of
maintenance, repair and operations supplies to apartments, hotels, prisons,
nursing homes, hospitals, military installations and schools or universities.
Closing: The closing of the transactions contemplated by the Merger
-------
Agreement.
Common Stock: The Common Stock, par value $0.001 per share, of the
------------
Company.
Employee: Any employee, director or consultant of the Company or any
--------
Subsidiary of the Company.
FS&Co. Option: The option of the FS Stockholder to purchase 167,381
-------------
shares of Common Stock from CAC pursuant to the terms of the Merger Agreement.
FS Principals: Jon D. Ralph, Mark Doran, Todd Halloran, Bradford M.
-------------
Freeman, J. Frederick Simmons, Ronald P. Spogli, John M. Roth, Charles P.
Rullman, Jr. and William M. Wardlaw.
Initial Shares: The 12,250,000 shares of Common Stock and the 400,000
--------------
shares of Preferred Stock issued and outstanding on the date hereof.
Initial Stockholders: The FS Stockholder and the Existing
--------------------
Stockholders.
Permitted Transferee: Permitted Transferee shall mean, (i) with
--------------------
respect to the FS Stockholder, any investment fund or partnership that is
organized and controlled by three or more of the FS Principals, (ii) with
respect to CAC, Bearden, (iii) with respect to Bearden and Johnson, a family
trust, limited partnership, corporation or other entity established by Bearden
or Johnson, as applicable, all of the beneficiaries or owners of which are
immediate family members of Bearden or Johnson, as applicable, (provided, that
in the case of any entity established by Bearden or Johnson, as applicable,
pursuant to this subparagraph (iii) other than such family trust, the owners
thereof shall specifically agree that, notwithstanding anything contained in
this Agreement to the contrary, such owners shall not further Transfer their
ownership interests in such entity to any other Person), and (iv) with respect
to Parthenon, a limited partnership, corporation or other entity established by
Parthenon which serves as a deferred compensation vehicle for its personnel
(provided, that, in the case of any such entity established pursuant to this
subparagraph (iv), the owners thereof shall specifically agree that,
notwithstanding anything contained in this Agreement to the contrary, such
owners shall not further Transfer their ownership interests in such entity to
any other Person).
3
<PAGE>
Person: Any individual, corporation, entity, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
Preferred Stock: The 13-1/4% Series A Senior Exchangeable PIK
---------------
Preferred Stock due 2010 of the Company, the 13-1/4% Series B Senior
Exchangeable PIK Preferred Stock due 2010 of the Company, and the 13-1/4% Series
C Senior Exchangeable PIK Preferred Stock due 2010 of the Company.
Public Market Sale: Any sale of Common Stock after the Initial Public
------------------
Offering which is made in the manner described in paragraph (f) of Rule 144
promulgated by the SEC under the Securities Act or which is made pursuant to a
registration statement filed with and declared effective by the SEC.
Public Offering: A public offering of shares of Voting Securities of
---------------
the Company registered under the Securities Act, but shall not include an
offering registered on Form S-4 or Form S-8 (or any substitute form that is
adopted by the SEC). The term "Initial Public Offering" shall mean an
underwritten Public Offering of Voting Securities which results in gross
proceeds to the Company in excess of $15 million from the sale of Voting
Securities.
SEC: The Securities and Exchange Commission.
---
Securities: Shall mean (i) Voting Securities, (ii) all rights,
----------
options, warrants to purchase such Voting Securities or the securities described
in the following clause and (iii) all other securities or capital stock of any
type whatsoever, including, without limitation, non-voting common stock,
preferred stock and securities that are, or may become, convertible into or
exchangeable for, or that entitle the holder to purchase, Voting Securities.
Securities Act: The Securities Act of 1933, as amended.
--------------
Stockholders: The Initial Stockholders and the Additional
------------
Stockholders.
Subsidiary: With respect to any Person, a corporation or other entity
----------
of which a majority of the shares of stock or other ownership interests are
owned, directly or indirectly, by such Person.
Voting Securities: All Securities of the Company which possess
-----------------
general voting power to elect members of the Board (not including, unless the
context dictates otherwise, any options or warrants to purchase Voting
Securities).
As used in this Agreement, all share numbers give effect to the Company's
2.30068 to 1 forward stock split to be effected immediately after consummation
of the Merger.
2. Rights Upon Issuance of Additional Securities. The Company hereby
---------------------------------------------
grants to each Initial Stockholder and to Johnson (collectively with the Initial
Stockholders, the "Notified
4
<PAGE>
Stockholders") the following rights with respect to any and all proposed
issuances or sales of Additional Securities by the Company:
2.1 Issuance Notice. The Company shall give to each Notified
---------------
Stockholder written notice of the Company's intention to issue and sell
Additional Securities (the "Issuance Notice"), describing the type of Additional
Securities, the price at which the Additional Securities will be issued and sold
and the general terms upon which the Company proposes to issue and sell the
Additional Securities, including the anticipated date of such issuance or sale.
2.2 Response Notice. Each Notified Stockholder shall have 45 days
---------------
from the date the Issuance Notice is received to agree to purchase all or any
portion of its Pro Rata Share (as defined below in Subsection 2.4) of such
Additional Securities by giving written notice to the Company of its desire to
purchase Additional Securities (the "Response Notice") and stating therein the
quantity of Additional Securities to be purchased. Such Response Notice shall
constitute the irrevocable agreement of such Notified Stockholder to purchase
the quantity of Additional Securities indicated in the Response Notice at the
price and upon the terms stated in the Issuance Notice. Any purchase by
Notified Stockholders of Additional Securities shall be consummated on the later
of (i) the closing date specified in the Issuance Notice or (ii) the closing
date on which Additional Securities described in the applicable Issuance Notice
are first issued and sold if other Persons are also purchasing Additional
Securities. Each Notified Stockholder that has elected to purchase its Pro Rata
Share of Additional Securities will have the right to purchase all or any
portion of the Additional Securities unsubscribed for by the other Notified
Stockholders, up to its pro rata share of such unsubscribed portion (determined
by the number of Voting Securities owned by the party or parties who elect to
purchase such unsubscribed for portion) if oversubscribed.
2.3 Revised Issuance Notice. The Company shall have 120 days from
-----------------------
the date of the Issuance Notice to consummate the proposed issuance and sale of
the Additional Securities that are not being purchased by the Notified
Stockholders at a price and upon terms that are not materially less favorable to
the Company than those specified in the Issuance Notice. If the Company
proposes to issue Additional Securities after such 120-day period or at a price
and upon terms that are materially less favorable to the Company than those
specified in the Issuance Notice, it must again comply with this Section 2.
2.4 Pro Rata Share. For purposes of this Section 2, the Pro Rata
--------------
Share of a Notified Stockholder shall be a fraction, (i) the numerator of which
shall be the total number of shares of Voting Securities then held by the
Notified Stockholder and (ii) the denominator of which shall be the total number
of shares of Voting Securities then issued and outstanding.
2.5 Termination and Assignment. The rights provided to each of the
--------------------------
Notified Stockholders under this Section 2 shall terminate upon the earlier to
occur of (i) with respect to all of the Notified Stockholders, upon the
consummation of an Initial Public Offering, (ii) with respect to the Initial
Stockholders, at such time as such Initial Stockholder's (including such Initial
Stockholder's Permitted Transferee's) percentage ownership of Voting Securities
in the
5
<PAGE>
Company (calculated on a fully diluted basis) falls below 10%, and (iii) with
respect to Johnson, at such time that the FS Stockholder's rights under this
Section 2.5 shall have terminated pursuant to subparagraph (ii) hereof. The
rights granted under this Section 2 shall not be assignable; provided, however,
that a Notified Stockholder may assign its rights under this Section 2 relating
to the shares which it is then transferring to a Permitted Transferee.
3. Transfer of Shares by FS Stockholder or Existing Stockholders; Rights
---------------------------------------------------------------------
of Inclusion.
- ------------
3.1 Right of Inclusion.
------------------
(a) The FS Stockholder agrees not to Transfer (as defined in Section
5.1) all or any portion of the shares of Common Stock, Preferred Stock or other
Securities it holds to any Person (individually, a "Third Party" and,
collectively, "Third Parties") unless each Existing Stockholder and each
Additional Stockholder is given an opportunity to sell to the Third Party such
number of shares of Common Stock, Preferred Stock or other Securities owned by
such Existing Stockholder or such Additional Stockholder as is determined in
accordance with Subsection 3.3 of this Section 3; provided, however, that the
-------- -------
Existing Stockholders and Additional Stockholders shall have no rights pursuant
to this Section 3 with respect to Transfers by the FS Stockholder or a Permitted
Transferee of the FS Stockholder of Securities to (i) any Permitted Transferee
of the FS Stockholder or Permitted Transferees of such Permitted Transferee or
(ii) to any limited or general partner or employee of the FS Stockholder or any
Permitted Transferee of the FS Stockholder.
(b) The Existing Stockholders agree not to Transfer (as defined in
Section 5.1) all or any portion of the shares of Common Stock, Preferred Stock
or other Securities it holds to any Third Party unless the FS Stockholder and
the Additional Stockholders are given an opportunity to sell to the Third Party
such number of shares of Common Stock, Preferred Stock or other Securities owned
by the FS Stockholder and the Additional Stockholders as is determined in
accordance with Subsection 3.3 of this Section 3; provided, however, that the FS
-------- -------
Stockholder and the Additional Stockholders shall have no rights pursuant to
this Section 3 with respect to Transfers by the Existing Stockholders to any
Permitted Transferee of the Existing Stockholders.
3.2 Third-Party Offer.
-----------------
(a) Prior to the consummation of any sale of all or any portion of the
shares of Common Stock, Preferred Stock or other Securities held by the FS
Stockholder to a Third Party, the FS Stockholder shall cause each bona fide
offer from such Third Party to purchase such shares from the FS Stockholder (a
"Third-Party Offer") to be reduced to writing and shall send written notice of
such Third-Party Offer (the "Initial Offer Notice") to the other stockholders of
the Company, including the Existing Stockholders and the Additional
Stockholders, who are parties to written agreements with the FS Stockholder
entitling such stockholders to include shares of Common Stock, Preferred Stock
or other Securities in such sale
6
<PAGE>
(collectively, the "Company Stockholders"). Each Third-Party Offer shall include
an offer to purchase shares of Common Stock, Preferred Stock or other Securities
from the Company Stockholders, in the amounts determined in accordance with
Subsection 3.3 of this Section 3, at the same time, at the same price and on the
same terms as the sale by the FS Stockholder to the Third Party, and according
to the terms and conditions of this Agreement. The Initial Offer Notice shall be
accompanied by a true copy of the Third-Party Offer (including all material
information available to the FS Stockholder relating thereto). If an Existing
Stockholder or Additional Stockholders desires to accept the offer contained in
the Initial Offer Notice, such Existing Stockholder or Additional Stockholders
shall furnish written notice to the FS Stockholder, within 20 days after its
receipt of the Initial Offer Notice, indicating such Stockholder's irrevocable
acceptance of the offer included in the Initial Offer Notice and setting forth
the maximum number of Securities such Stockholder agrees to sell to the Third
Party (the "Acceptance Notice"). If an Existing Stockholder or Additional
Stockholders does not furnish an Acceptance Notice to the FS Stockholder in
accordance with these provisions by the end of such 20-day period, such
Stockholder shall be deemed to have irrevocably rejected the offer contained in
the Initial Offer Notice. All Securities set forth in the Acceptance Notices of
the Company Stockholders (including any Acceptance Notices received in
accordance with the provisions of Section 5.4(b) of the Amended Shareholders
Agreement), together with the Securities proposed to be sold by the FS
Stockholder to the Third Party, are referred to collectively as "All Offered
Shares". Within three days after the date on which the Third Party informs the
FS Stockholder of the total number of Securities which such Third Party has
agreed to purchase in accordance with the terms specified in the Initial Offer
Notice, the FS Stockholder shall send written notice (the "Final Notice") to the
participating Company Stockholders setting forth the number of Securities each
participating Company Stockholder shall sell to the Third Party as determined in
accordance with Subsection 3.3 of this Section 3, which number shall not exceed
the maximum number specified by a Company Stockholder in its Acceptance Notice.
Within five days after the date of the Final Notice (or such shorter period as
may reasonably be requested by the FS Stockholder to facilitate the sale), the
participating Existing Stockholders and Additional Stockholders shall furnish to
the FS Stockholder (i) a written undertaking to deliver, upon the consummation
of the sale of Securities to the Third Party as indicated in the Final Notice,
the certificates representing the Securities held by each Existing Stockholder
or Additional Stockholder, which will be transferred pursuant to such Third-
Party Offer (such shares shall be referred to herein as the "Included Shares")
and (ii) a limited power-of-attorney authorizing the FS Stockholder to transfer
the Included Shares pursuant to the terms of such Third-Party Offer. Each
Existing Stockholder and Additional Stockholder shall be required to make
customary representations and warranties in connection with such transfer with
respect to its own authority to transfer and its title to the Securities
transferred, together with such other representations and warranties as are made
by the FS Stockholder in connection with such sale (provided, that in connection
with such sale, the FS Stockholder shall make a good faith effort to negotiate
with such Third Party that, in the event of a breach of any such other
representation or warranty, the liability imposed upon each Existing Stockholder
and each Additional Stockholder therefor will be several, based upon such
Stockholder's proportionate share of the aggregate proceeds to be received by
all of the Stockholders in connection with such sale; provided further, that
regardless of the success of such efforts, the liability imposed upon each
Additional Stockholder will be several as described in this
7
<PAGE>
proviso). In any such transaction, the Existing Stockholders, the Additional
Stockholders and the Company will cooperate with all other Company Stockholders
to facilitate the transaction.
(b) Prior to the consummation of any sale of all or any portion of the
shares of Common Stock, Preferred Stock or other Securities held by the Existing
Stockholders to a Third Party, and after complying with their obligations
pursuant to Section 5.2, the Existing Stockholders shall cause each bona fide
offer from such Third Party to purchase such shares from the Existing
Stockholders (a "Third-Party Offer") to be reduced to writing and shall send
written notice of such Third-Party Offer (the "Initial Offer Notice") to the FS
Stockholder as described in Section 5.2 and (if the FS Stockholder determines to
exercise its rights of inclusion pursuant to this Section 3.2(b) by delivery of
an Acceptance Notice as described in Section 5.2) to the Company Stockholders
(including the Additional Stockholders). Each Third-Party Offer shall include
an offer to purchase shares of Common Stock, Preferred Stock or other Securities
from the FS Stockholder, the Additional Stockholders and the other Company
Stockholders, in the amounts determined in accordance with Subsection 3.3 of
this Section 3, at the same time, at the same price and on the same terms as the
sale by the Existing Stockholders to the Third Party, and according to the terms
and conditions of this Agreement. The Initial Offer Notice shall be accompanied
by a true copy of the Third-Party Offer (including all material information
available to the Existing Stockholders relating thereto). If the FS Stockholder
desires to accept the offer contained in the Initial Offer Notice, the FS
Stockholder shall furnish the Acceptance Notice to the Existing Stockholders
within 20 business days after its receipt of the Initial Offer Notice (which
shall be concurrent with its receipt of the Stockholder Notice as described in
Section 5.2(a)). If the FS Stockholder does not furnish an Acceptance Notice to
the Existing Stockholders in accordance with these provisions by the end of such
20-day period, the FS Stockholder shall be deemed to have irrevocably rejected
the offer contained in the Initial Offer Notice. If the FS Stockholder does
furnish the Acceptance Notice in accordance with these provisions, the Existing
Stockholders will then transmit the Initial Offer Notice to the Additional
Stockholders in accordance with the provisions specified above, and to other
Company Stockholders in accordance with the provisions of Section 5.4(b) of the
Amended Shareholders Agreement. The Company Stockholders (including the
Additional Stockholders) will then have an opportunity to accept the offer
contained in the Initial Offer Notice, within 20 days of their respective
receipt of the Initial Offer Notice, on the terms specified herein and therein.
All Securities set forth in the Acceptance Notices of the FS Stockholder,
together with the Securities proposed to be sold by the Existing Stockholders,
the Additional Stockholders and the other Company Stockholders, if applicable,
to the Third Party are referred to collectively as "All Offered Shares". Within
three days after the date on which the Third Party informs the FS Stockholder of
the total number of Securities which such Third Party has agreed to purchase in
accordance with the terms specified in the Initial Offer Notice, the Existing
Stockholders shall send written notice (the "Final Notice") to the FS
Stockholder, the Additional Stockholders and the other Company Stockholders
setting forth the number of Securities the FS Stockholder, the Additional
Stockholders and the other Company Stockholders shall sell to the Third Party as
determined in accordance with Subsection 3.3 of this Section 3, which number
shall not exceed the maximum number specified by the FS Stockholder, the
Additional Stockholders and the other Company Stockholders in their Acceptance
Notices. Within five days after the date of the Final
8
<PAGE>
Notice (or such shorter period as may reasonably be requested by the Existing
Stockholders to facilitate the sale), the FS Stockholder and the Additional
Stockholders shall furnish to the Existing Stockholders (i) a written
undertaking to deliver, upon the consummation of the sale of Securities to the
Third Party as indicated in the Final Notice, the certificates representing the
Securities held by the FS Stockholder and the Additional Stockholders which will
be transferred pursuant to such Third-Party Offer (such shares shall be referred
to herein as the "Included Shares") and (ii) a limited power-of-attorney
authorizing the Existing Stockholders to transfer the Included Shares pursuant
to the terms of such Third-Party Offer. The FS Stockholder and the Additional
Stockholders shall be required to make customary representations and warranties
in connection with such transfer with respect to its own authority to transfer
and its title to the Securities transferred. In any such transaction, the FS
Stockholder, the Additional Stockholders and the Company will cooperate with all
other Company Stockholders to facilitate the transaction.
3.3 Allocation of Included Shares. The maximum number of shares of
-----------------------------
Common Stock, Preferred Stock and other Securities that may be sold by FS
Stockholder, each Additional Stockholder, each Existing Stockholder and all
other holders of Securities who have rights to participate in sales of
Securities by the FS Stockholder or the Existing Stockholders pursuant to
written agreements by and between the FS Stockholder, the Existing Stockholder
or the Company and any such holder (the "Other Tag-Along Rights Holders"), in
any sale governed by this Section 3 shall be (i) All Offered Shares in the event
the Third Party has agreed to purchase All Offered Shares and all Securities
that the Other Tag-Along Rights Holders who have elected to participate in such
sale seek to include in such sale or (ii) such number of shares of Common Stock,
Preferred Stock or other Securities, as applicable, equal in each case to the
product of (a) the total number of shares of such type or class of security
which the Third Party has agreed to purchase times (b) a fraction, the numerator
of which is the total number of shares of such type or class of security owned
by the FS Stockholder, the Existing Stockholders, the Additional Stockholders or
each Other Tag-Along Rights Holder who is eligible to and has elected to
participate in such sale, as the case may be, on the date of the applicable
Final Notice, and the denominator of which is the total number of shares of such
type or class of security owned on the date of the applicable Final Notice by
the FS Stockholder, the Existing Stockholders, the Additional Stockholders and
the Other Tag-Along Rights Holders who have elected to participate in such sale;
provided, however, that, in the event the FS Stockholder, the Existing
- -------- -------
Stockholders, the Additional Stockholders or any Other Tag-Along Rights Holder
elects to sell a number of any type or class of security which is less than the
number such holder could sell pursuant to clause (ii) above, the shares of such
type or class of security that the others of such holders can sell in such
transaction shall be increased by an aggregate amount equal to the number of
shares which any of the FS Stockholder, the Existing Stockholders, the
Additional Stockholders or any Other Tag-Along Rights Holder could have sold in
such transaction but chose not to sell, and any such increase shall be allocated
among such other holders on a pro rata basis based upon the total number of
shares of such type or class of security owned on the date of the applicable
Final Notice by such other holders.
3.4 Consummation. The FS Stockholder or the Existing Stockholders
------------
shall have 180 days from the date of the applicable Final Notice in which to
sell to the Third Party the
9
<PAGE>
Securities owned by the FS Stockholder or the Existing Stockholders and the
Included Shares of the Additional Stockholders and the Other Tag-Along Rights
Holders on terms which are not materially less favorable to the sellers of
Securities than those specified in the applicable Initial Offer Notice;
provided, however, that in the event there is a decrease in the price to be
- -------- -------
paid by the Third Party for the Securities to be sold from the price set forth
in the applicable Initial Offer Notice, which decrease is acceptable to the FS
Stockholder or the Existing Stockholders, as applicable, or other material
change in terms which are less favorable to the FS Stockholder or the Existing
Stockholders, as the case may be, but which are acceptable to the FS Stockholder
or the Existing Stockholders, as the case may be, the FS Stockholder or the
Existing Stockholders, as the case may be, shall notify the participating
stockholders of such decrease or change in terms, and each of the participating
stockholders shall have five business days from the date of receipt of the
notice of such decrease or change in terms to reduce the number of Securities it
will sell to such Third Party as previously indicated in the applicable
Acceptance Notice, and the number of shares that all other participating
stockholders (including Other Tag-Along Rights Holders) may transfer shall be
increased in accordance with the provisions of Section 3.3; and provided,
--------
further, that in the event there is an increase in the price to be paid
- -------
by the Third Party for the Securities to be sold from the price set forth
in the applicable Initial Offer Notice or other material change in terms which
are more favorable to the FS Stockholder or the Existing Stockholders, as the
case may be, the FS Stockholder or the Existing Stockholders, as the case may
be, shall notify the other, the Additional Stockholders and the other Company
Stockholders of such increase or change in terms, and each of the stockholders
who was eligible to but did not elect to participate to the full extent of their
rights hereunder shall have five business days from the date of receipt of the
notice of such increase or change in terms to increase the number of Securities
it will sell to such Third Party, and the number of shares that all other
participating stockholders (including the Additional Stockholders and Other Tag-
Along Rights Holders) may transfer shall be decreased proportionately if
necessary. A Third Party purchaser of Securities which complies with this
Section 3 shall not be subject to the obligations contained in this Section 3
with respect to future sales of their shares. The FS Stockholder or the
Existing Stockholders, as the case may be, shall cause to be remitted to the
participating stockholders the total sales price of the Included Shares of the
participating stockholders sold pursuant thereto, which consideration shall be
in the same form and per share amount as the consideration received by the FS
Stockholder or the Existing Stockholders, as the case may be, and as specified
in the applicable Initial Offer Notice, net of the pro rata portion (based on
the total value of the consideration received by such Stockholder compared to
the aggregate consideration received by all Stockholders in the transaction) of
the reasonable out-of-pocket expenses incurred in connection with a sale
consummated pursuant to this Section 3. The FS Stockholder or the Existing
Stockholders shall furnish, or shall cause to be furnished, such other evidence
of the completion and time of completion of such sale and the terms thereof as
may be reasonably requested by the participating stockholders including, without
limitation, evidence of the expenses incurred by the FS Stockholder or the
Existing Stockholders, as the case may be, in connection with such sale. If and
to the extent that, at the end of 180 days following the date of the applicable
Final Notice, the FS Stockholder or the Existing Stockholders, as the case may
be, has not completed the sale contemplated thereby, the FS Stockholder or the
Existing Stockholders, as the case may be, shall return to the other
participating stockholders all certificates representing the Included Shares and
all
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<PAGE>
powers-of-attorney which the other participating stockholders may have
transmitted pursuant to the terms hereof.
3.5 Termination and Assignment. Any Permitted Transferee of the FS
--------------------------
Stockholder and any assignee of the FS Stockholder's rights under Section 4
shall agree to be bound by this Section 3 to the same extent as the FS
Stockholder. Any Permitted Transferee of the Existing Stockholders shall agree
to be bound by this Section 3 to the same extent as the Existing Stockholders.
The obligations of the FS Stockholder and the Existing Stockholders and any
Permitted Transferee or assignee pursuant to the provisions of this Section 3
shall terminate upon consummation of an Initial Public Offering. The rights
granted to the Stockholders under this Section 3 shall not be assignable except
to a Permitted Transferee in accordance with Article V; provided, that the
Permitted Transferee executes a written undertaking to be and becomes bound by
this Agreement in the same manner and to the same extent as the other
Stockholders. A distribution by the FS Stockholder to its partners of all or
any portion of its Securities shall not give rise to any rights under this
Section 3. Nothing in this section shall be construed as granting rights of
inclusion in any Public Market Sale.
4. Obligation to Sell Securities.
-----------------------------
4.1 Sale Obligation. If the FS Stockholder proposes to sell to a
---------------
third-party buyer all or (in a transaction which contemplates the partial
retention by the Company's existing securityholders of a portion of the
Company's issued and outstanding Securities) a substantial portion of the shares
of Common Stock, Preferred Stock and other Securities held by the FS
Stockholder (including its Permitted Transferees and assignees) (whether such
sale is by way of purchase, merger, recapitalization or other form of
transaction), upon the request of the FS Stockholder, each of the Existing
Stockholders and the Additional Stockholders shall sell the same percentages of
shares of Common Stock, Preferred Stock and other Securities beneficially owned
by such Existing Stockholder or such Additional Stockholder to such third-party
buyer pursuant to the same terms and conditions negotiated by the FS Stockholder
for the sale of the Securities held by the FS Stockholder. Each of the Existing
Stockholders and the Additional Stockholders agrees to such sale and to execute
such agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale. Each of
the Existing Stockholders and the Additional Stockholders further agrees to
timely take such other actions as the FS Stockholder may reasonably request as
necessary in connection with the approval of the consummation of such sale,
including voting all Voting Securities in favor of such sale and waiving any
dissenters' rights and, in the event such transaction is structured as a
recapitalization, agreeing to transfer and retain those percentages of
Securities as are requested by the FS Stockholder. Each Existing Stockholder
and each Additional Stockholder shall be required to make customary
representations and warranties in connection with such transfer with respect to
its own authority to transfer and its title to the Securities transferred,
together with such other representations and warranties as are made by the FS
Stockholder in connection with such sale (provided, that, in connection with
such sale, the FS Stockholder shall make a good faith effort to negotiate with
such Third Party that, in the event of a breach of any such other representation
or warranty, the liability imposed upon each Existing
11
<PAGE>
Stockholder and each Additional Stockholder therefor will be several, based upon
such Stockholder's proportionate share of the aggregate proceeds to be received
by all of the Stockholder's in connection with such sale; provided, further that
regardless of the success of such efforts, the liability imposed upon each
Additional Stockholder will be several as described in this proviso). Each
Existing Stockholder and each Additional Stockholder shall pay its pro rata
portion (based on the total value of the consideration received by such
Stockholder compared to the aggregate consideration received by all Stockholders
in the transaction) of the reasonable out-of-pocket expenses incurred in
connection with a sale consummated pursuant to this Section 4.
4.2 Termination and Assignment. The obligations of the Existing
--------------------------
Stockholders and the Additional Stockholders pursuant to this Section 4 shall be
binding on any transferee of or purchaser of Securities from an Existing
Stockholder or an Additional Stockholder or from one of their respective
Permitted Transferees, and any subsequent transferee, except for a transferee
purchasing shares in a Public Market Sale, or any subsequent transferee thereof,
and an Existing Stockholder, an Additional Stockholder, Permitted Transferee or
any other transferee shall obtain and deliver to the FS Stockholder a written
commitment to be bound by such provisions from each such transferee or Permitted
Transferee prior to any Transfer. The obligations of the Existing Stockholders
and the Additional Stockholders pursuant to this Section 4, and the obligations
of any such transferee and Permitted Transferee, shall continue after the
consummation of an Initial Public Offering but shall terminate once the FS
Stockholder's (including its Permitted Transferee's) percentage ownership of
Voting Securities in the Company (calculated on a fully diluted basis) falls
below 20% or the percentage of Voting Securities then held by the Existing
Stockholders and their Permitted Transferees (provided, that when calculating
the percentage then held by the Existing Stockholders and their Permitted
Transferees, no effect shall be given to Securities purchased after the
Closing). The rights of the FS Stockholder under this Section 4 shall not be
assignable except to a Permitted Transferee or to a purchaser of more than 50%
of the shares of Common Stock then held by FS Stockholder and its Permitted
Transferees.
5. Restrictions on Transfers of Securities; Right of First Offer.
-------------------------------------------------------------
5.1 Transfer Restrictions.
---------------------
(a) Transfer Restrictions Binding Stockholders. Neither the FS
------------------------------------------
Stockholder nor the Existing Stockholders or the Additional Stockholders shall,
without the prior written approval of the FS Stockholder (in the case of any
Existing Stockholder or any Additional Stockholder) or Bearden (in the case of
the FS Stockholder), (i) pledge, hypothecate or encumber any Securities, (ii)
sell, assign, transfer, gift or otherwise dispose of ("Transfer") any
Securities, or any right, title or interest therein, except in compliance with
the Securities Act and all applicable state securities laws, and (iii) Transfer
any Securities or any right, title or interest therein, except for Transfers of
Securities to Permitted Transferees and Transfers of Securities expressly in
compliance with this Agreement, including (without limitation) Subsection 5.2
(it being understood that the FS Stockholder is free to Transfer its Securities,
subject to the provisions of clause (iii)(y) below and the other provisions of
this Agreement). Notwithstanding
12
<PAGE>
the foregoing, (i) under no circumstances will the Existing Stockholders at any
time pledge, hypothecate, encumber or otherwise Transfer the shares of Common
Stock that are subject to the FS&Co. Option (including Transfers to a Permitted
Transferee unless such Permitted Transferee executes and delivers to the FS
Stockholder a written undertaking to be likewise bound by the terms of the
FS&Co. Option); (ii) under no circumstances will the Existing Stockholders or
the Additional Stockholders Transfer Securities then held by them to any Person
who directly or indirectly carries on or participates in any business in
competition with the Business (whether conducted by the Company or any
Subsidiary or controlled Affiliate of the Company); and (iii) until the second
anniversary of the date of this Agreement (the "Permitted Transfer Date"), (x)
none of the Existing Stockholders or the Additional Stockholders may Transfer
any Securities, or any right, title or interest therein, other than to a
Permitted Transferee, and (y) unless consented to in writing by Bearden, neither
the FS Stockholder nor any of the Additional Stockholders will sell any of the
Securities then held by it to any of Wilmar Industries, Inc., The Home Depot,
Inc. or Lowe's Companies, Inc.; provided, that in the event that the Company's
EBITDA during any 12-month period during such two-year period falls below 90% of
the EBITDA projected by management for such period, then the restriction
contained in this subparagraph (y) shall no longer be applicable. For purposes
of this Agreement, "EBITDA" shall mean earnings before taking into consideration
interest expense, income taxes, depreciation and amortization expense,
extraordinary charges related to the writeoff of deferred financing fees, and
non-cash compensation expenses, if applicable (and also includes the fees and
expenses incurred in connection with the recapitalization of the Company in July
1998, as well as in connection with any financing or other public offering).
Notwithstanding the foregoing, the EBITDA projected by management for such
periods will at all times be adjusted in the good faith discretion of the Board
of Directors of the Company, taking into account, for example, mergers,
acquisitions, asset sales, deviations from the Company's business plan in the
number of new distribution centers that are opened, other extraordinary
corporate events and extraordinary losses and gains, significant changes in the
level of capital expenditures, as well as changes in accounting treatment. The
Transfer of Securities from any Stockholder to a Permitted Transferee may be
made without complying with Section 5.2; provided, that each of such transferees
executes a written undertaking to be and becomes bound by this Agreement in the
same manner and to the same extent as such Stockholder and, in the case of
Permitted Transferees of the Existing Stockholders, Johnson or Parthenon,
respectively, (i) executes an irrevocable power of attorney appointing Bearden,
Johnson, or Richard Crosier and Steven Smith, respectively (or an individual
designated by such individuals, as applicable, if such individual is unable to
act due to death or disability) as such transferee's attorney-in-fact with sole
irrevocable power and authority to make all decisions on behalf of and take all
actions required to be taken by such transferee in connection with this
Agreement, including (without limitation) any required sale of Securities
pursuant to Section 4 hereof, and (ii) if requested by the FS Stockholder,
delivers an opinion of legal counsel reasonably satisfactory to the FS
Stockholder that such undertaking is binding and enforceable.
(b) Conditions to Transfer. Any attempt to Transfer, pledge,
----------------------
hypothecate or encumber Securities, or any right, title or interest therein, not
in compliance with this Agreement shall be null and void, and the Company shall
not give effect to any such attempted transaction or Transfer. Any Securities
Transferred pursuant to the terms and
13
<PAGE>
requirements of this Agreement (including Sections 3, 4 and 5) shall be
Transferred free and clear of all mortgages, liens, pledges, charges and
security interests or encumbrances, or any obligations or liabilities in
connection therewith, other than obligations under this Agreement of
transferees. Each Stockholder, on the execution and delivery of this Agreement,
agrees that such Stockholder will not Transfer any Securities prior to delivery
to the Company of an opinion of counsel in form and substance reasonably
satisfactory to the Company with respect to compliance with the Securities Act,
or until a registration statement with respect to such Securities under the
Securities Act has become effective; except that no opinion shall be required in
the case of a Transfer by any Stockholder to a Permitted Transferee or by the FS
Stockholder or a Permitted Transferee to any limited or general partner or
employee of the FS Stockholder or any Permitted Transferee. Except as expressly
provided to the contrary herein, all transferees of Securities will be bound by
this Agreement in the same manner and to the same extent as the transferor and
prior to any Transfer must deliver to the Company and the non-transferring
Stockholders a written undertaking to be and become so bound. Upon completion of
any Transfer in compliance with this Agreement, the transferee shall be entitled
to the rights expressly provided to the transferee hereunder.
(c) Termination. Subject to the terms and provisions of Section 5.2
-----------
and Section 6 of this Agreement, the restrictions upon the Stockholders
contained in this Section 5.1 will terminate upon consummation of an Initial
Public Offering.
5.2 Right of First Offer.
--------------------
(a) Right of First Offer. Each of the Existing Stockholders and each
--------------------
of the Additional Stockholders hereby agrees not to Transfer any of the Common
Stock, Preferred Stock or other Securities held by it to any Person (other than
its Permitted Transferees) unless the FS Stockholder (or any third person(s)
designated by FS Stockholder, which may include Affiliates of FS Stockholder or
the Company) is given the right to acquire such Securities pursuant to the
provisions of this paragraph (a). If an Existing Stockholder or an Additional
Stockholder receives an offer from any Person (other than its Permitted
Transferees) to acquire any such Securities, or decides to solicit or cause to
be solicited a proposal or proposals to acquire such Securities, such Existing
Stockholder or such Additional Stockholder, as the case may be, shall first give
FS Stockholder written notice (the "Stockholder Notice") of such intention,
which notice shall include a term sheet stating, among other material terms, the
minimum cash sales price (the "Target Price") that such Existing Stockholder or
such Additional Stockholder would entertain for the shares of Common Stock,
Preferred Stock or other Securities to be sold (the "Offered Securities"). FS
Stockholder (or its designee) shall have the right for a period of 20 business
days following the delivery of the Stockholder Notice (the "Acceptance Period")
to accept the offer to purchase all or any portion of the Offered Securities at
the Target Price and upon the other terms provided with the Stockholder Notice
(or, in the alternative in the case of delivery of a Stockholder Notice by an
Existing Stockholder, to indicate its irrevocable acceptance of the offer
included in the Stockholder Notice and setting forth the maximum number of
securities the FS Stockholder agrees to sell to the Third Party in accordance
with the provisions of Section 3.2(b) of this Agreement (the "Acceptance
Notice")). The FS Stockholder
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<PAGE>
(or its designee) shall exercise its rights under this subparagraph (a) by
delivering to such Existing Stockholder or such Additional Stockholder an
irrevocable written notice of its election prior to 4:00 p.m. Los Angeles time
on the final day of the Acceptance Period. If the FS Stockholder (or its
designee) exercises its rights under this subparagraph (a), the sale of the
Offered Securities shall be consummated within 15 business days of the final day
of the Acceptance Period (the "Purchase Period"). If the FS Stockholder (or its
designee) does not elect to purchase the Offered Securities on such terms (and
the failure to deliver an irrevocable notice of acceptance shall be conclusively
deemed to be rejection of such opportunity) or fails to consummate a purchase of
the Offered Securities for cash within the Purchase Period, such Existing
Stockholder or such Additional Stockholder shall have the right (without
limitation to other rights it may have) to consummate the sale of the Offered
Securities on terms not materially more favorable to the purchaser than
specified in the Stockholder Notice for a period of 90 days (the "Consummation
Period") after the expiration of the Acceptance Period or, if applicable, the
Purchase Period. If such Existing Stockholder or such Additional Stockholder
does not complete such sale, transfer or conveyance within the Consummation
Period, such Existing Stockholder or such Additional Stockholder shall not have
the right to sell, transfer or convey any of the Offered Securities without
again complying with this subparagraph (a). In the event such Existing
Stockholder or such Additional Stockholder, as applicable, intends to sell the
Offered Securities for consideration other than cash, such Existing Stockholder
or such Additional Stockholder shall notify the FS Stockholder (or its designee)
of the terms of such non-cash consideration. FS Stockholder (or its designee)
may elect within 30 days of such notice to have the fair market value of such
non-cash consideration determined, with the parties jointly selecting an
investment banking firm to resolve any dispute regarding the fair market value
of such non-cash consideration; in the absence of agreement on such firm, a
third investment banking firm (designated by the firms proposed by the FS
Stockholder and the Existing Stockholders or the Additional Stockholder, as
applicable) shall determine such fair market value. If the sum of the fair
market value of the non-cash consideration and the cash consideration (in the
case of a sale that is partially for cash) is less than the cash price offered
to FS Stockholder (or its designee) pursuant to this subparagraph (a), then (i)
the Existing Stockholder or the Additional Stockholder, as applicable, shall
have the right to terminate the proposed transaction in its entirety (as it
relates both to the FS Stockholder as well as to the Person that originally
proposed to acquire the Offered Securities), and (ii) to the extent that the
Existing Stockholder or the Additional Stockholder, as applicable, do not
terminate the proposed transaction in its entirety, the FS Stockholder (or its
designee) may, within 20 days of the determination of the fair market value of
the non-cash consideration, elect to purchase the Offered Securities proposed to
be sold for an amount in cash equal to the sum of (i) the fair market value of
the non-cash consideration and (ii) the cash consideration, if any. Such
purchase must be consummated within 15 business days of the determination of
fair market value. If such Existing Stockholder or such Additional Stockholder
receives a written offer for the Offered Securities at any time during the
Consummation Period which is acceptable to such Existing Stockholder or such
Additional Stockholder but is less than the Target Price or is upon terms
materially less favorable to such Existing Stockholder or such Additional
Stockholder than the terms provided to FS Stockholder (or its designee) in the
Stockholder Notice (the "Below Target Price Offer"), such Existing Stockholder
or such Additional Stockholder, as applicable, shall promptly deliver a copy of
such written offer to FS Stockholder (or its designee). During the 20
15
<PAGE>
business day period following delivery of such written offer, FS Stockholder (or
its designee) shall have the right to accept the offer to purchase the Offered
Securities on the terms reflected in such written offer. FS Stockholder (or its
designee) shall, if it so desires, exercise such right by delivery to such
Existing Stockholder or such Additional Stockholder, as applicable, written
notice of its election to purchase all but not less than all of the Offered
Securities prior to 4:00 p.m. Los Angeles time on the final day of such
additional 20 business day period and the sale of the Offered Securities shall
be consummated within 15 business days of the delivery of such written notice.
If FS Stockholder (or its designee) does not elect to accept the offer to
purchase the Offered Securities on such terms within such 20 business day period
or fails to consummate the purchase of the Offered Securities within 15 business
days of the date of FS Stockholders (or its designee's) acceptance of the Below
Target Price Offer, such Existing Stockholder or such Additional Stockholder, as
applicable, shall have (without limitation to any other rights it may have) 90
days to consummate the sale of the Offered Securities at a price and upon terms
that are not materially less favorable to such Existing Stockholder or such
Additional Stockholder, as applicable, than the price and terms specified in the
written offer delivered to FS Stockholder (or its designee). In the event a
Below Target Price Offer involves any non-cash consideration, the procedures for
valuing such non-cash consideration set forth above shall be utilized to
determine the fair market value of such non-cash consideration and all time
periods specified herein, extended accordingly.
(b) Termination and Assignment. The obligations of an Existing
--------------------------
Stockholder or an Additional Stockholder pursuant to this Section 5.2 shall not
apply to a Public Market Sale, and shall continue after the consummation of an
Initial Public Offering, but shall terminate once the FS Stockholder's
(including its Permitted Transferee's) percentage ownership of Voting Securities
in the Company (calculated on a fully diluted basis) falls below 20% or the
percentage of Voting Securities then held by the Existing Stockholders and their
Permitted Transferees (provided, that when calculating the percentage then held
by the Existing Stockholders and their Permitted Transferees, no effect shall be
given to Securities purchased after the Closing). The rights granted to FS
Stockholder under subparagraph (a) shall not be assignable except to a Permitted
Transferee or to a purchaser of more than 50% of the shares of Common Stock then
held by FS Stockholder and its Permitted Transferees. Any transferee of
Securities from an Existing Stockholder or an Additional Stockholder, other than
a purchaser of shares in a Public Market Sale or any subsequent transferee of a
purchaser in a Public Market Sale, shall be bound by the provisions of this
Section 5.2, and the Existing Stockholder or the Additional Stockholder shall
obtain and deliver to each other Stockholder a written commitment by such
transferee to be bound by such provisions prior to any transfer.
(c) Ownership of CAC by Bearden. CAC hereby agrees to immediately
---------------------------
Transfer to Bearden, in accordance with the provisions of Section 5.1 of this
Agreement, any Securities of the Company then held by it if at any time Bearden
should fail to control 100% of the outstanding capital stock of CAC. Bearden
hereby guarantees that CAC will comply with this obligation.
16
<PAGE>
6. Registration Rights. FSEP IV, the Existing Stockholders and the
-------------------
Additional Stockholders shall be entitled to certain registration rights with
respect to their shares of Common Stock (the "Registration Rights"). The terms
of the Registration Rights are set forth in that certain Registration Rights
Agreement of even date herewith by and among the Company, the FS Stockholder,
the Existing Stockholders, the Additional Stockholders and the other
stockholders of the Company.
7. Representation on the Board of Directors.
----------------------------------------
7.1 The Board.
---------
(a) The parties shall use their commercially reasonable efforts to
ensure that the Board consists of not more than eight members. Subject to
Section 7.2, the FS Stockholder shall be entitled, but not required, to nominate
five members (the "FS Nominees") of the Board (initially, Ronald P. Spogli,
William C. Johnson, J. Frederick Simmons, Mark J. Doran and Jon D. Ralph).
Subject to Section 7.2, the Existing Stockholders as a group shall be entitled,
but not required, to nominate three members (the "Bearden Nominees") of the
Board. If necessary, the Board shall elect such additional independent members,
if any, as may be required under applicable law or stock exchange requirements
or by the National Association of Securities Dealers or underwriters in
connection with the Initial Public Offering, and the FS Stockholder, the
Existing Stockholders and the Additional Stockholders shall each take all
actions necessary in connection therewith (provided, that such independent
directors shall be elected by a majority of the Board and reasonably acceptable
to Bearden). The Existing Stockholders, the Additional Stockholders and any
Transferee of the Existing Stockholders or the Additional Stockholders agree not
to nominate as a member of the Board any nominee or representative of a Person
that competes with the business of the Company as conducted by the Company as of
the date of such nomination.
(b) (i) Each of the Stockholders agrees to vote or cause to be
voted all of the shares beneficially owned or held of record by such Stockholder
at any regular or special meeting of the Stockholders of the Company called for
the purpose of filling positions on the Board, or in any written consent
executed in lieu of such a meeting of stockholders, and agrees to take or cause
to be taken all actions otherwise necessary, to ensure the election to the Board
of the Bearden Nominees and the FS Nominees.
(ii) Each of the Company and each Stockholder hereby agrees to
use its best efforts to call, or cause the appropriate officers and directors of
the Company to call, a special meeting of stockholders of the Company, and each
Stockholder hereby agrees to vote or cause to be voted all of the Voting
Securities beneficially owned or held of record by such Stockholder for, or to
take or cause to be taken all actions by written consent in lieu of any such
meeting necessary to cause, the removal (with or without Cause) of (A) any
Bearden Nominee if Bearden requests such director's removal for any reason, and
(B) any FS Nominee if the FS Stockholder requests such director's removal for
any reason. The Existing Stockholders or the FS Stockholders shall have the
right to nominate a new nominee in the event any Bearden
17
<PAGE>
Nominee or FS Nominee, as the case may be, shall be so removed or shall vacate
his directorship for any reason.
(c) Except as provided in Section 7.1(b)(ii), each Stockholder hereby
agrees that, it will not vote in favor of the removal of any Bearden Nominee or
FS Nominee unless such removal shall be for Cause. For the purposes of this
Section 7.1, "Cause" shall mean the willful and continued failure by a director
substantially to perform his duties as a director of the Company, the willful
engaging by a director in conduct which is demonstrably and materially injurious
to the Company, or the director's conviction of any crime constituting a felony
which involves moral turpitude.
(d) Subject to Section 7.2, if at any time from and after the date
hereof, any director previously nominated by FS Stockholder or the Existing
Stockholders to serve on the Board ceases to be a director (whether by reason of
death, resignation, removal or otherwise), FS Stockholder or the Existing
Stockholders, as the case may be, shall be entitled to nominate a successor
director to fill the vacancy created thereby, and the FS Stockholder, the
Existing Stockholders and the Additional Stockholders agree to exercise voting
rights with respect to the shares of Voting Securities held of record or
beneficially owned by them so as to elect such nominee as a director of the
Company.
7.2 Termination and Assignment. Notwithstanding the foregoing (i) at
--------------------------
such time as the Existing Stockholders and their Permitted Transferees which
held Securities no longer hold a percentage ownership of Voting Securities in
the Company (calculated on a fully diluted basis) greater than or equal to 10%,
their rights to nominate members of the Board shall terminate, (ii) at such time
as the FS Stockholder and their Permitted Transferees which held Securities no
longer hold a percentage ownership of Voting Securities in the Company
(calculated on a fully diluted basis) greater than or equal to 20%, their rights
to nominate members of the Board shall terminate. The rights contained in
Section 7 shall not be assignable other than by the FS Stockholder to a
Permitted Transferee.
7.3 Certain Actions of the Board. Notwithstanding the terms and
----------------------------
provisions of Section 7.1, no action of the Company, which under Delaware law
would have required the prior approval of a majority of the Company's
stockholders, will be taken unless and until a meeting of the Board of Directors
of the Company (as opposed to a committee thereof) has been called and convened
(upon prior notice duly given in accordance with the bylaws of the Company) for
the purpose of discussing such action.
8. Copy of Agreement. A copy of this Agreement and all amendments hereto
-----------------
shall be filed with the Secretary of Company and shall be kept at the principal
executive offices of Company.
9. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware without regard to
the conflicts of laws rules thereof.
18
<PAGE>
10. Representations and Warranties. Each Stockholder represents and
------------------------------
warrants (a) that such Stockholder has full power, capacity, right and
authority, and any requisite approvals or consents to enter into and perform
this Agreement; (b) that this Agreement and the performance of its obligations
hereunder have been duly authorized, and that this Agreement has been duly
executed and delivered by such Stockholder and is a valid and binding agreement,
enforceable against such Stockholder in accordance with its terms; and (c) that
such Stockholder owns beneficially and of record the shares of Common Stock and
Preferred Stock set forth opposite its name on Schedule 1 hereto, free and clear
of any lien, claim, charge, option, security interest, restriction or
encumbrance.
11. Amendment and Waiver; Successors; After Acquired Shares. This
-------------------------------------------------------
Agreement may be amended, modified or supplemented, and compliance with any
provision hereof may be waived, only with the written consent of the FS
Stockholder and, except in order to add additional parties who are purchasers of
Securities in circumstances that would affect the rights of all Stockholders
equally (other than to the extent that any such Stockholder may lose rights due
to the dilution in its percentage ownership caused by such addition), to the
extent the Existing Stockholders' or the Additional Stockholders' specific
rights would be prejudiced thereby, the Existing Stockholders and the Additional
Stockholders, as the case may be. Any such amendment, modification, supplement
or waiver so consented to in writing shall be binding upon the parties hereto
and their successors and Permitted Transferees and assigns (if any). This
Agreement shall be binding on the parties hereto and their successors,
transferees, assigns, heirs and personal representatives; provided however, that
unless expressly permitted herein to an assignee or Permitted Transferee, this
Agreement and the rights granted hereunder shall not be assignable without the
written consent of all of the parties hereto, which consent may be withheld in
each such party's sole discretion. If any right hereunder is not assignable, it
shall not be transferred to any subsequent holder of Securities by reason of the
transfer of Securities to such holder. The Agreement shall apply to all
Securities now owned or hereafter acquired by any Stockholder. Notwithstanding
the foregoing, the FS Stockholder may amend this Agreement at any time to
specifically impose upon a Permitted Transferee the Obligation to Sell
Securities contained in Section 4 and the Right of First Offer contained in
Section 5.2.
12. Interpretation. The headings of the Sections contained in this
--------------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
13. Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing (including telex, telecopy or similar writing) and
shall be given as follows:
19
<PAGE>
if to FS Stockholder:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90085
Attention: J. Frederick Simmons
Telecopy No.: (310) 444-1870
with a copy to:
Richard J. Welch, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29/th/ Floor
Los Angeles, California 90071-3109
Telecopy No.: (213) 229-8550
if to Existing Stockholders:
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attention: Dennis C. Bearden
Telecopy No.: (713) 943-8443
with a copy to:
Robert G. Reedy, Esq.
Porter & Hedges, L.L.P.
700 Louisiana, 35/th/ Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
if to Johnson:
William C. Johnson
Fed Ex: 5406 El Secreto
Mail: P.O. Box 7106
Rancho Santa Fe, California 92067
Telephone: (619) 759-1577
Facsimile: (619) 759-0155
Connecticut Home Address:
420 Greenfield Hill Road
Fairfield, Connecticut 96403
Home: (203) 254-7531
Telephone: (203) 972-6959
20
<PAGE>
with copy to:
Constance Tilden Loeser, Esq.
McGovern & Associates
One Lafayette Place
Greenwich, Connecticut 06830
Telephone: (203) 622-1101
Facsimile: (203) 622-9192
If to Parthenon:
The Parthenon Group, Inc.
200 State Street
Boston, Massachusetts 02109
Attention: Steven Smith
Rick Crosier
Telephone: (617) 478-2550
Facsimile: (617) 478-2555
with a copy to:
Jorge Contreras
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Telephone: (617) 526-6000
Facsimile: (617) 526-5000
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication shall be effective (a) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and evidence of receipt is received or (b) if given by
any other means, upon delivery or refusal of delivery at the address specified
in this Section 13.
14. Legends. All certificates evidencing Securities which are issued to
-------
any of the FS Stockholder, the Existing Stockholders or the Additional
Stockholders shall be legended as follows (in addition to any other legend
required to be placed thereon):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AND OBLIGATIONS WITH RESPECT TO THE TRANSFER, PLEDGE,
HYPOTHECATION, DISTRIBUTION AND VOTING THEREOF AS SET FORTH IN THAT CERTAIN
STOCKHOLDERS AGREEMENT DATED AS OF JULY 8, 1998, WHICH MAY BE REVIEWED AT
THE PRINCIPAL PLACE OF BUSINESS
21
<PAGE>
OF THE CORPORATION AND A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION
WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR."
15. Further Assurances. The Stockholders shall exercise, or cause to be
------------------
exercised, voting rights with respect to Voting Securities held of record or
beneficially owned by them in a manner so that, and shall otherwise take any
necessary actions in order that, the covenants and understandings of the parties
set forth in this Agreement shall be implemented. Each party hereto agrees to
perform any further acts and execute and deliver any documents which may be
reasonably necessary to carry out the intent of this Agreement and to make
appropriate changes to the procedures set forth herein to implement such rights
to the extent necessary to conform to the Delaware General Corporation Law or
other applicable law. The Company covenants and agrees that it will act in good
faith to preserve for each of the Stockholders the benefits of this Agreement
and that it will take no voluntary action to impair the benefit hereof or to
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder or to deny to any of the Stockholders any of the
benefits or protections contemplated hereby.
16. Injunctive Relief; Disputes. It is acknowledged that it will be
---------------------------
impossible to measure in money the damages that would be suffered if the parties
hereto fail to comply with any of the obligations herein imposed on them and
that, in the event of any such failure, an aggrieved party hereto will be
irreparably damaged and will not have an adequate remedy at law. Any such party
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law.
17. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect to the maximum extent permitted by applicable
law. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
this Agreement be enforced as originally contemplated to the greatest extent
possible.
18. Entire Agreement. This Agreement, together with the Company's
----------------
Certificate of Incorporation and Bylaws as in effect on the date hereof,
constitute the entire agreement and understanding among the parties pertaining
to the subject matter hereof and supersede any and all prior agreements, whether
written or oral, relating hereto.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
22
<PAGE>
20. Opinions. Upon the execution of this Agreement, FS Stockholder shall
--------
receive an opinion from Porter & Hedges with respect to the enforceability of
this Agreement against the Existing Stockholders, and the Existing Stockholders
shall receive an opinion from Riordan & McKinzie with respect to the
enforceability of this Agreement against FS Stockholder.
21. Termination. This Agreement shall terminate upon the occurrence of
-----------
any of the following:
(a) the written agreement of the Initial Stockholders;
(b) the tenth anniversary of the date hereof;
(c) Stockholders together shall own less than 10% of Common Stock
outstanding; or
(d) the dissolution, liquidation or winding up of the Company.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard Penick
------------------
Name: Richard Penick
Title: Vice President
CENTURY ACQUISITION CORPORATION
By: /s/ Jon D. Ralph
----------------
Jon D. Ralph
Vice President and Secretary
DENNIS C. BEARDEN
/s/ Dennis Bearden
------------------
CENTURY AIRCONDITIONING SUPPLY, INC.
By: /s/ Richard Penick
------------------
Its: Vice President
--------------
FS EQUITY PARTNERS IV, L.P.
a Delaware limited partnership
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Jon D. Ralph
----------------
Jon D. Ralph
Managing Member
24
<PAGE>
WILLIAM C. JOHNSON
/s/ William C. Johnson
----------------------
THE PARTHENON GROUP, INC.
By: /s/ Christopher T. Jenny
------------------------
Name: Christopher T. Jenny
Title: Managing Director
25
<PAGE>
SCHEDULE 1
Ownership of Capital Stock
by Stockholders Upon Consummation of
Transactions Contemplated by Merger Agreement
<TABLE>
<CAPTION>
Series A
Common Preferred
Stockholder Stock Stock
----------- ----- -----
<S> <C> <C>
FS Equity Partners IV, L.P. 6,745,119 40,000
Dennis C. Bearden None 80,000
Century Airconditioning 3,917,381 None
Supply, Inc.
John Morotti 515,462 None
Vickie Reynolds 475,033 None
Danny Errico 105,694 None
Allan Kea 97,727 None
Richard Luke 95,624 None
Charles Littlepage 90,634 None
Daryl Morse 38,199 None
Richard E. Penick 31,312 None
Dan Firkus 27,951 None
Jerry Muras 22,364 None
William C. Johnson 75,000 None
The Parthenon Group, Inc. 12,500 None
</TABLE>
26
<PAGE>
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is dated as of this
8/th/ day of July 1998 by and among FS Equity Partners IV, LP, a Delaware
limited partnership (the "FS Stockholder"), Dennis C. Bearden ("Bearden"),
Century Airconditioning Supply, Inc., a Texas corporation ("CAC"), Century
Maintenance Supply, Inc., a Delaware corporation (the "Company"), and the other
stockholders of the Company listed on the signature pages hereto (the "Minority
Stockholders").
R E C I T A L S
- - - - - - - -
A. The FS Stockholder, Bearden, CAC, the Company and certain of the
Minority Stockholders have entered into that certain Agreement and Plan of
Merger dated as of May 5, 1998 (as amended, the "Merger Agreement") and, in
connection therewith, have acquired or retained shares of common stock, par
value $.001 per share, of the Company (the "Common Stock").
B. Certain of the other Minority Stockholders have made an investment in
the Company in connection with the transactions contemplated by the Merger
Agreement.
C. In connection with such transactions, the FS Stockholder, Bearden, CAC
and the Minority Stockholders are to be granted certain registration rights with
respect to the Common Stock held by them.
D. In order to ensure that such parties are granted such rights, the
parties hereto desire to enter into this Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SECTION 1.1 Definitions. Terms defined in that certain Stockholders
-----------
Agreement of even date herewith by and among the FS Stockholder, Bearden, CAC,
William C. Johnson, The Parthenon Group, Inc. and the Company (the "Stockholders
Agreement") are used herein as therein defined. In addition, the following terms
shall have the following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Excess Amount" means, with respect to an underwritten offering, the number
of Registrable Securities requested by a Holder or Holders and Minority Holders
to be sold pursuant
<PAGE>
to Section 2.1 or 2.2 which the managing Underwriter or Underwriters determines
exceeds the largest number of Registrable Securities which can successfully be
sold in an orderly manner in such offering within a price range acceptable to
the Holder holding a majority of the Registrable Securities proposed to be sold
in such underwritten offering.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
"Existing Stockholders" means Bearden and CAC.
"Holder" means the FS Stockholder and the Existing Stockholders (or any
Permitted Transferee or permitted assignee thereof).
"Minority Holders" means the signatories to this Agreement other than the
FS Stockholder and the Existing Stockholders.
"Other Holder Notice" means an Other Holder Notice as defined in Section
2.1.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.2.
"Pro Rata Share" of a Stockholder shall be a fraction, (i) the numerator of
which shall be the total number of shares of Voting Securities then held by the
Stockholder and (ii) the denominator of which shall be the total number of
shares of Voting Securities then issued and outstanding.
"Registrable Securities" means shares of Common Stock outstanding until (i)
a registration statement covering such Common Stock has been declared effective
by the SEC and it has been disposed of pursuant to such effective registration
statement, (ii) such shares have been sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or it may be sold pursuant to Rule 144(k) under
such Act or (iii) (x) such shares have been otherwise Transferred, (y) the
Company has delivered a new certificate or other evidence of ownership for it
not bearing the legend required pursuant to the Stockholders Agreements, and (z)
such shares may be resold without subsequent registration under the Securities
Act.
"Requisite Share Number" means the number of shares of Common Stock
representing not less than $15,000,000 in fair market value as determined by the
Board.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations thereunder.
"SEC" means the Securities and Exchange Commission.
2
<PAGE>
"Selling Holder" means a Holder or Minority Holder who is selling
Registrable Securities pursuant to a registration statement under the Securities
Act.
"Stockholder" shall mean any of CAC, Bearden, the FS Stockholder or the
Minority Stockholders.
"Stockholders Agreements" means the Stockholders Agreement and that certain
Second Amended and Restated Stockhholders Agreement dated as of July 8, 1998 by
and among the Company, Bearden, the FS Stockholders and certain of the Minority
Stockholders.
"Transfer" means any direct or indirect transfer, sale, assignment or other
disposition of Common Stock.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
"Voting Securities" means all securities of the Company which possess
general voting power to elect members of the Board (not including, unless the
context dictates otherwise, any options or warrants to purchase Voting
Securities).
ARTICLE II
SECTION 2.1 Demand Registration.
-------------------
(a) Request for Registration. At any time on or after the date which
------------------------
is 180 days following the closing of the Initial Public Offering, any Holder or
Holders owning, individually or in the aggregate, at least the Requisite Share
Number may make a written request for registration under the Securities Act of
all or part of its or their Registrable Securities (a "Demand Registration");
provided that the Holder or Holders making the request are together requesting
- --------
that the Requisite Share Number be registered; provided further that the Company
-------- -------
shall not be obligated to effect (i) more than two (2) Demand Registrations for
the FS Stockholder and its Permitted Transferees and permitted assignees, as a
group; or (ii) more than two (2) Demand Registrations for the Existing
Stockholders and their Permitted Transferees as a group. Such request will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof. The Company shall
give written notice of such registration request within ten days after the
receipt thereof to all other Holders and the Minority Holders. If an Existing
Stockholder requests a Demand Registration, the FS Stockholder (or its Permitted
Transferees or permitted assignees) shall be entitled to submit to the Company,
within ten (10) days after receipt of notice of such Existing Stockholder's
request for a Demand Registration, a written request for a Demand Registration
(the "Simultaneous Registration") and shall thereby join in the request of such
Existing Stockholder, and thereupon each of the Existing Stockholders and FS
Stockholder shall be entitled to include Registrable Securities in such Demand
Registration on a pro rata basis, determined based on the Pro Rata Share then
held by the FS Stockholders, the Existing Stockholders (in each case
3
<PAGE>
including any Permitted Transferees) and any other Persons entitled to include
shares therein pursuant to registration rights (including, subject to the
provisions of the last sentence of this Section 2.1(a), as well as the last
sentence of Section 2.3(a), the piggy-back registration rights to which the
Minority Holders are entitled under Section 2.2 of this Agreement),
respectively, up to the number of Registrable Securities proposed to be sold in
such Demand Registration; provided, that each such Simultaneous Registration
shall be treated as one of the Existing Stockholder's two (2) Demand
Registrations. If the FS Stockholder requests a Demand Registration, the
Existing Stockholders (or their Permitted Transferees or permitted assignees)
shall be entitled to submit to the Company, within ten (10) days after receipt
of notice of the FS Stockholder's request for a Demand Registration, a written
request for a Simultaneous Registration with the FS Stockholder, and if such a
request is made, thereupon the Existing Stockholders shall be entitled to
include Registrable Securities in such Demand Registration on a pro rata basis,
determined based on the Pro Rata Share then held by the FS Stockholder, the
Existing Stockholders (in each case including Permitted Transferees) and any
other Persons entitled to include shares therein pursuant to registration rights
(including, subject to the provisions of the last sentence of this Section
2.1(a), as well as the last sentence of Section 2.3(a), the piggy-back
registration rights to which the Minority Holders are entitled under Section 2.2
of this Agreement), respectively, up to the number of Registrable Securities
proposed to be sold in such Demand Registration; provided, that each such
Simultaneous Registration shall count as one of the FS Stockholders two (2)
Demand Registrations. Within ten (10) days after receipt by a Holder or a
Minority Holder of notice of the request for a Demand Registration by another
Holder, a Holder or a Minority Holder may request in writing that Registrable
Securities be included in such Demand Registration pursuant to Section 2.2. Each
such request by such other Holders or Minority Holders (each, an "Other Holder
Notice") shall specify the number of shares of Registrable Securities proposed
to be sold and the intended method of disposition thereof. Notwithstanding
anything contained in this Section 2.1(a) to the contrary (and except as
provided above with respect to the absolute inclusion of the other Holder in
connection with a Simultaneous Registration), in connection with the second
Demand Registration of each of the FS Stockholder or the Existing Stockholders,
unless the Holder initiating such Demand Registration shall consent in writing,
no other party, including the Company, shall be permitted to offer securities
under such Demand Registration.
(b) Effective Registration. A registration will not count as a Demand
----------------------
Registration (or request therefor) until it has become effective.
(c) Underwritten Offering. If the Company or the initiating Holder of
---------------------
a Demand Registration so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. The Company and the initiating Holder of the Demand Registration
shall jointly select one or more nationally recognized firms of investment
bankers to act as the managing Underwriter or Underwriters in connection with
such offering and shall select any additional managers to be used in connection
with the offering.
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(d) Required Delays. Notwithstanding anything contained in this
---------------
Section 2.1 to the contrary, if any request for Demand Registration is delivered
at a time when (i) the Company has determined or is currently planning (and has
discussed with its Board of Directors its plan) to file a Registration Statement
with respect to an underwritten primary registration of Common Stock on behalf
of the Company (so long as a Registration Statement is filed with respect
thereto within two months of the Holder's or Holders' request for Demand
Registration), the Company may require the Holder or Holders to postpone such
request until the expiration of the 90-day period following the effective date
of such registration, or (ii) in the opinion of a majority of the Company's
Board such registration would adversely affect a material acquisition or merger
to which the Company is a party, or otherwise materially and adversely affect
the Company or the market for the Company's Common Stock (it being understood
that the ordinary effect of a Demand Registration on the market for securities
does not meet the foregoing standard) (a "Material Event Postponement"), the
Company may require the Holder to postpone such request for an appropriate
period (not to exceed 90 consecutive days (with a 30-day break between any two
consecutive periods) or 180 days in any 12-month period). In the event of a
Material Event Postponement, the Company shall deliver a certificate signed by
the President or the Chairman confirming the Company's reasons for postponing
the registration and will effect such registration as promptly as possible after
removal of such reasons.
SECTION 2.2 Piggy-Back Registration. If at any time on or after the
-----------------------
closing of the Company's Initial Public Offering, the Company proposes (in
compliance with a request for a Demand Registration or otherwise) to file a
registration statement under the Securities Act, with respect to an offering by
the Company for its own account or for the account of any of its respective
security holders of any security of the same class as the Registrable Securities
(other than a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the SEC), or a registration statement filed in connection
with an exchange offer or offering of securities solely to the Company's
existing security holders), which registration would permit the inclusion of
such Registrable Securities pursuant to this Section 2.2 then, the Company shall
give written notice of such proposed filing to the Holders and the Minority
Holders as soon as practicable, and such notice shall offer such Holders and
Minority Holders the opportunity to register such number of shares of
Registrable Securities as each such Holder and Minority Holders may request in
writing within ten (10) days of receipt of such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder or
Minority Holders and the intended method of distribution thereof) (a "Piggy-Back
Registration"). The Company shall use its best efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on the same terms and conditions as any similar securities of the
Company included therein to permit the sale or other disposition of such
Registrable Securities in accordance with the intended method of distribution
thereof. Subject to Section 2.3(b), any Holder or Minority Holder shall have the
right to withdraw its request for inclusion of its Registrable Securities in any
Piggy-Back Registration by giving written notice to the Company of its request
to withdraw within ten (10) days of its request for inclusion; provided, that
the Registration Statement including such shares (a "Piggy-Back Registration
Statement") is
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not yet effective. The Company may withdraw a Piggy-Back Registration Statement
at any time prior to the time it becomes effective.
SECTION 2.3 Reduction of Offering.
---------------------
(a) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 2.1 or 2.2
determine that the size of the offering that the Holders, the Company or any
other Persons intend to make is such that the success of the offering would be
adversely affected by inclusion of the Registrable Securities requested to be
included, then (i) with respect to a Demand Registration, and subject to the
right of a Holder initiating its second Demand Registration to exclude any
securities held by any other Selling Holder (other than the non-initiating
Holder in the case of a Simultaneous Registration) therefrom, if the size of the
offering is the basis of such Underwriter's or Underwriters' determination, the
Company shall not be required to include in such registration an amount of
Registrable Securities requested to be included in such offering equal to the
Excess Amount, such reduction to be allocated pro rata among all Selling Holders
according to the Pro Rata Share of such Selling Holders, and (ii) in the case of
a Piggy-Back Registration, if securities are being offered for the account of
other Persons as well as the Company, the securities the Company seeks to
include shall have priority over securities sought to be included by any other
Person (including the Holders and the Minority Holders) and, with respect to the
Registrable Securities intended to be offered by Holders and the Minority
Holders, the proportion by which the amount of such class of securities intended
to be offered by Holders and the Minority Holders is reduced shall not exceed
the proportion by which the amount of such class of securities intended to be
offered by such other Persons is reduced (it being understood that with respect
to the Holders, the Minority Holders and third parties, such reduction may be
all of such class of securities). Notwithstanding the foregoing, the Minority
Holders may be excluded from any offering described in Section 2.1 or 2.2 of
this Agreement if, in the discretion of the managing Underwriter or Underwriters
of such offering, the participation by such individuals in such offering or the
inclusion of such individuals' Registrable Securities therein for any reason
would adversely impact the success of such offering.
(b) If, as a result of the proration provisions of Section 2.3(a), any
Holder shall not be entitled to include all Registrable Securities in a Demand
Registration or Piggy-Back Registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); provided, however,
-------- -------
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such Withdrawal Election was made.
ARTICLE III
SECTION 3.1 Filings; Information. Whenever any Holder requests that any
--------------------
Registrable Securities be registered pursuant to Section 2.1, the Company will
use its commercially reasonable best efforts to effect the registration and the
sale of such Registrable Securities in
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accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Company will, subject to Section 2.1(d), as expeditiously as
possible prepare and file with the SEC a registration statement on any form for
which the Company then qualifies 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 commercially reasonable
best efforts to cause such filed registration statement to become and remain
effective until the earlier of (i) 90 days from the date such registration
statement became effective or (ii) the date on which the sale of Registrable
Securities has been completed. If the Company receives multiple demands for
registration in accordance with this Agreement, then, except as provided in
Section 2.1(a), such demands shall be handled in the order received.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement,
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its commercially reasonable best efforts to
(i) register or qualify the Registrable Securities under such other securities
or blue sky laws of such jurisdictions in the United States as any Selling
Holder reasonably (in light of such Selling Holder's intended plan of
distribution) requests and (ii) cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
in the United States as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things that may be
reasonably necessary or advisable to enable such Selling Holder to consummate
the disposition of the Registrable Securities owned by such Selling Holder;
provided that the Company will not be required to (A) qualify generally to do
- --------
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction (other than special service of process).
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(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such 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 and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, 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.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and 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 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"), subject to restrictions imposed by any
governmental authority governing access to classified information, 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 Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are 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 disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
--------
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and provided further, that if failing the entry of a
----------------
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Selling Holder after reasonable inquiry, is not prohibited from providing
such information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the
8
<PAGE>
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, 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.
(h) The Company will otherwise use its commercially reasonable 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 three months
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its commercially reasonable best efforts (a)
to cause all such Registrable Securities to be listed on each national
securities exchange on which similar securities issued by the Company are then
listed (if any), if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (b) to secure designation of all such
Registrable Securities as a National Association of Securities Dealers Automatic
Quotation ("NASDAQ") "national market system security" within the meaning of
Rule 11Aa2-l of the SEC or, to secure NASDAQ authorization for such Registrable
Securities, if similar securities issued by the Company are so designated.
(j) The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
(k) The Chairman of the Board of Directors of the Company, the Chief
Executive Officer of the Company and other members of the management of the
Company will cooperate fully in any offering of Registrable Securities pursuant
to Section 2.1 hereof, including, without limitation, participation in meetings
with potential investors, preparation of all materials for such investors, and
making management of the Company available for "road show" presentations and
similar selling efforts.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, 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 Section 3.1(e) hereof (such
period during which a Selling Holder is required to refrain from disposition of
Registrable Securities, a "Suspension Period"), 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 (including the period
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<PAGE>
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section 3.1(e)
hereof 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 Section 3.1(e)
hereof.
SECTION 3.2 Registration Expenses. In connection with any Demand
---------------------
Registration pursuant to Section 2.1 hereof and any registration statement filed
pursuant to Section 2.2, the Company shall pay the following registration
expenses incurred in connection with the registration thereunder, whether or not
such registration becomes effective: (i) all registration and filing fees, (ii)
fees and expenses of compliance with securities or blue sky laws (including fees
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses, (iv) the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), (v) the fees and
expenses, if any, incurred in connection with the listing of the Registrable
Securities, (vi) fees and disbursements of counsel for the Company and fees and
expenses for independent certified public accountants retained by the Company,
(vii) the fees and expenses of any special experts retained by the Company in
connection with such registration, and (viii) with respect to a Demand
Registration only, reasonable fees and expenses of one counsel (who shall be
reasonably acceptable to the Company) for all of the Selling Holders (in
addition to counsel for the Company), with such counsel selected by Holders of a
majority of the Registrable Securities. The Company shall have no obligation to
pay any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any other out-of-pocket expenses of the Holders.
ARTICLE IV
SECTION 4.1 Indemnification by the Company.
------------------------------
(a) The Company agrees to indemnify and hold harmless each Selling
Holder, its officers, directors and agents, and each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any loss, claim, damage
or liability and any action in respect thereof to which such Selling Holder, its
officers, directors and agents, and any such controlling Person may become
subject under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is 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 (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or arises out of, or is
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, and shall reimburse each Selling Holder, its officers, directors and
agents, and each such controlling Person for any legal and other expenses
reasonably incurred by that Selling Holder, its officers, directors and agents,
or any such controlling Person in investigating or defending or preparing to
defend against any such loss, claim, damage, liability or
10
<PAGE>
action. 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 4.1.
(b) The indemnity agreement contained in Section 4.1(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
and any action in respect thereof if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any loss, claim, damage,
liability and any action in respect thereof to the extent that it arises from or
is based upon written information relating to the Indemnified Person furnished
expressly for use in connection with such registration by such Person, nor shall
the Company be liable to any Person for any such loss, claim, damage or
liability and any action in respect thereof to the extent it arises from or is
based upon (a) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Person after such Person had received
written notice from the Company pursuant to Section 3.1(a) that such
registration statement or prospectus contained such untrue statement or alleged
untrue statement of a material fact and stating specifically that a Suspension
Period is then in effect, (b) 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 after such Person has received written notice
from the Company pursuant to Section 3.1(a) that such registration statement or
prospectus contained such omission or alleged omission and stating specifically
that a Suspension Period is then in effect, or (c) the failure of such Person to
deliver any preliminary or final prospectus, or any amendments or supplements
thereto, required under applicable securities laws, including the Securities
Act, to be so delivered, provided that a sufficient number of copies thereof had
been provided by the Company to such Person.
SECTION 4.2 Indemnification by Selling Holders. Each Selling Holder
----------------------------------
agrees, severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors and agents and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Selling Holder, but only with reference to information related to such
Selling Holder 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, or any amendment or supplement thereto,
or any preliminary prospectus. Each Selling Holder also agrees to indemnify and
hold harmless 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 Company provided in this
Section 4.2. In no event, however, shall any indemnity obligation under this
Section 4.2 exceed the net proceeds from the offering received by such Selling
Holder.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after receipt
--------------------------------------
by any person in respect of which indemnity may be sought pursuant to Section
4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the commencement
of any action, the Indemnified Party shall, if a claim in respect thereof is to
be made against the person against whom such
11
<PAGE>
indemnity may be sought (an "Indemnifying Party") notify the Indemnifying Party
in writing of the claim or the commencement of such action provided that the
failure to notify the Indemnifying Party shall not relieve it from any liability
which it may have to an Indemnified Party except to the extent of any actual
prejudice resulting therefrom. If any such claim or action shall be brought
against an Indemnified Party, and it shall notify the Indemnifying Party
thereof, the Indemnifying Party shall be entitled to participate therein, and,
to the extent that it wishes, jointly with any other similarly notified
Indemnifying Party, to assume the defense thereof with counsel satisfactory to
the Indemnified Party. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such claim or action,
the Indemnifying Party shall not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) based
upon the advice of counsel of such Indemnified Party representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settlement is made with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Party shall indemnify the Indemnified Party from and
against any loss, claim, damage, or liability by reason of such settlement or
judgment. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any claim or pending or threatened
proceeding in respect of which the Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability arising out of such claim or proceeding.
SECTION 4.4 Contribution. If the indemnification provided for in this
------------
Article IV is unavailable to, or is insufficient to hold harmless, the
Indemnified Parties in respect of any losses, claims, damages or liabilities
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 or liabilities (i)
as between the Company and the Selling Holders on the one hand and the
Underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and the Selling Holders on the one hand and of
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on the
one hand and each Selling Holder on the other, or as among the Selling Holders,
as the case may be, in such proportion as is appropriate to reflect the relative
fault of the Company and of each Selling Holder
12
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in connection with such statements or omissions, as well as any other relevant
equitable considerations ; provided, however, that no person found guilty of
-------- -------
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) by a court of competent jurisdiction shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation). The
relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company and the Selling
Holders on the one hand and of the Underwriters 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 the Company and the Selling
Holders or by the Underwriters. The relative fault of the Company on the one
hand and of each Selling Holder on the other, and with respect to the Selling
Holders among themselves, 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 4.4 were determined by pro
rata allocation (even if the Underwriters 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 or liabilities 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 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and 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 (less underwriting discounts and commissions) 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. Each
Selling Holder's obligations to contribute pursuant to this Section 4.4 are
several in that proportion which the net proceeds of the offering received by
such Selling Holder bears to the total net proceeds of the offering received by
all the Selling Holders, and not joint.
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ARTICLE V
SECTION 5.1 Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights.
SECTION 5.2 Rule 144. The Company covenants that, after it becomes subject
--------
to the reporting obligations of the Exchange Act, it will use its commercially
reasonable best efforts to file any reports required to be filed by it under the
Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent reasonably required from time to time to
enable Holders to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
or Rule 144A under the Securities Act, as such Rules may be amended from time to
time, or (b) any similar Rule or regulation hereafter adopted by the SEC. Upon
the request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
SECTION 5.3 Holdback Agreements.
-------------------
(a) Each Holder and Minority Holder of Registrable Securities agrees
not to effect any sale or distribution of the issue being registered or of a
similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the 14 days prior to, and
during the 90-day period (180 days in the case of the Company's Initial Public
Offering) beginning on, the effective date of the registration statement filed
by the Company (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.
(b) With respect to a Demand Registration effected pursuant to Section
2.1 hereof, the Company agrees not to effect any sale or distribution of any
securities similar to those being registered in accordance with Section 2.1
hereof, or any securities convertible into or exchangeable or exercisable for
such securities, during the 14 days prior to, and during the 90 day period
beginning on, the effective date of any registration statement (except as part
of a registration statement where the Holder making such Demand Registration
consents) or the commencement of a public distribution of Registrable
Securities; and 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 sale or distribution of any such securities during the periods
described in (a) above, in each case including a sale pursuant to Rule 144
(except as part of any such registration, if permitted); provided, however, that
the provisions of this paragraph (b) shall not prevent the conversion or
exchange of any securities pursuant to their terms into or for other securities
and
14
<PAGE>
shall not prevent the issuance of securities by the Company under any employee
benefit, stock option or stock subscription plans or in private placements.
SECTION 5.4 Stockholders Agreements. Notwithstanding anything above to the
-----------------------
contrary, all Transfers of Registrable Securities subject to the provisions of
the Stockholders Agreements shall be made only in accordance with such
provisions.
SECTION 5.5 Successors and Assigns. This Agreement, and all obligations
----------------------
and rights hereunder, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns;
provided that no rights of any Stockholder under this Agreement may be assigned,
- --------
except that (i) any Stockholder may assign its rights hereunder to an Affiliate
of such Stockholder or to any Permitted Transferee (as defined in the
Stockholders Agreements); provided further, that, prior to such assignment, such
-------- -------
Affiliate or other Permitted Transferee shall enter into a written agreement to
be bound by the terms and conditions of this Agreement applicable to such
Stockholder (and, in the case of an assignment by CAC or the Minority
Stockholders, such Affiliate or other Permitted Transferee shall deliver to the
Company a power-of-attorney appointing Bearden (or his designee if he is unable
to act due to death or disability), as such transferee's attorney-in-fact for
purposes of exercising such transferee's rights and fulfilling such transferee's
obligations under this Agreement).
SECTION 5.6 No Waivers; Amendments.
----------------------
(a) No failure or delay by any party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(b) This Agreement may not be amended, modified or supplemented other
than by a written instrument signed by Bearden and the FS Stockholder (except
that Bearden shall not be required to or entitled to approve any amendment,
modification or supplement to the Agreement, unless such amendment, modification
or supplement to the Agreement would adversely affect the rights of Bearden
hereunder (provided, that the Company's grant of additional demand and piggy-
back registration rights in the future that do not affect the FS Stockholder
differently than they affect Bearden shall not be deemed to adversely affect the
rights of Bearden hereunder)).
(c) Any provision of this Agreement may be waived if, but only if,
such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
SECTION 5.7 Notices. All notices, requests, and other communications to
-------
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be given as follows:
15
<PAGE>
if to FS Stockholder:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90085
Attention: J. Frederick Simmons
Telecopy No.: (310) 444-1870
with a copy to:
Richard J. Welch, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29/th/ Floor
Los Angeles, California 90071-3109
Telecopy No.: (213) 229-8550
if to Existing Stockholders:
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attention: Dennis C. Bearden
Telecopy No.: (713) 943-8443
with a copy to:
Robert G. Reedy, Esq.
Porter & Hedges, L.L.P.
700 Louisiana, 35/th/ Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
if to the Minority Stockholders:
at the address and telephone/telecopy numbers listed in the books
and records of the Company
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose of notice to the other parties.
Each such notice, request or other communication shall be effective (a) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this section and evidence of receipt is received or (b) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 5.7.
16
<PAGE>
SECTION 5.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware (without regard
to the choice of law provisions thereof).
SECTION 5.9 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements and understandings,
written or oral, relating to the subject matter hereof.
SECTION 5.10 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdictions, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 5.11 Counterparts. This Agreement may be signed in counterparts,
------------
each of which shall constitute an original and which together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Dennis Bearden
---------------------------------
Dennis C. Bearden
Chief Executive Officer
BEARDEN
/s/ Dennis Bearden
--------------------------------------
Dennis C. Bearden
CENTURY AIRCONDITIONING SUPPLY, INC.
By: /s/ Dennis Bearden
----------------------------------
Dennis C. Bearden
17
<PAGE>
FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Jon D. Ralph
----------------------------
Jon D. Ralph
Managing Member
MINORITY STOCKHOLDERS:
/s/ John M. Morotti
--------------------------------
John Morotti
/s/ Vickie L. Reynolds
--------------------------------
Vickie Reynolds
/s/ Danny Errico
--------------------------------
Danny Errico
/s/ D. Allan Kea
--------------------------------
Allan Kea
/s/ Richard Luke
--------------------------------
Richard Luke
/s/ Charles Littlepage
--------------------------------
Charles Littlepage
/s/ Daryl Morse
--------------------------------
Daryl Morse
/s/ Richard Penick
--------------------------------
Richard E. Penick
18
<PAGE>
/s/ Dan Firkus
--------------------------------
Dan Firkus
/s/ Jerry Muras
--------------------------------
Jerry Muras
/s/ William C. Johnson
--------------------------------
William C. Johnson
THE PARTHENON GROUP, INC.
By: /s/ Christopher T. Jenny
--------------------------------
Name: Christopher T. Jenny
Title: Managing Director
19
<PAGE>
EXHIBIT 10.10
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
---------------------------------------------
This Preferred Stock Registration Rights Agreement (the "Agreement") is
dated as of the 8/th/ day of July 1998 by and among FS Equity Partners IV, LP, a
Delaware limited partnership (the "FS Stockholder"), Dennis C. Bearden
("Bearden") and Century Maintenance Supply, Inc., a Delaware corporation (the
"Company").
R E C I T A L S
- - - - - - - -
A. The FS Stockholder and Bearden have each acquired shares of the
Company's 13 1/4% Series B Senior Exchangeable Preferred Stock, (the "Preferred
Stock").
B. The FS Stockholder and Bearden are to be granted certain registration
rights with respect to the Preferred Stock and, if applicable, the Exchange
Debentures (as defined below) held by them.
C. In order to ensure that such parties are granted such rights, the
parties hereto desire to enter into this Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SECTION 1.1 Definitions. Terms defined in that certain Stockholders
-----------
Agreement of even date herewith by and among, inter alia, the FS Stockholder,
----- ----
Bearden and the Company (the "Stockholders Agreement") are used herein as
therein defined. In addition, the following terms shall have the following
meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Exchange Debentures" means the Company's 13 1/4% Subordinated Exchange
Debentures for which the Preferred Stock is exchangeable at the Company's
option.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
"Holder" means the FS Stockholder and Bearden (or any Permitted Transferee
or permitted assignee thereof).
<PAGE>
"Registrable Securities" means shares of Preferred Stock or Exchange
Debentures outstanding until (i) a registration statement covering such
securities has been declared effective by the SEC and such securities have been
disposed of pursuant to such effective registration statement, (ii) such
securities are sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met or such securities may be sold pursuant to Rule 144(k)
under such Act or (iii) such securities have been otherwise Transferred, the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend under the Securities Act and such
securities may be resold without subsequent registration under the Securities
Act.
"Requisite Security Amount" means an amount of Registrable Securities
representing not less than 5% of the total number of shares of Preferred Stock
or principal amount of Exchange Debentures then outstanding.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations thereunder.
"SEC" means the Securities and Exchange Commission.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Stockholders Agreements" means the Stockholders Agreement and that certain
Amended and Restated Stockhholders Agreement dated as of May 5, 1998 by and
among the Company, Bearden, the FS Stockholder and certain of the Company's
other Stockholders.
"Termination Date" means the date on which any exchange offer registration
statement or resale shelf registration statement required by that Registration
Rights Agreement dated July 8, 1998 between the Company and Salomon Smith Barney
have ceased to be effective and are no longer required to be effective.
"Transfer" means any direct or indirect transfer, sale, assignment or other
disposition of a security.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE II
SECTION 2.1 Demand Registration.
-------------------
(a) Request for Registration. At any time on or after the Termination
------------------------
Date, any Holder or Holders owning, individually or in the aggregate, at least
the Requisite Security Amount may make a written request that the Company
register under the Securities Act of all or
2
<PAGE>
part of its or their Registrable Securities (a "Demand Registration"); provided
--------
that the Holder or Holders making the request are together requesting that the
Requisite Security Amount be registered; provided further that the Company shall
-------- -------
not be obligated to effect (i) more than one Demand Registration for the FS
Stockholder and its Permitted Transferees and permitted assignees, as a group;
or (ii) more than one Demand Registration for Bearden and his Permitted
Transferees and permitted assignees as a group. Such request will specify the
amount of Registrable Securities proposed to be sold and will also specify the
intended method of disposition thereof. The Company shall give written notice of
such registration request within ten days after the receipt thereof to all other
Holders. Within ten days after receipt by a Holder of notice of the request for
a Demand Registration by another Holder, a Holder may request in writing that
Registrable Securities be included in such Demand Registration. Each such
request by such other Holders (each, an "Other Holder Notice") shall specify the
amount of Registrable Securities proposed to be sold and the intended method of
disposition thereof. However, unless the Holder that initiated such Demand
Registration shall consent in writing, no other party, including the Company and
any Holder who has given an Other Holder Notice, shall be permitted to offer
securities under any Demand Registration.
(b) Effective Registration. A registration will not count as a Demand
----------------------
Registration (or request therefor) until it has become effective.
(c) Underwritten Offering. If the initiating Holder of a Demand
---------------------
Registration so elects, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of an underwritten offering. The
Company and the initiating Holder of the Demand Registration shall jointly
select one or more nationally recognized firms of investment bankers to act as
the managing Underwriter or Underwriters in connection with such offering and
shall select any additional managers to be used in connection with the offering.
(d) Required Delays. Notwithstanding anything contained in this
---------------
Section 2.1 to the contrary, if any request for Demand Registration is delivered
at a time when (i) the Company has determined or is currently planning (and has
discussed with its Board of Directors its plan) to file a Registration Statement
with respect to an underwritten primary registration of securities on behalf of
the Company (so long as a Registration Statement is filed with respect thereto
within two months of the Holder's or Holders' request for Demand Registration),
the Company may require the Holder or Holders to postpone such request until the
expiration of the 90-day period following the effective date of such
registration, or (ii) in the opinion of a majority of the members of the
Company's Board such registration would adversely affect a material acquisition
or merger to which the Company is a party, or otherwise materially and adversely
affect the Company or the market for the Company's Common Stock (it being
understood that the ordinary effect of a Demand Registration on the market for
securities does not meet the foregoing standard) (a "Material Event
Postponement"), the Company may require the Holder to postpone such request for
an appropriate period (not to exceed 90 consecutive days (with a 30-day break
between any two consecutive periods) or 180 days in any 12-month period). In
the event of a Material Event Postponement, the Company shall deliver a
certificate signed by the
3
<PAGE>
President or the Chairman confirming the Company's reasons for postponing the
registration and will effect such registration as promptly as possible after
removal of such reasons.
ARTICLE III
SECTION 3.1 Filings; Information. Whenever any Holder requests that any
--------------------
Registrable Securities be registered pursuant to Section 2.1, the Company will
use its commercially reasonable best efforts to effect the registration and the
sale of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will, subject to Section 2.1(d), as expeditiously as
possible prepare and file with the SEC a registration statement on any form for
which the Company then qualifies 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 commercially reasonable
best efforts to cause such filed registration statement to become and remain
effective until the earlier of (i) 90 days from the date such registration
statement became effective or (ii) the date on which the sale of Registrable
Securities has been completed. If the Company receives multiple demands for
registration in accordance with this Agreement, then, except as provided in
Section 2.1(a), such demands shall be handled in the order received.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement,
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its commercially reasonable best efforts to
(i) register or qualify the Registrable Securities under such other securities
or blue sky laws of such jurisdictions in the United States as any Selling
Holder reasonably (in light of such Selling Holder's intended plan of
distribution) requests and (ii) cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
in the United States as may be necessary by virtue of the business and
operations of the Company and do any
4
<PAGE>
and all other acts and things that may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition of the Registrable
Securities owned by such Selling Holder; provided that the Company will not be
--------
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (d), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such 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 and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, 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.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and 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 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"), subject to restrictions imposed by any
governmental authority governing access to classified information, 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 Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are 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 disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
--------
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and provided further, that if failing the entry of a
----------------
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors,
5
<PAGE>
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records which counsel has advised the
Inspectors that the Inspectors are compelled to disclose. Each Selling Holder of
such Registrable Securities agrees that information obtained by it solely as a
result of such inspections (not including any information obtained from a third
party who, insofar as is known to the Selling Holder after reasonable inquiry,
is not prohibited from providing such information by a contractual, legal or
fiduciary obligation to the Company) 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, 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.
(h) The Company will otherwise use its commercially reasonable 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 three months
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its commercially reasonable best efforts (a)
to cause all such Registrable Securities to be listed on each national
securities exchange on which similar securities issued by the Company are then
listed (if any), if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (b) to secure designation of all such
Registrable Securities as a National Association of Securities Dealers Automatic
Quotation ("NASDAQ") "national market system security" within the meaning of
Rule 11Aa2-l of the SEC or, to secure NASDAQ authorization for such Registrable
Securities, if similar securities issued by the Company are so designated.
(j) The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
(k) The Chairman of the Board of Directors of the Company, the Chief
Executive Officer of the Company and other members of the management of the
Company will cooperate fully in any offering of Registrable Securities pursuant
to Section 2.1 hereof, including, without limitation, participation in meetings
with potential investors, preparation of all materials for such investors, and
making management of the Company available for "road show" presentations and
similar selling efforts.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, 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
6
<PAGE>
supplemented or amended prospectus contemplated by Section 3.1(e) hereof (such
period during which a Selling Holder is required to refrain from disposition of
Registrable Securities, a "Suspension Period"), 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 (including the period referred to in Section 3.1(a) hereof) by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 3.1(e) hereof 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 Section 3.1(e) hereof.
SECTION 3.2 Registration Expenses. In connection with any Demand
---------------------
Registration, the Company shall pay the following registration expenses incurred
in connection therewith, whether or not such registration becomes effective: (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses, if any, incurred in
connection with the listing of the Registrable Securities, (vi) the fees and
disbursements of counsel for the Company and fees and expenses for independent
certified public accountants retained by the Company, (vii) the fees and
expenses of any special experts retained by the Company in connection with such
registration, and (viii) the reasonable fees and expenses of one counsel (who
shall be reasonably acceptable to the Company) for all of the Selling Holders
(in addition to counsel for the Company), with such counsel selected by Holder
initiating the Demand Registration. The Company shall have no obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any other out-of-pocket expenses of the Holders.
ARTICLE IV
SECTION 4.1 Indemnification by the Company.
------------------------------
(a) The Company agrees to indemnify and hold harmless each Selling
Holder, its officers, directors and agents, and each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any loss, claim, damage
or liability and any action in respect thereof to which such Selling Holder, its
officers, directors and agents, and any such controlling Person may become
subject under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is 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 (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or arises out of, or is
based upon, any omission or alleged
7
<PAGE>
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse
each Selling Holder, its officers, directors and agents, and each such
controlling Person for any legal and other expenses reasonably incurred by that
Selling Holder, its officers, directors and agents, or any such controlling
Person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action. 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 4.1.
(b) The indemnity agreement contained in Section 4.1(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
and any action in respect thereof if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any loss, claim, damage,
liability and any action in respect thereof to the extent that it arises from or
is based upon written information relating to the Indemnified Person furnished
expressly for use in connection with such registration by such Person, nor shall
the Company be liable to any Person for any such loss, claim, damage or
liability and any action in respect thereof to the extent it arises from or is
based upon (a) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Person after such Person had received
written notice from the Company pursuant to Section 3.1(a) that such
registration statement or prospectus contained such untrue statement or alleged
untrue statement of a material fact and stating specifically that a Suspension
Period is then in effect, (b) 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 after such Person has received written notice
from the Company pursuant to Section 3.1(a) that such registration statement or
prospectus contained such omission or alleged omission and stating specifically
that a Suspension Period is then in effect, or (c) the failure of such Person to
deliver any preliminary or final prospectus, or any amendments or supplements
thereto, required under applicable securities laws, including the Securities
Act, to be so delivered, provided that a sufficient number of copies thereof had
been provided by the Company to such Person.
SECTION 4.2 Indemnification by Selling Holders. Each Selling Holder
----------------------------------
agrees, severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors and agents and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Selling Holder, but only with reference to information related to such
Selling Holder 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, or any amendment or supplement thereto,
or any preliminary prospectus. Each Selling Holder also agrees to indemnify and
hold harmless 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 Company provided in this
Section 4.2. In no event, however, shall any indemnity obligation under this
Section 4.2 exceed the net proceeds from the offering received by such Selling
Holder.
8
<PAGE>
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action provided that the failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
an Indemnified Party except to the extent of any actual prejudice resulting
therefrom. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal or other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided that the Indemnified Party
--------
shall have the right to employ separate counsel to represent the Indemnified
Party and its controlling Persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Indemnified Party
against the Indemnifying Party, but the fees and expenses of such counsel shall
be for the account of such Indemnified Party unless (i) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) based upon the advice of counsel of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settlement is made with such consent or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, claim, damage, or liability by
reason of such settlement or judgment. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding.
SECTION 4.4 Contribution. If the indemnification provided for in this is
------------
unavailable to, or is insufficient to hold harmless, the Indemnified Parties in
respect of any losses, claims, damages or liabilities 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 or liabilities (i) as between the Company
and the Selling Holders on the one hand and the Underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Holders on the one hand and the Underwriters on the
other from the offering of the Registrable Securities, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
the Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions
9
<PAGE>
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on the
one hand and each Selling Holder on the other, or as among the Selling Holders,
as the case may be, in such proportion as is appropriate to reflect the relative
fault of the Company and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations;
provided, however, that no person found guilty of fraudulent misrepresentation
- -------- -------
(within the meaning of Section 11(f) of the 1933 Act) by a court of competent
jurisdiction shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation). The relative benefits received by
the Company and the Selling Holders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Holders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters 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 the Company and the Selling Holders or by the Underwriters. The
relative fault of the Company on the one hand and of each Selling Holder on the
other, and with respect to the Selling Holders among themselves, 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 4.4 were determined by pro
rata allocation (even if the Underwriters 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 or liabilities 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 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and 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 (less underwriting discounts and commissions) 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. Each
Selling Holder's
10
<PAGE>
obligations to contribute pursuant to this Section 4.4 are several in that
proportion which the net proceeds of the offering received by such Selling
Holder bears to the total net proceeds of the offering received by all the
Selling Holders, and not joint.
ARTICLE V
SECTION 5.1 Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights; provided that (i) such Person will not be required to make
--------
any representations or warranties except those which relate solely to themselves
and (ii) the liability of such Person to any Underwriter under such underwriting
agreement will be limited to liability arising from misstatements in, or
omissions from, written information regarding such Person provided by or on
behalf of such Person in writing specifically for inclusion in the prospectus.
SECTION 5.2 Rule 144. After the Company has become subject to the
--------
periodic reporting requirements of the Exchange Act, the Company covenants that
it will use its reasonable best efforts to file any reports required to be filed
by it under the Securities Act and the Exchange Act and that it will take such
further action as any Holder may reasonably request, all to the extent
reasonably required from time to time to enable Holders to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, as such Rules may be amended from time to time, or (b) any similar Rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION 5.3 Holdback Agreements.
-------------------
(a) Each Holder of Registrable Securities agrees not to effect any
sale or distribution of the issue being registered or of a similar security of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, including a sale pursuant to Rule 144 or Rule 144A under
the Securities Act, during the 14 days prior to, and during the 90-day period
(180 days in the case of the Company's Initial Public Offering) beginning on,
the effective date of the registration statement filed by the Company (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.
(b) With respect to a Demand Registration effected pursuant to Section
2.1 hereof, the Company agrees not to effect any sale or distribution of any
securities similar to those being registered in accordance with Section 2.1
hereof, or any securities convertible into or exchangeable or exercisable for
such securities, during the 14 days prior to, and during the 90 day
11
<PAGE>
period beginning on, the effective date of any registration statement (except as
part of a registration statement where the Holder making such Demand
Registration consents) or the commencement of a public distribution of
Registrable Securities; and 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 sale or distribution of any such securities
during the periods described in (a) above, in each case including a sale
pursuant to Rule 144 (except as part of any such registration, if permitted);
provided, however, that the provisions of this paragraph (b) shall not prevent
the conversion or exchange of any securities pursuant to their terms into or for
other securities and shall not prevent the issuance of securities by the Company
under any employee benefit, stock option or stock subscription plans or in
private placements.
SECTION 5.4 Stockholders Agreements. Notwithstanding anything above to
-----------------------
the contrary, all Transfers of Registrable Securities subject to the provisions
of the Stockholders Agreements shall be made only in accordance with such
provisions.
SECTION 5.5 Successors and Assigns. This Agreement, and all obligations
----------------------
and rights hereunder, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns;
provided that the rights of each party under this Agreement may be assigned
- --------
only in connection with the transfer of Registrable Securities in the Requisite
Security Amount; and provided further that, in conjunction with such assignment,
-------- -------
the assignee shall enter into a written agreement to be bound by the terms and
conditions of this Agreement.
SECTION 5.6 No Waivers; Amendments.
----------------------
(a) No failure or delay by any party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(b) This Agreement may not be amended, modified or supplemented other
than by a written instrument signed by the Company, Bearden and the FS
Stockholder; provided, that the Company's grant of additional demand and piggy-
--------
back registration rights that do not relate to the registration rights granted
hereunder and do not affect the FS Stockholder differently than they affect
Bearden shall not be deemed to adversely affect the rights of Bearden or the FS
Stockholder hereunder and shall not require the approval of any party hereto.
(c) Any provision of this Agreement may be waived if, but only if,
such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
12
<PAGE>
SECTION 5.7 Notices. All notices, requests, and other communications to
-------
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be given as follows:
if to FS Stockholder:
Freeman Spogli & Co. LLC
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90085
Attention: J. Frederick Simmons
Telecopy No.: (310) 444-1870
with a copy to:
Richard J. Welch, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29/th/ Floor
Los Angeles, California 90071-3109
Telecopy No.: (213) 229-8550
if to Bearden:
Mr. Dennis C. Bearden
c/o Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Telecopy No.: (713) 943-8443
with a copy to:
Robert G. Reedy, Esq.
Porter & Hedges, L.L.P.
700 Louisiana, 35/th/ Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose of notice to the other parties.
Each such notice, request or other communication shall be effective (a) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this section and evidence of receipt is received or (b) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 5.7.
13
<PAGE>
SECTION 5.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware (without regard
to the choice of law provisions thereof).
SECTION 5.9 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements and understandings,
written or oral, relating to the subject matter hereof.
SECTION 5.10 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdictions, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 5.11 Counterparts. This Agreement may be signed in counterparts,
------------
each of which shall constitute an original and which together shall constitute
one and the same agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
/s/ Dennis Bearden
-----------------------------------------------------
Dennis C. Bearden
FS EQUITY PARTNERS IV, L.P.,
a Delaware limited partnership
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Jon D. Ralph
-------------------------------------------------
Jon D. Ralph
Managing Member
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard Penick
-------------------------------------------------
Richard E. Penick,
Vice President
15
<PAGE>
EXHIBIT 10.11
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (the "Subscription Agreement") is made as
of this 8th day of July, 1998 by and among CENTURY MAINTENANCE SUPPLY, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"Company") and the Investors set forth on Schedule 1 hereto (collectively, the
"Investors") who are subscribing for and purchasing the number of shares of 13
1/4% Senior Exchangeable Preferred Stock, Series B ("Preferred Stock"), par
value $0.001 per share (the "Shares"), set forth opposite such Investor's name
on Schedule 1.
1. Subscription of Shares.
----------------------
1.1 Subscriptions. Upon the terms and subject to the conditions of
-------------
this Subscription Agreement, each Investor hereby subscribes for the number of
Shares set forth opposite such Investor's name on Schedule 1, for a purchase
price of $100.00 per share, for the aggregate purchase price set forth opposite
such Investor's name on Schedule 1.
1.2 Closing. Upon the terms and subject to the conditions of this
-------
Agreement, the closing (the "Closing") of the transactions contemplated by this
Subscription Agreement shall take place at the same time and place and
substantially concurrently with the closing under the Agreement and Plan of
Merger dated as of May 5, 1998, by and among the Company, Century Acquisition
Corporation, and the shareholders of the Company (the "Merger Agreement"). The
only conditions to the Closing under this Subscription Agreement shall be the
substantially concurrent satisfaction or waiver of the conditions to closing of
the transactions contemplated by the Merger Agreement. At the Closing, the
Company shall deliver to each Investor a certificate for the number of Shares
set forth opposite such Investor's name on Schedule 1 duly registered in the
name of such Investor.
1.3 Payment by the Investors. At the Closing, the Investors shall
------------------------
pay the purchase price, in the respective amounts set forth in Schedule 1, by
wire transfer to an account designated by the Company for that purpose (which
account may be an account in the name of the Company, or the paying agent in
connection with the Merger).
1.4 Stockholders' Agreement. Each Investor hereby agrees to execute
-----------------------
and deliver the Stockholders' Agreement by and among FS Equity Partners IV,
L.P., Dennis C. Bearden, Century Airconditioning Supply, Inc. and the Company
(the "Stockholders' Agreement") to be effective immediately following the
Merger.
2. Investment Representations. Each Investor represents and warrants to
--------------------------
the Company as follows:
(a) Investor is acquiring the Shares for his, her or its own account
and not with a view to or for sale in connection with any distribution of the
Shares.
<PAGE>
(b) Investor (i) is familiar with the business of the Company, (ii)
has had an opportunity to discuss with representatives of the Company the
condition of any prospects for the continued operation and financing of the
Company and such other matters as Investor has deemed appropriate in considering
whether to invest in the Shares, and (iii) has been provided access to all
available information about the Company requested by Investor.
(c) Investor understands that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or registered or
qualified under the securities laws of any state and that Investor may not sell
or otherwise transfer the Shares unless they are subsequently registered under
the Act and registered or qualified under applicable state securities laws, or
unless an exemption is available which permits sale or other transfer without
such registration and qualification.
3. Miscellaneous.
-------------
3.1 Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
such legends and shall be subject to such restrictions on transfer as may be
necessary to comply with all applicable federal and state securities laws and
regulations.
3.2 Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
3.3 Binding Agreement. This Agreement shall bind and inure to the
-----------------
benefit of the successors and assigns of the Company and the personal
representatives, heirs and legatees of Investor.
3.4 Notices. Any notice required or permitted to be given pursuant
-------
to this Agreement shall be in writing and shall be deemed given upon personal
delivery or, if mailed, upon the expiration of 48 hours after mailing by any
form of United States mail requiring a return receipt, addressed to Investor at
its address shown on the books of the Company or the Company at 9100 Winkler
Drive, Houston, Texas 77017, Attention: President. A party may change its
address by giving written notice to the other parties setting forth the new
address for the giving of notices pursuant to this Agreement.
3.5 Amendments. This Agreement may be amended at any time by the
----------
written agreement and consent of the parties hereof.
3.6 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
2
<PAGE>
3.7 Disputes. In the event of any dispute among the parties arising
--------
out of this Agreement, the prevailing party shall be entitled to recover from
the nonprevailing party the reasonable expenses of the prevailing party,
including, without limitation, reasonable attorneys' fees.
3.8 Entire Agreement. This Agreement, including the agreements
----------------
referred to herein, constitutes the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, relating thereto.
3.9 Headings. Introductory headings at the beginning of each section
--------
of this Agreement are solely for the convenience of the parties and shall not be
deemed to be a limitation upon or description of the contents of any such
section.
3.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which, when taken together, shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard Penick
--------------------------------------------
Name: Richard E. Penick
Title: Vice President, Assistant
Secretary and Chief Financial
Officer
FS EQUITY PARTNERS IV, L.P.
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Jon D. Ralph
--------------------------------------------
Name: Jon D. Ralph
Its: Managing Member
/s/ Dennis Bearden
--------------------------------------------
Dennis C. Bearden
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
AGGREGATE
SHARES TO BE PURCHASE
INVESTOR ACQUIRED PRICE
- -------------------------------- ------------ ----------
<S> <C> <C>
FS Equity Partners IV, L.P. 40,000 $4,000,000
Dennis C. Bearden 80,000 $8,000,000
</TABLE>
<PAGE>
EXHIBIT 10.12
CENTURY MAINTENANCE SUPPLY, INC.
1998 NONQUALIFIED STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1998 Stock Option Plan, dated
-------------------
July 8, 1998 (the "Plan"), of Century Maintenance Supply, Inc., a Delaware
corporation (the "Company"). Under this Plan, directors, officers, employees and
consultants of the Company, or any of the Company's subsidiaries, may be granted
options ("Options") to purchase shares of the common stock of the Company
("Common Stock"). For purposes of this Plan, the term "subsidiary" means any
entity, directly or indirectly, majority or wholly owned by the Company or any
subsidiary, now existing or which may be formed in the future (individually, a
"Subsidiary" and collectively, the "Subsidiaries"). It is intended that the
Options under this Plan will not qualify for treatment as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and thus be designated "Nonqualified Stock Options."
Section 2. Purpose of Plan. The purpose of the Plan and of granting
---------------
Options to specified persons is to further the growth, development and financial
success of the Company and the Subsidiaries by providing additional incentives
to certain officers, employees, consultants and members of the Board of
Directors (or equivalent bodies) of the Company or any of the Subsidiaries. By
assisting such persons in acquiring shares of Common Stock, the Company can
ensure that such persons will themselves benefit directly from the Company's and
the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
grants of Options under the Plan shall be the directors, officers, employees and
consultants of the Company and the Subsidiaries; provided that bona fide
services are rendered to the Company or the Subsidiaries by such consultant and
the services shall not have been in connection with the offer and sale of
securities in a capital-raising transaction. A person who holds an Option is
herein referred to as a "Participant" and more than one Option may be granted to
any Participant.
Section 4. Administration.
--------------
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") or, at the Board's option, a committee of the Board (the
Board or such Committee, the "Committee"). Members of the Committee shall be
appointed, both initially and as vacancies occur, by the Board, to serve at the
pleasure of the Board. Upon the first registration of an equity security of the
Company under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to the extent possible and advisable, the Committee may be constituted so
as to permit this Plan to comply with Rule 16b-3 promulgated under Section 16 of
the Exchange Act and Section 162(m) of the Code. The Committee shall meet at
such times and places as it determines and may meet through a telephone
conference call. A majority of its members shall constitute a quorum, and the
decision of a majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. A memorandum signed by
all of its
<PAGE>
members shall constitute the decision of the Committee without the necessity, in
such event, for holding an actual meeting.
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the terms of the Plan and in consultation with the Company's
Chief Executive Officer, (i) to select the Participants, to determine the number
of shares of Common Stock which may be purchased and in general to grant
Options; (ii) to determine the dates upon which Options shall be granted and the
terms and conditions thereof (including, in particular, terms and conditions
relating to when Options become exercisable as set forth in Section 7 below) in
a manner not inconsistent with the Plan, which terms and conditions need not be
identical as to the various Options granted and to extend the time period during
which an Option may be exercised; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules relating to the Plan; (v) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an Option previously granted by the Committee; (vi) to determine
the rights and obligations of Participants under the Plan; (vii) to specify the
purchase price to be paid by Participants for shares of Common Stock; (viii) to
accelerate the time during which an Option may be exercised in accordance with
the provisions of Section 16 hereof, and to otherwise accelerate the time during
which an Option may be exercised in each case notwithstanding the provisions in
the Option Agreement (as defined in Section 13 hereof) stating the time during
which it may be exercised; and (ix) to make all other determinations deemed
necessary or advisable for the administration of the Plan. The interpretation
and construction by the Committee of any provision of the Plan or of any Option
granted under it shall be binding. No member of the Committee shall be liable
for any action or determination made with respect to the Plan or any Option
granted hereunder.
Section 5. Number of Shares The aggregate number of shares of Common
----------------
Stock for which Options may be granted pursuant to the Plan shall be one
million, six hundred forty-two thousand, five hundred (1,642,500) subject to
adjustment as provided in Section 11 hereof. The number of shares of Common
Stock which may be purchased by a Participant upon exercise of each Option shall
be determined by the Committee (in consultation with the Company's Chief
Executive Officer) and set forth in each Option Agreement. Upon the expiration
or termination, in whole or in part, for any reason of an outstanding Option or
any portion thereof which shall not have vested or shall not have been exercised
in full, or in the event that any shares of Common Stock acquired pursuant to
the Plan are reacquired by the Company, (a) any shares of Common Stock which
have not been purchased or (b) the shares of Common Stock reacquired, as the
case may be, shall again become available for the granting of additional Options
under the Plan. No Participant may be granted Options to purchase in excess of
one million, six hundred forty-two thousand, five hundred (1,642,500) shares of
Common Stock in the aggregate.
Section 6. Option Price. Except as provided in Sections 11 and 12 hereof,
------------
the purchase price per share (the "Option Price") of the shares of Common Stock
underlying each Option shall be as determined by the Committee in its sole
discretion.
2
<PAGE>
Section 7. Restrictions on Grants; Vesting of Options. Notwithstanding
------------------------------------------
any other provisions set forth herein or in any Option Agreement, no Options may
be granted under the Plan subsequent to ten (10) years from the date hereof.
The vesting of all Options may be based on the passage of time, targeted goals
and/or other schedules established by the Committee. The Committee shall
determine the vesting schedule, including performance criteria and the
performance measurement period(s), applicable to each Option or group of Options
in a schedule, a copy of which shall be filed with the records of the Committee
and attached to each Option Agreement to which the same applies. The vesting
schedule, including performance criteria and the performance measurement
period(s), need not be identical for all Options granted hereunder. Following
the conclusion of each applicable performance measurement period, the Committee
shall determine, in its sole judgment, the extent, if at all, that each Option
subject thereto shall have become exercisable based upon the applicable
performance criteria and the schedule of exercisability. To the extent each
such Option shall remain nonexercisable following the final performance
measurement period because the applicable performance criteria have not been
met, it shall (unless it may also vest on the passage of time), to that extent,
automatically terminate and cease to be exercisable to such extent,
notwithstanding the stated term during which it otherwise may have been
exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole judgment, may
adjust the same to reflect significant events involving the Company or any
Subsidiary, such as mergers, acquisitions, asset sales, deviations from the
Company's business plan in the number of new distribution centers that are
opened, other extraordinary corporate events and extraordinary losses and gains,
significant changes in the level of capital expenditures, as well as changes in
accounting treatment.
Section 8. Exercise of Options. Once vested, and prior to its termination
-------------------
date, an Option may be exercised by giving written notice to the Company
specifying the number of full shares of Common Stock to be purchased and
accompanied by payment of the full purchase price therefor in cash, by check or
in such other form of lawful consideration as the Committee may approve from
time to time, including, without limitation, and in the sole discretion of the
Committee, the assignment and transfer by the Participant to the Company of
outstanding shares of Common Stock theretofore held by the Participant in a
manner intended to comply with the provisions of Rule l6b-3 under the Exchange
Act, if applicable; provided that the purchase price may not be paid by a
Participant via any type of "cashless exercise" in which the Company directly,
indirectly, or effectively purchases shares of Common Stock held by such
Participant (unless such shares have been held by such Participant continuously
for the six (6) months prior to such exercise) without the express written
consent of the Committee, which may be given or withheld in the Committee's sole
discretion after due consideration of the financial accounting implications of
such form of payment. After giving due consideration of the consequences under
Section 16 of the Exchange Act and under the Code, the Committee may also
authorize the exercise of Options by the delivery to the Company or its
designated agent of an irrevocable written notice of exercise form together with
irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares of Common Stock and to deliver the sale or margin loan
proceeds directly to the Company to pay the exercise price of the Option. Once
vested, and prior to its termination date, an Option may only be exercised by
the Participant or, in the event of death of the Participant, by the person or
persons (including the deceased Participant's estate) to whom the deceased
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Participant's rights under such Option shall have passed by will or the laws of
descent and distribution. Notwithstanding the immediately preceding sentence, in
the event of the Participant becoming disabled (within the meaning of Section
22(e)(3) of the Code), a designee of the Participant (or the legal
representative of the Participant if the Participant has no designee) may
exercise the Option on behalf of such Participant (provided such Option would
have been exercisable by such Participant) until the right to exercise such
Option expires, as set forth in such Participant's particular Option Agreement
or this Plan.
Section 9. Issuance of Common Stock. The Company's obligation to issue
------------------------
its shares of Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares of Common Stock under any state and/or
federal law or rulings and regulations of any government regulatory body, the
requirements of any stock exchange on which the Common Stock is traded, and/or
the making of such investment representations or other representations and
undertakings by the Participant (or the Participant's designee, legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
obligations with respect to such shares of Common Stock which the Company in its
sole discretion shall deem necessary or advisable. Such required
representations and undertakings may include representations and agreements that
such Participant (or the Participant's designee, legal representative, heir or
legatee): (a) is purchasing such shares of Common Stock for investment and not
with any present intention of selling or otherwise disposing of such shares of
Common Stock; and (b) agrees to have a legend placed upon the face and reverse
of any certificates evidencing such shares of Common Stock (or, if applicable,
an appropriate data entry made in the ownership records of the Company) setting
forth (i) any representations and undertakings which such Participant has given
to the Company or a reference thereto, and (ii) that, prior to effecting any
sale or other disposition of any such shares of Common Stock, the Participant
must furnish to the Company an opinion of counsel, satisfactory to the Company
and its counsel, to the effect that such sale or disposition will not violate
the applicable requirements of state and federal laws and regulatory agencies;
provided, however, that any such legend or data entry shall be removed when no
longer applicable. The inability of the Company to obtain from any regulatory
body having jurisdiction or stock exchange on which the Common Stock is traded,
registration, qualification or other necessary authorization, or the
unavailability of any exemption from registration or qualification, deemed by
the Company's counsel to be necessary for the lawful issuance and sale of any
shares of Common Stock hereunder, shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares of Common Stock as to which
such requisite authority or exemption shall not have been obtained. Any shares
of Common Stock issued by the Company upon exercise of an Option granted
hereunder may be subject to (w) a right of first refusal of the Company (or its
designee) with respect to all shares of Common Stock proposed to be transferred
by Participant, (x) certain drag-along and/or tag-along rights, (y) a right of
repurchase by the Company (or its designee) in the event that Participant's
employment or other relationship with the Company and all of the Subsidiaries
terminates, and (z) certain other restrictions set forth in each particular
Option Agreement.
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Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution. Any permitted transferee shall
be required prior to any transfer of an Option or shares of Common Stock
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
Section 11. Recapitalization; Reorganization; Merger or Consolidation.
---------------------------------------------------------
(a) Subject to paragraph (b) of this Section 11, if the outstanding
shares of Common Stock of the Company are changed into or exchanged for a
different number or kind of securities of the Company through a capital
reorganization or reclassification or if the number of outstanding shares is
changed through a stock split, reverse stock split or stock dividend, an
appropriate adjustment shall be made by the Committee (i) in the number or kind
of shares which may be purchased pursuant to the exercise of Options, and (ii)
in the number, exercise price, or kind of securities subject to any outstanding
Option granted under the Plan. Any such adjustment in an outstanding Option,
however, shall be made without a change in the total price applicable to the
unexercised portion of the Option but with a corresponding adjustment in the
price for each share covered by the Option. In making such adjustments, or in
determining that no such adjustments are necessary, the Committee may rely upon
the advice of counsel and accountants to the Company, and the determination of
the Committee shall be binding. No fractional shares of stock shall be issued
or issuable under the Plan on account of any such adjustment.
(b) Subject to Section 16 of this Plan, upon (i) the dissolution,
liquidation, or sale of all or substantially all of the business, properties and
assets of the Company, (ii) any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does not survive, (iii) any
reorganization, merger, consolidation, sale or exchange of securities in which
the Company does survive and any of the Company's stockholders have the
opportunity to receive cash, securities of another entity and/or other property
in exchange for their shares of Common Stock of the Company, or (iv) any
acquisition by any person or group (as defined in Section 13(d) of the Exchange
Act), of beneficial ownership of more than fifty percent (50%) of the Company's
then outstanding shares of Common Stock (each of the events described in clauses
(i), (ii), (iii), or (iv) is referred to herein as an "Extraordinary Event"),
the Plan and each outstanding Option shall terminate unless the Company elects
to have any Option survive the Extraordinary Event pursuant to paragraph (d)
below.
(c) Upon the occurrence of an Extraordinary Event, notwithstanding any
provision of any applicable Option Agreement, each Participant shall have the
right until ten (10) days before the effective date of such Extraordinary Event
to give notice to the Company that, upon such Extraordinary Event, it would like
to exercise, in whole or in part, any unexpired Option or Options issued to the
Participant, to the extent that said Option is then vested and exercisable (or
would become exercisable upon consummation of such Extraordinary Event) pursuant
to the provisions of said Option or Options and of Section 7 hereof.
(d) In its sole and absolute discretion, the Company may, but shall
not be so obligated, permit any Option to survive an Extraordinary Event as the
Company deems
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appropriate. In addition, in the case of any Extraordinary Event, in its sole
and absolute discretion, the Surviving Entity (which may be the Company) may,
but shall not be so obligated, tender to any Participant an option or options to
purchase shares or equity interests in such Surviving Entity, and such
continuing option or options shall contain such terms and provisions as shall be
required to substantially preserve the rights and benefits of any Option then
outstanding under the Plan with any reasonable changes to take into account the
circumstances of the Surviving Entity.
(e) The grant of an Option under the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve, or liquidate or to sell or transfer all or any part of its business or
assets or undertake any other permitted corporate action.
Section 12. Substitute Options. If the Company at any time should succeed
------------------
to the business of another entity through a merger, consolidation, corporate
reorganization or exchange, or through the acquisition of stock or assets of
such entity or its subsidiaries or otherwise, Options may be granted under the
Plan to option holders of such entity or its subsidiaries, in substitution for
options to purchase interests in such entity held by them at the time of
succession. The Committee, in its sole and absolute discretion (but in
consultation with the Company's Chief Executive Officer), shall determine the
extent to which such substitute Options shall be granted (if at all), the person
or persons to receive such substitute Options (who need not be all option
holders of such entity), the number of Options to be received by each such
person, the Option Price of such Option and the terms and conditions of such
substitute Options.
Section 13. Option Agreement. Each Option granted under the Plan shall be
----------------
evidenced by a written option agreement (an "Option Agreement") executed by the
Company and the Participant which: (a) shall contain each of the provisions and
agreements herein specifically required to be contained therein; (b) may contain
provisions which give the Company (or its designee) a right of first refusal to
purchase any shares of Common Stock issued pursuant to the exercise of Options
granted under the Plan which a Participant proposes to sell; (c) may contain
certain "drag-along" and/or "tag-along" rights; (d) may contain a right of
repurchase in favor of the Company (or its designee) in the event Participant's
employment or other relationship with the Company and all of the Subsidiaries
terminates; and (e) may contain such other terms and conditions as the Committee
deems desirable and which are not inconsistent with the Plan. In the event the
Participant is a party to a stockholders agreement in respect of Common Stock of
the Company which grants rights and imposes obligations which are of the same
type as those granted or imposed by this Plan (including preemptive rights,
rights of first purchase, rights of repurchase, "drag along," "tag along," or
other rights), then any shares of the Company's Common Stock issued upon
exercise of the options granted under this Plan shall be subject to the terms of
the agreement (this Plan or such stockholders agreement) which are most
favorable to the Participant.
Section 14. Rights as a Stockholder. No Participant (or any legal
-----------------------
representative, heir, legatee or permitted transferee) shall have any rights as
a stockholder with respect to any shares covered by any Option until the date of
entry evidencing such ownership is made in the stock transfer books of the
Company (the "Exercise Date"). No adjustment shall be made for dividends
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(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the Exercise
Date, except as expressly provided in Section 11 of this Plan.
Section 15. Termination of Options. Each Option shall terminate and
----------------------
expire, and shall no longer be subject to exercise, as the Committee may
determine in granting such Option, and each Option granted under the Plan shall
set forth a termination date thereof, in addition to any other termination
events set forth in the Plan and in each particular Option Agreement, which
shall be no later than seven (7) years from the date such Option is granted.
Unless the Committee otherwise determines, the termination of employment or
engagement in another relationship of a Participant (by death or otherwise)
shall not accelerate or otherwise affect the number of shares with respect to
which an Option may be exercised, and the Option may only be exercised with
respect to that number of shares which could have been purchased under the
Option had the Option been exercised by the Participant on the date of such
termination. All options will also terminate thirty (30) days after termination
of employment (unless termination was for cause, in which event an option will
terminate immediately) or one hundred eighty (180) days in the event of
termination due to death or disability (as defined in Section 22(e)(3) of the
Internal Revenue Code).
Section 16. Acceleration of Options. Notwithstanding anything in this
-----------------------
Plan to the contrary, or any provision to the contrary contained in a particular
Option Agreement, the Committee, in its sole discretion, at any time, or from
time to time, may elect to accelerate the vesting of all or any portion of any
Option then outstanding. The decision by the Committee to accelerate an Option
or to decline to accelerate an Option shall be binding. In the event of the
acceleration of the exercisability of Options as the result of a decision by the
Committee pursuant to this Section 16, each outstanding Option so accelerated
shall be exercisable for a period from and after the date of such acceleration
and upon such other terms and conditions as the Committee may determine in its
sole discretion; provided, that such terms and conditions (other than terms and
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such stated
period shall terminate automatically and become void.
Section 17. Withholding of Taxes. The Company or a Subsidiary, as the
--------------------
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
shares of Common Stock issued to the Participant upon the exercise of an Option,
as may be required from time to time under any federal or state tax laws and
regulations. This withholding of tax shall be made from the Company's (or such
Subsidiary's) concurrent or next payment of wages, salary, bonus or other income
to the Participant or by payment to the Company (or such Subsidiary) by the
Participant of the required withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by (a) reducing the number of shares of Common
Stock to be issued
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upon exercise of an Option or (b) surrendering shares of Common Stock previously
acquired by the Participant (for which purpose such shares of Common Stock shall
be valued at fair market value as determined by the Committee, which
determination shall be binding).
Section 18. Effectiveness and Termination of the Plan. The Plan shall be
-----------------------------------------
effective on the date on which it is adopted by the Board. The Plan shall
terminate, in addition to the other termination events set forth in the Plan,
when all shares of Common Stock which may be issued hereunder have been so
issued; provided, however, that the Board may in its sole discretion terminate
the Plan at any other time. Subject to Section 11 of this Plan, no such
termination shall in any way affect any Option then outstanding.
Section 19. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 20. Amendment of Plan and Options. The Board of Directors may
-----------------------------
make such amendments to the Plan and the Committee may make amendments to the
terms and conditions of granted Options as it shall deem advisable, including,
without limitation, the acceleration of the time at which an Option may be
exercised. No amendment of a granted Option shall in any way adversely affect
such Option without the written consent of the Participant so adversely
affected.
Section 21. Transfers and Leaves of Absence. For purposes of the Plan,
-------------------------------
(a) a transfer of a Participant's employment or consulting relationship, without
an intervening period, between the Company and a Subsidiary (or vice versa), or
between Subsidiaries, shall not be deemed a termination of employment or a
termination of a consulting relationship, and (b) a Participant who is granted
in writing a leave of absence shall be deemed to have remained in the employ of,
or in a consulting relationship with, the Company (or a Subsidiary, whichever is
applicable) during such leave of absence.
Section 22. No Obligation to Exercise Option. The granting of an Option
--------------------------------
shall impose no obligation on the Participant to exercise such Option.
Section 23. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as directors, the members of the Board or
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses and liabilities (including any amount paid
in settlement or by reason of a judgment, as well as attorneys' fees) actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding except in relation to matters as to which it shall be adjudged in
such action, suit, or proceeding that such Committee or Board member is not
entitled to indemnification under applicable law; provided that within sixty
(60) days after institution of any such action, suit or proceeding such
Committee or Board member shall in writing offer the Company the opportunity,
8
<PAGE>
at the Company's expense, to handle and defend the same, and such Committee or
Board member shall cooperate with and assist the Company in the defense of any
such action, suit or proceeding. The Company shall not be obligated to indemnify
any Committee or Board member with regard to any settlement of any action, suit,
or proceeding to which the Company did not consent to in writing prior to such
settlement.
Section 24. Governing Law. The Plan and any Option granted pursuant to
-------------
the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 25. Not an Employment or Consulting Agreement. Nothing contained
-----------------------------------------
in the Plan or in any Option Agreement shall confer, intend to confer or imply
any rights of employment or any rights to a consulting relationship or rights to
continued employment by, or rights to a continued consulting relationship with,
the Company or any Subsidiary in favor of any Participant or limit the ability
of the Company or any Subsidiary to terminate, with or without cause, in its
sole and absolute discretion, the employment of, or consulting relationship
with, any Participant, subject to the terms of any written employment or
consulting agreement to which the Participant is a party. In addition, nothing
contained in the Plan or in any Option Agreement shall preclude any lawful
action by the Company or the Board of Directors.
9
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EXHIBIT 10.13
CENTURY MAINTENANCE SUPPLY, INC.
1997 INCENTIVE STOCK PLAN
1. PURPOSE OF THE PLAN
This Century Maintenance Supply, Inc. 1997 Incentive Stock Plan is intended
to provide a means through which the Company and its Subsidiaries may attract
able persons to enter into the employ of the Company or its Subsidiaries, and to
promote the interests of the Company by providing the employees and consultants
and consultants of the Company or any Subsidiary corporation, who are largely
responsible for the management, growth and protection of the business of the
Company, with a proprietary interest in the Company, thereby strengthening their
concern for the welfare of the Company and their desire to remain in its employ.
A further purpose of the Plan is to provide such persons with additional
incentive and reward opportunities to enhance the profitable growth of the
Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of Century
Maintenance Supply, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of the
Participant's employment by the Company by reason of (i) the conviction of the
Participant by a court of competent jurisdiction as to which no further appeal
can be taken of a crime involving moral turpitude; (ii) the proven commission by
the Participant of an act of fraud upon the Company; (iii) the willful and
proven misappropriation of any funds or property of the Company by the
Participant; (iv) the willful, continued and unreasonable failure by the
Participant to perform duties assigned to him and agreed to by him; (v) the
knowing engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board of Directors of the
Company, in any activity which competes with the business of the Company or
which would result in a material injury to the Company; or (vii) the knowing
engagement in any activity which would constitute a material violation of the
provisions of the Company's Policies and Procedures Manual, if any, then in
effect.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash pursuant to
Section 11 hereof.
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(d) "Change in Control" shall mean:
(i) a "change in control" of the Company, as that term is
contemplated in the federal securities laws; or
(ii) the occurrence of any of the following events:
(1) any Person becomes, after the effective date of this Plan,
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities; provided, that the Board of Directors (as
constituted immediately prior to such person becoming such a
beneficial owner) may determine, in its sole discretion, that a Change
in Control has not occurred; and provided further, that the
acquisition of additional voting securities, after the effective date
of this Plan, by any Person who is, as of the effective date of this
Plan, the beneficial owner, directly or indirectly, of 30% or more of
the combined voting power of the Company's then outstanding
securities, shall not constitute a "Change in Control" of the Company
for purposes of this Section 2(d).
(2) a majority of individuals who are nominated by the Board of
Directors for election to the Board of Directors on any date, fail to
be elected to the Board of Directors as a direct or indirect result of
any proxy fight or contested election for positions on the Board of
Directors; or
(3) the Board of Directors determines in its sole and absolute
discretion that there has been a change in control of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any Section of the Code shall be deemed
to include any amendments or successor provisions to any Section and any
treasury regulations thereunder.
(e) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan.
(f) "Common Stock" shall mean the Company's common stock, par value $.01
per share.
(g) "Company" shall mean Century Maintenance Supply, Inc., a Delaware
corporation, and each of its Subsidiaries, and its successors.
(h) "Consultant" shall mean any person who is engaged by the Company or any
Subsidiary to render consulting services and is compensated for such services.
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<PAGE>
(i) "Employee" shall mean any person who is an employee of the Company or
any Subsidiary within the meaning of Section 3401(c) of the Code and the
applicable interpretive authority thereunder.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(k) the "Fair Market Value" of a share of Common Stock on any date shall be
(i) the closing sales price on the immediately preceding business day of a share
of Common Stock as reported on the principal securities exchange on which shares
of Common Stock are then listed or admitted to trading or (ii) if not so
reported, the average of the closing bid and asked prices for a share of Common
Stock on the immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers' OTC Bulletin Board System.
If the price of a share of Common Stock shall not be so reported, the Fair
Market Value of a share of Common Stock shall be determined by the Committee in
its absolute discretion.
(l) "Incentive Award" shall mean an Option, a share of Restricted Stock, a
Performance Award, a share of Phantom Stock, a Stock Bonus or Cash Bonus granted
pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and which is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(n) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 7(d) hereof.
(o) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option and which is identified as a Non-Qualified Stock Option
in the agreement by which it is evidenced.
(p) "Option" shall mean an option to purchase shares of Common Stock of the
Company granted pursuant to Section 6 hereof. Each Option shall be identified
as either an Incentive Stock Option or a Non-Qualified Stock Option in the
agreement by which it is evidenced.
(q) "Parent" shall mean a "parent corporation" of the Company, whether now
or hereafter existing, as defined in Section 424(e) of the Code.
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(r) "Participant" shall mean an Employee or Consultant who is eligible to
participate in the Plan and to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be, to the extent permitted hereby.
(s) "Performance Award" shall mean an award payable in cash or Common
Stock, which award is granted pursuant to Section 8 hereof and subject to the
terms and conditions contained therein.
(t) "Person" shall mean a "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, and the rules and regulations in effect from time
to time thereunder.
(u) a share of "Phantom Stock" shall represent the right to receive in cash
the Fair Market Value of a share of Common Stock of the Company, which right is
granted pursuant to Section 9 hereof and subject to the terms and conditions
contained therein.
(v) "Plan" shall mean the Century Maintenance Supply, Inc. 1997 Incentive
Stock Plan, as it may be amended from time to time.
(w) a share of "Restricted Stock" shall mean a share of Common Stock which
is granted pursuant to the terms of Section 7 hereof and which is subject to the
restrictions set forth in Section 7(c) hereof for so long as such restrictions
continue to apply to such share.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
(y) "Stock Bonus" shall mean a grant of a bonus payable in shares of Common
Stock pursuant to Section 10 hereof.
(z) "Subsidiary" or "Subsidiaries" shall mean any and all corporations in
which at the pertinent time the Company owns, directly or indirectly, stock
vested with more than 50% of the total combined voting power of all classes of
stock of such corporations within the meaning of Section 424(f) of the Code.
(aa) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
3. STOCK SUBJECT TO THE PLAN
Under the Plan, the Committee may grant to Participants: (i) Options; (ii)
shares of Restricted Stock; (iii) Performance Awards; (iv) shares of Phantom
Stock; (v) Stock Bonuses; and (vi) Cash Bonuses.
The Committee may grant Options, shares of Restricted Stock, Performance
Awards, shares of Phantom Stock and Stock Bonuses under the Plan with respect to
a number of shares of Common
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<PAGE>
Stock that in the aggregate at any time does not exceed 1,000,000 shares of
Common Stock, subject to adjustment pursuant to Section 12 hereof. The grant of
a Cash Bonus shall not reduce the number of shares of Common Stock with respect
to which Options, shares of Restricted Stock, Performance Awards, shares of
Phantom Stock or Stock Bonuses may be granted pursuant to the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Common Stock that may be subject to Incentive Awards granted to any
one individual during any calendar year shall be 150,000 shares of Common Stock,
subject to adjustment under Section 12 hereof. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated in connection with the exercise of Options and the payment of
Performance Awards to constitute "qualified performance-based compensation" for
purposes of Section 162(m) of the Code, including, without limitation, counting
against such maximum number of shares, to the extent required under Section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to Options that are canceled or repriced.
If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan. If any shares of
Restricted Stock or Phantom Stock, or any shares of Common Stock granted as a
Performance Award or a Stock Bonus are forfeited or canceled for any reason,
such shares shall again be available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either newly issued or
treasury shares, at the discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be both (i) a
"disinterested person" within the meaning of Rule 16b-3(c)(2)(i) promulgated
under Section 16 of the Exchange Act and (ii) an "outside director" within the
meaning of Section 162(m) of the Code and applicable interpretive authority
thereunder. The Committee shall from time to time designate the key Employees
and Consultants of the Company who shall be granted Incentive Awards and the
amount and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate the date on
which any Option granted under the Plan becomes exercisable, (ii) extend the
date on which any Option granted under the Plan ceases to be exercisable, (iii)
accelerate the Vesting Date or Issue Date, or waive any condition imposed
pursuant to Section 7(b) hereof, with respect to any share of Restricted Stock
granted under the Plan and (iv) accelerate the Vesting Date or waive any
condition imposed pursuant to Section 9 hereof, with respect to any share of
Phantom Stock granted under the Plan.
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In addition, the Committee may, in its absolute discretion, grant Incentive
Awards to Participants on the condition that such Participants surrender to the
Committee for cancellation such other Incentive Awards (including, without
limitation, Incentive Awards with higher exercise prices) as the Committee
specifies. Notwithstanding Section 3 hereof, Incentive Awards granted on the
condition of surrender of outstanding Incentive Awards shall not count against
the limits set forth in such Section 3 until such time as such Incentive Awards
are surrendered.
Except as provided in Section 6(e)(4) hereof, whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Committee in its absolute
discretion.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be those Employees who are largely responsible for the
management, growth and protection of the business of the Company or any
Subsidiary (including officers of the Company, whether or not they are directors
of the Company) or (ii) any Consultant, as the Committee, in its absolute
discretion, shall select from time to time; provided, however, Incentive Stock
Options may only be granted to Employees.
6. OPTIONS
The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
(a) Identification of Options
-------------------------
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as Non-
Qualified Stock Options.
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(b) Exercise Price
--------------
The exercise price of any Option granted under the Plan shall be such price
as the Committee shall determine on the date on which such Option is granted;
provided, that such price shall be not less than 100% of the Fair Market Value
of a share of Common Stock on the date on which such Option is granted, subject
to (i) the restrictions provided in Section 6(d) hereof and (ii) the adjustments
provided in Section 12 hereof.
(c) Term and Exercise of Options
----------------------------
(1) Each Option shall be exercisable on such date or dates, during
such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted and
set forth in the agreement evidencing the Option; provided, however, that
(A) subject to the restrictions provided in Section 6(d) hereof, no Option
shall be exercisable after the expiration of ten years from the date such
Option was granted and (B) no Option shall be exercisable until six months
after the date of grant; and, provided, further, that each Option shall be
subject to earlier termination, expiration or cancellation as provided in
the Plan.
(2) Each Option shall be exercisable in whole or in part with respect
to whole shares of Common Stock. The partial exercise of an Option shall
not cause the expiration, termination or cancellation of the remaining
portion thereof. Upon the partial exercise of an Option, the agreement
evidencing such Option shall be returned to the Participant exercising such
Option together with the delivery of the certificates described in Section
6(c)(5) hereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no fewer
than five business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the agreement evidencing the
Option, shall specify the number of shares of Common Stock with respect to
which the Option is being exercised and the effective date of the proposed
exercise, and shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed
exercise, in which case such agreement shall be returned to the
Participant. Payment for shares of Common Stock purchased upon the exercise
of an Option shall be made on the effective date of such exercise either
(i) in cash, by certified check, bank cashier's check or wire transfer,
(ii) subject to the approval of the Committee, in shares of Common Stock
owned by the Participant and valued at their Fair Market Value on the
effective date of such exercise, (iii) subject to the approval of the
Committee, in the form of a "cashless exercise" (as described below) or
(iv) subject to the approval of the Committee, in any combination of the
foregoing. Any payment in shares of Common Stock shall be effected by the
delivery of such shares to the Secretary of the Company, duly endorsed in
blank or
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accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Secretary of the Company shall require from
time to time.
The cashless exercise of an Option shall be pursuant to procedures
whereby the Participant by written notice, directs (i) an immediate market
sale or margin loan respecting all or a part of the shares of Common Stock
to which he is entitled upon exercise pursuant to an extension of credit by
the Company to the Participant of the exercise price, (ii) the delivery of
the shares of Common Stock directly from the Company to a brokerage firm
and (iii) delivery of the exercise price from the sale or the margin loan
proceeds from the brokerage firm directly to the Company.
(4) Any Option granted under the Plan may be exercised by a broker-
dealer acting on behalf of a Participant if (i) the broker-dealer has
received from the Participant or the Company a duly endorsed agreement
evidencing such Option and instructions signed by the Participant
requesting the Company to deliver the shares of Common Stock subject to
such Option to the broker-dealer on behalf of the Participant and
specifying the account into which such shares should be deposited, (ii)
adequate provision has been made with respect to the payment of any
withholding taxes due upon such exercise and (iii) the broker-dealer and
the Participant have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the effective
date on which the Option is exercised; provided, however, that such
delivery shall be effected for all purposes when a stock transfer agent of
the Company shall have deposited such certificates in the United States
mail, addressed to the Participant.
(6) During the lifetime of a Participant each Option granted to him
shall be exercisable only by him or a broker-dealer acting on behalf of
such Participant pursuant to Section 6(c)(4) hereof. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent
and distribution.
(d) Limitations on Grant of Incentive Stock Options
-----------------------------------------------
(1) The aggregate Fair Market Value of shares of Common Stock with
respect to which "incentive stock options" (within the meaning of Section
422 without regard to Section 422(d) of the Code) are exercisable for the
first time by a Participant during any calendar year under the Plan (and
any other stock option plan of the Company, or of its Parent or any
Subsidiary) shall not exceed $100,000. Such Fair Market Value shall be
determined as of the date on which each such Incentive Stock Option is
granted. If such aggregate Fair Market Value of shares of Common Stock
underlying such Incentive Stock Options exceeds $100,000, then Incentive
Stock Options granted hereunder to such Participant shall, to the
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extent and in the order required by regulations promulgated under the Code
(or any other authority having the force of such regulations),
automatically be deemed to be Non-Qualified Stock Options, but all other
terms and provisions of such Incentive Stock Options shall remain
unchanged. In the absence of such regulations promulgated under the Code
(and authority), or if such regulations (or authority) require or permit a
designation of the options which shall cease to constitute Incentive Stock
Options, Incentive Stock Options shall, to the extent of such excess and in
the order in which they were granted, automatically be deemed to be Non-
Qualified Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an individual if, at
the time of the proposed grant, such individual owns stock possessing more
than ten percent of the total combined voting power of all classes of stock
of the Company or of its Parent or any Subsidiary, unless (i) the exercise
price of such Incentive Stock Option is at least 110% of the Fair Market
Value of a share of Common Stock at the time such Incentive Stock Option is
granted and (ii) such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is
granted.
(e) Effect of Termination of Employment
-----------------------------------
(1) If the employment of a Participant with the Company shall
terminate for any reason other than Cause, "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) or the death of the
Participant (i) Options granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one month after such termination, on
which date they shall expire, and (ii) Options granted to such Participant,
to the extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date of such
termination; provided, however, that no Option shall be exercisable after
the expiration of its term.
(2) If the employment of a Participant with the Company shall
terminate as a result of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) or the death of the Participant
(i) Options granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until
the expiration of one year after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination, shall expire at
the close of business on the date of such termination; provided, however,
that no Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for
Cause, all outstanding Options granted to such Participant shall expire at
the commencement of business on the date of such termination.
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(4) A Participant's employment with the Company shall be deemed
terminated if the Participant's leave of absence (including military or
such leave or other bona fide leave of absence) extends for more than 90
days and the Participant's continued employment with the Company is not
guaranteed by contract or statute.
(f) Acceleration of Exercise Date Upon Change in Control
----------------------------------------------------
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.
7. RESTRICTED STOCK
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of
shares of Restricted Stock shall comply with and be subject to the following
terms and conditions:
(a) Issue Date and Vesting Date
---------------------------
At the time of the grant of shares of Restricted Stock, the Committee shall
establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares into classes and
assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 7(c) and 7(f) hereof, upon the occurrence of the Issue Date
with respect to a share of Restricted Stock, a share of Restricted Stock shall
be issued in accordance with the provisions of Section 7(d) hereof. Provided
that all conditions to the vesting of a share of Restricted Stock imposed
pursuant to Section 7(b) hereof are satisfied, and except as provided in
Sections 7(c) and 7(f) hereof, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 7(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting
---------------------
At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Restricted Stock, that (i) the Participant or the Company achieve certain
performance criteria, such criteria to be specified by the Committee at the time
of the grant of such shares and (ii) prohibiting an election by the Participant
under Section 83(b) of the Code.
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(c) Restrictions on Transfer Prior to Vesting
-----------------------------------------
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
------------------------
(1) Except as provided in Sections 7(c) or 7(f) hereof, reasonably
promptly after the Issue Date with respect to shares of Restricted Stock,
the Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such shares were granted, evidencing such
shares; provided, that the Company shall not cause to be issued such a
stock certificates unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear
the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against transfer)
contained in the Century Maintenance Supply, Inc. 1997 Incentive Stock
Plan and an Agreement entered into between the registered owner of
such shares and Century Maintenance Supply, Inc. A copy of the Plan
and Agreement is on file in the office of the Secretary of Century
Maintenance Supply, Inc., 9100 Winkler, Houston, Texas 77017.
Such legend shall not be removed from the certificate evidencing such
shares until such shares vest pursuant to the terms hereof.
(2) Each certificate issued pursuant to Paragraph 7(d)(1) hereof,
together with the stock powers relating to the shares of Restricted Stock
evidenced by such certificate, shall be held by the Company. The Company
shall issue to the Participant a receipt evidencing the certificates held
by it which are registered in the name of the Participant.
(e) Consequences Upon Vesting
-------------------------
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 7(c) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Paragraph 7(d)(1) hereof, together with
any other property of the Participant held by Company pursuant to Section 12(a)
hereof; provided, however, that such delivery
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<PAGE>
shall be effected for all purposes when the Company shall have deposited such
certificate and other property in the United States mail, addressed to the
Participant.
(f) Effect of Termination of Employment
-----------------------------------
(1) If the employment of a Participant with the Company shall
terminate for any reason other than Cause prior to the vesting of shares of
Restricted Stock granted to such Participant, a portion of such shares, to
the extent not forfeited or canceled on or prior to such termination
pursuant to any provision hereof, shall vest on the date of such
termination. The portion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such shares of
Restricted Stock and may be based on the achievement of any conditions
imposed by the Committee with respect to such shares pursuant to Section
7(b) hereof. Such portion may equal zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Restricted Stock granted to such Participant which
have not vested as of the commencement of business on the date of such
termination shall immediately be forfeited.
(g) Effect of Change in Control
---------------------------
Upon the occurrence of a Change in Control, all shares of Restricted Stock
which have not theretofore vested (including those with respect to which the
Issue Date has not yet occurred) shall immediately vest.
8. PERFORMANCE AWARDS
The Committee may grant Performance Awards pursuant to the Plan. Each
grant of Performance Awards shall be evidenced by an agreement in such form as
the Committee shall from time to time approve. Each grant of Performance Awards
shall comply with and be subject to the following terms and conditions:
(a) Performance Period and Performance Award
----------------------------------------
(1) With respect to each grant of a Performance Award, the Committee
shall establish a performance period over which the performance of the
applicable Participant shall be measured.
(2) In determining the amount of the Performance Award to be granted
to a particular Participant, the Committee may take into account such
factors as the Participant's responsibility level and growth potential, the
amount of other Incentive Awards granted or received by such Participant,
and such other considerations as the Committee deems appropriate. Each
Performance Award shall be subject to a maximum value as established by the
Committee at the time of grant of such award; provided, however, the
maximum value
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that can be granted as a Performance Award to any one individual during any
calendar year is $1,000,000.
(b) Performance Measures
--------------------
A Performance Award shall be awarded to a Participant contingent upon
future performance of the Company (or any Subsidiary, division or department
thereof) by or in which the Participant is employed or responsible during the
performance period. The Committee shall establish, in writing, the performance
measures applicable to such performance within 90 days after the commencement of
the performance period, to which such measures relate, and at a time when the
outcome of such performance measures are substantially uncertain within the
meaning of Section 162(m) of the Code, subject to such later revisions as the
Committee shall deem appropriate to reflect significant unforeseen events or
changes.
(c) Payment
-------
Upon the expiration of the performance period relating to a Performance
Award granted to a Participant, such Participant shall be entitled to receive
payment of an amount not exceeding the maximum value of the Performance Award,
based on the achievement of the performance measures for such performance
period, as determined by the Committee. The Committee shall certify in writing
prior to the payment of a Performance Award that the applicable performance
measures and any other material terms of the grant have been satisfied. Subject
to Section 3 hereof, payment of a Performance Award may be made in cash, Common
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Common Stock shall be based on the Fair Market Value of
the Common Stock on the payment date.
(d) Effect of Termination of Employment
-----------------------------------
If the employment of a Participant shall terminate for any reason prior to
the expiration of the applicable performance period, the Performance Awards
relating to such performance period, shall immediately be forfeited as of the
commencement of business on the date of such termination, except as may be
determined by the Committee in its sole and absolute discretion, or as may be
otherwise provided in the agreement evidencing such Performance Award.
(e) Effect of Change in Control
---------------------------
Upon the occurrence of a Change in Control, the Committee (as constituted
immediately prior to such Change in Control) shall determine, in its sole
discretion, whether Performance Awards, which have not theretofore satisfied the
requisite performance measure or for which the performance period has not
expired, shall immediately be paid or whether such Performance Awards shall
remain outstanding according to its respective terms.
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9. PHANTOM STOCK
The Committee may grant shares of Phantom Stock pursuant to the Plan. Each
grant of shares of Phantom Stock shall be evidenced by an agreement in such form
as the Committee shall from time to time approve. Each grant of shares of
Phantom Stock shall comply with and be subject to the following terms and
conditions:
(a) Vesting Date
------------
At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date for each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 9(c) hereof are satisfied, and except
as provided in Section 9(d) hereof, upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
--------------------
Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 90 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair Market
Value of a share of Common Stock of the Company on the date on which such share
of Phantom Stock vests and (ii) the aggregate amount of cash dividends paid with
respect to a share of Common Stock of the Company during the period commencing
on the date on which the share of Phantom Stock was granted and terminating on
the date on which such share vests.
(c) Conditions to Vesting
---------------------
At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve certain performance
criteria, such criteria to be specified by the Committee at the time of the
grant of such shares.
(d) Effect of Termination of Employment
-----------------------------------
(1) If the employment of a Participant with the Company shall
terminate for any reason other than Cause prior to the vesting of shares of
Phantom Stock granted to such Participant a portion of such shares, to the
extent not forfeited or canceled on or prior to such termination pursuant
to any provision hereof, shall vest on the date of such termination. The
portion referred to in the preceding sentence shall be determined by the
Committee at the time of the grant of such shares of Phantom Stock and may
be based on the achievement of any
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conditions imposed by the Committee with respect to such shares pursuant to
Section 9(c) hereof. Such portion may equal zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Phantom Stock granted to such Participant which have
not vested as of the date of such termination shall immediately be
forfeited.
(e) Effect of Change in Control
---------------------------
Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested shall immediately vest.
10. STOCK BONUSES
The Committee may, in its absolute discretion, grant Stock Bonuses in such
amounts as it shall determine from time to time. A Stock Bonus shall be paid at
such time and subject to such conditions as the Committee shall determine at the
time of the grant of such Stock Bonus. Certificates for shares of Common Stock
granted as a Stock Bonus shall be issued in the name of the Participant to whom
such grant was made and delivered to such Participant as soon as practicable
after the date on which such Stock Bonus is required to be paid.
11. CASH BONUSES
The Committee may, in its absolute discretion, grant in connection with any
grant of Restricted Stock or shares of Common Stock granted as a Performance
Award or Stock Bonus or at any time thereafter, a cash bonus, payable promptly
after the date on which the Participant is required to recognize income for
federal income tax purposes in connection with such Restricted Stock,
Performance Award or Stock Bonus, in such amounts as the Committee shall
determine from time to time; provided, however, that in no event shall the
amount of a Cash Bonus exceed the Fair Market Value of the related shares of
Restricted Stock or shares of Common Stock granted pursuant to a Performance
Award or Stock Bonus on such date. A Cash Bonus shall be subject to such
conditions as the Committee shall determine at the time of the grant of such
Cash Bonus.
12. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) Outstanding Restricted Stock, Performance Awards, and Phantom Stock
-------------------------------------------------------------------
Unless the Committee in its absolute discretion otherwise determines, if a
Participant receives any securities or other property (including dividends paid
in cash) with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split recapitalization,
merger, consolidation, combination, exchange of shares or otherwise, such
securities or other property will not vest until such share of Restricted Stock
vests, and shall be held by the Company pursuant to
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Paragraph 7(d)(2) hereof as if such securities or other property were unvested
shares of Restricted Stock.
The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, any shares of Common
Stock upon the grant of a Performance Award or any grant of shares of Phantom
Stock, to reflect any dividend, stock split, recapitalization, merger,
consolidation, combination, exchange of shares or similar corporate change as
the Committee may deem appropriate to prevent the enlargement or dilution of
rights of Participants under the grant.
(b) Stock Subject to Plan, Outstanding Options, Increase or Decrease in
-------------------------------------------------------------------
Issued Shares Without Consideration
-----------------------------------
Subject to any required action by the stockholders of the Company, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Committee shall proportionally adjust (i)
the number of shares of Common Stock for which Incentive Awards may be granted
under the Plan and (ii) the number of shares and the exercise price per share of
Common Stock subject to each outstanding Option.
(c) Outstanding Options, Certain Mergers
------------------------------------
Subject to any required action by the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall entitle the Participant to
acquire upon exercise the securities which a holder of the number of shares of
Common Stock subject to such Option would have received in such merger or
consolidation.
(d) Outstanding Options, Certain Other Transactions
-----------------------------------------------
In the event of a dissolution or liquidation of the Company, a sale of all
or substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation or a
merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether or
not then exercisable), and, in full consideration of such cancellation, pay
to the Participant to whom such Option was granted
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an amount in cash, for each share of Common Stock subject to such Option
equal to the excess of (A) the value, as determined by the Committee in its
absolute discretion, of the property (including cash) received by the
holder of a share of Common Stock as a result of such event over (B) the
exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding immediately
prior to such event (whether or not then exercisable) for an option on some
or all of the property for which such Option is exchanged and, incident
thereto, make an equitable adjustment as determined by the Committee in its
absolute discretion in the exercise price of the option, or the number of
shares or amount of property subject to the option or, if appropriate,
provide for a cash payment to the Participant to whom such Option was
granted in partial consideration for the exchange of the Option.
(e) Outstanding Options, Other Changes
----------------------------------
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 12(b),
(c) or (d) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(f) No Other Rights
---------------
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option.
13. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any shares
of Common Stock covered by or relating to any Incentive Award granted pursuant
to this Plan until the date of the issuance of a stock certificate with respect
to such shares. Except as otherwise expressly provided in Section 12 hereof, no
adjustment to any Incentive Award shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
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<PAGE>
14. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
15. SECURITIES MATTERS
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding
anything herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing shares of Common Stock
pursuant to the Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
any securities exchange on which shares of Common Stock are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the effectiveness of any
exercise of an Option granted hereunder in order to allow the issuance of shares
of Common Stock pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
granted hereunder. During the period that the effectiveness of the exercise of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
(c) It is intended that the Plan and any grant of an Incentive Award made
to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3 promulgated thereunder. If any provision of the Plan
or any such Incentive Award would disqualify the Plan or
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<PAGE>
such Incentive Award under, or would otherwise not comply with, Rule 16b-3, such
provision or Incentive Award shall be construed or deemed amended to conform to
Rule 16b-3 to the extent permitted by applicable law and deemed advisable by the
Board of Directors.
16. QUALIFIED PERFORMANCE-BASED COMPENSATION
It is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options granted hereunder
with an exercise price not less than Fair Market Value of a share of Common
Stock on the date of grant and (ii) the payment of a Performance Award granted
hereunder, shall constitute "qualified performance based compensation" within
the meaning of such Section and the interpretive authority thereunder. If any
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m) to the extent permitted by applicable law and deemed advisable by
the Board of Directors; provided that no such construction or amendment shall
have an adverse effect on the economic value to a Participant of any Incentive
Award previously granted hereunder.
17. WITHHOLDING TAXES
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock, the payment of a Performance Award in shares of Common
Stock or the payment of a Stock Bonus, the Company shall have the right to
require the Participant to remit to the Company in cash an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or payment prior to the delivery of
any certificate or certificates for such shares. In addition, upon the grant of
a Cash Bonus, the payment of a Performance Award or the making of a payment with
respect to a share of Phantom Stock, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto an amount
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise or grant.
18. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever, provided, however, that without
approval of the stockholders no revision or amendment shall (i) except as
provided in Section 12 hereof, increase the number of shares of Common Stock
that may be issued under the Plan, (ii) except as provided in Section 12 hereof,
increase the maximum number of shares of Common Stock that may be subject to an
Incentive Award granted to any one individual for any calendar year, (iii)
increase the maximum value that can be awarded as a Performance Award, (iv)
materially increase the benefits accruing to individuals holding Incentive
Awards granted pursuant to the Plan, (v) materially modify the requirements as
to eligibility for participation in the Plan, (vi) extend the term of the Plan
or (vii) decrease any authority granted to the Committee under the Plan in
contravention of Rule 16b-3 under the Exchange Act.
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<PAGE>
19. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
20. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award.
21. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
22. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Incentive Award, in whole or in part as the
Committee, in its absolute discretion, may determine.
23. EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors effective June 30, 1997,
subject to approval by the stockholders of the Company in accordance with
applicable law, the requirements of Sections 422 and 162(m) of the Code and the
requirements of Rule 16b-3 under Section 16(b) of the Exchange Act. No
Incentive Award may be granted under the Plan after June 29, 1997. Incentive
Awards may be granted under the Plan at any time prior to the receipt of such
stockholder approval; provided, however, that each such grant shall be subject
to such approval. Without limitation on the foregoing, no Option may be
exercised prior to the receipt of such approval, no share certificate shall be
issued pursuant to a grant of Restricted Stock, Performance Award or Stock Bonus
prior to the receipt of such approval and no Cash Bonus or payment with respect
to a Performance Award or a
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<PAGE>
share of Phantom Stock shall be paid prior to the receipt of such approval. If
the Plan is not so approved prior to June 30, 1998, then the Plan and all
Incentive Awards then outstanding hereunder shall forthwith automatically
terminate and be of no force and effect.
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<PAGE>
EXHIBIT 10.14
CENTURY MAINTENANCE SUPPLY, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is made and
entered into as of __________, 1998 ("Grant Date"), by and between Century
Maintenance Supply, Inc., a Delaware corporation (the "Company"), and
____________ ("Optionee") pursuant to the Company's 1998 Nonqualified Stock
Option Plan (the "Plan"). All capitalized terms not otherwise defined herein
shall have the meanings set forth in the Plan.
R E C I T A L S
- - - - - - - -
A. Optionee is a director, employee or consultant of the Company and/or
of a direct or indirect subsidiary of the Company (individually, a "Subsidiary,"
and collectively, the "Subsidiaries"), and the Company considers it desirable to
give Optionee an added incentive to advance the Company's interests.
B. The Committee has determined to grant Optionee the right to purchase
shares of common stock of the Company ("Common Stock") pursuant to the terms and
conditions of this Agreement and of the Plan.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
and pursuant to the authority granted to the Committee (as defined in the Plan)
by the Board of Directors of the Company, the parties agree as follows:
1. Option; Number of Shares; Price. The Company hereby grants to
-------------------------------
Optionee the right (the "Option") to purchase up to a maximum of _______ shares
(the "Shares") of the Common Stock, at a purchase price of____ per share (the
"Option Price") to be paid in accordance with Section 6 hereof. The Option and
the right to purchase all or any portion of the Shares is subject to the terms
and conditions stated in this Agreement and in the Plan including, without
limitation, the provisions of Sections 4 and 11 of the Plan under which the
Option shall be subject to modification and Sections 11, 15 and 16 of the Plan
and Sections 3 and 4 hereof pursuant to which the Option is subject to
acceleration and/or termination. It is intended that the Option will not
qualify for treatment as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Exercisability. The Option shall become exercisable as set forth in
--------------
Schedule A.
<PAGE>
[There will be a different agreement for each option]
3. Term of Agreement. Except for the rights conferred upon the Company
-----------------
pursuant to Section 8 below, the Option, and Optionee's right to exercise the
Option, shall terminate when the first of the following occurs:
(a) termination pursuant to Section 2 hereof (if applicable) or
pursuant to the Sections 11, 15, or 16 of the Plan;
(b) the expiration of seven (7) years from the date hereof;
(c) thirty (30) days after the date of termination of Optionee's
employment or other relationship with the Company and all of the Subsidiaries
(unless such termination was for Cause (as defined in paragraph (e) below), or
unless such termination results from Optionee's death or Disability (within the
meaning of Section 22(e)(3) of the Code);
(d) one hundred and eighty (180) days after the date of termination of
Optionee's employment or other relationship with the Company and all of the
Subsidiaries, if such termination results from Optionee's death or Disability;
or
(e) on the date of termination of Optionee's employment or other
relationship with the Company and all of the Subsidiaries, if such termination
was for Cause. "Cause" shall mean (i) Optionee's conviction of, or the entry of
a pleading of guilty or nolo contendre by Optionee to, a felony or a crime
involving moral turpitude, (ii) Optionee's material failure to perform the
duties required under his or her employment or other relationship, material
failure to comply with the Company's or a Subsidiary's standard policies and
procedures generally applicable to employees, or failure to comply with any
provision of any employment or other agreement after having received written
notice from the Company or a Subsidiary identifying such failure and after
having received an opportunity of at least ten (10) days in which to cure the
failure so identified if such failure is susceptible to cure, (iii) a willful
act by Optionee as a result of which he or she receives an improper personal
benefit at the expense of the Company and/or a Subsidiary, (iv) an act of fraud
or dishonesty committed by Optionee against the Company and/or a Subsidiary, or
(v) any other misconduct by Optionee that is materially injurious to the
business or reputation of the Company and/or a Subsidiary.
4. Termination of Employment or Other Relationship. The termination for
-----------------------------------------------
any reason of Optionee's employment or other relationship with the Company and
all of the Subsidiaries shall not accelerate the time at which any or all of the
Option becomes exercisable or affect the number of Shares with respect to which
the Option may be exercised. The Option may only be exercised with respect to
that number of Shares which could have been purchased under the Option had the
Option been exercised by Optionee on the date of such termination.
5. Death of Optionee; No Assignment. The rights of Optionee under this
--------------------------------
Agreement may not be assigned or transferred except by will or by the laws of
descent or distribution, and may be exercised during the lifetime of Optionee
only by Optionee. However, in the event the
2
<PAGE>
Optionee becomes Disabled, a designee of Optionee, or if Optionee has not
designated anyone, his or her legal representative, may exercise the Option on
behalf of Optionee (provided the Option would have been exercisable by Optionee)
until the right to exercise the Option expires pursuant to Section 3 hereof. Any
attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of
the Option in contravention of this Agreement or the Plan shall be void. If
Optionee should die while Optionee is engaged in an employment or other
relationship with the Company and/or any Subsidiary and provided Optionee's
rights hereunder shall have become exercisable, in whole or in part pursuant to
Section 2 hereof, Optionee's designee, legal representative, legatee, or the
person who acquired the right to exercise the Option by reason of the death of
Optionee (individually, a "Successor") shall succeed to Optionee's rights under
this Agreement. After the death of Optionee, only a Successor may exercise the
Option.
6. Exercise of Option. On or after time at which the Option becomes
------------------
exercisable in accordance with Section 2 hereof and until termination of the
Option in accordance with Section 3 hereof, the Option may be exercised by the
Optionee (or such other person specified in Section 5 hereof) to the extent
exercisable as determined under Section 2 hereof, upon delivery of the following
to the Company at its principal executive offices:
(a) a written notice of exercise (the "Notice") which identifies this
Agreement and states the whole number of Shares (which may not be less than one
hundred (100), or all of the Shares if less than one hundred (100) Shares then
remain covered by the Option) then being purchased;
(b) a check, cash or any combination thereof in the amount of the
Option Price multiplied by the number of Shares specified in the Notice (the
"Purchase Price") (or payment of the Purchase Price in such other form of lawful
consideration as the Committee, after considering the provisions of Section 8 of
the Plan, may approve, including the surrender of Shares or a cashless exercise
involving a broker);
(c) a check or cash in the amount requested by the Company or a
Subsidiary to satisfy the Company's or a Subsidiary withholding obligations
under federal, state or other applicable tax laws with respect to the taxable
income, if any, recognized by Optionee in connection with the exercise, in whole
or in part, of the Option (unless as provided in Section 17 of the Plan, the
Company and Optionee shall have made other arrangements for deductions or
withholding from Optionee's wages, bonus or other income paid to Optionee by the
Company or any Subsidiary or, if permitted by the Committee, the surrender of
other shares of Common Stock held by the Optionee, provided any arrangement set
forth in this parenthetical shall satisfy the requirements of applicable tax
laws); and
(d) a written representation and undertaking in such form and
substance as the Company may require, setting forth the investment intent of
Optionee, or a Successor, as the case may be, and such other agreements,
representations and undertakings as described in the Plan, including an
acknowledgment that Optionee has reviewed the memorandum regarding Code Section
83(b), attached hereto as Schedule B.
3
<PAGE>
7. Restriction on Transfer of Shares Acquired Upon Exercise of Option.
------------------------------------------------------------------
(a) Except as otherwise provided in paragraph (b) below and by Section
8(b) and (c), Optionee may not sell, transfer, assign, pledge, hypothecate or
otherwise dispose of (collectively, "Transfer") any of the Shares acquired upon
exercise of the Option prior to the earlier of July 8, 2000 or an Initial Public
Offering (as defined below). In connection with any public offering, Optionee
agrees to execute a reasonable lock up agreement (for up to 180 days) covering
the Shares. Any purported Transfer or Transfers (including involuntary
Transfers initiated by operation of legal process), of any of the Shares or any
right, title or interest therein, except in strict compliance with the terms and
conditions of this Agreement, shall be null and void. The term "Initial Public
Offering" shall mean an underwritten public offering which results in gross
proceeds to the Company in excess of $15 million from the sale of Common Stock.
(b) Optionee may, at any time, Transfer any or all of the Shares: (i)
inter vivos to Optionee's spouse or issue, a trust for their or Optionee's
benefit or pursuant to any will or testamentary trust or (ii) upon Optionee's
death, to any person in accordance with the laws of descent and/or testamentary
distribution (such persons are collectively referred to herein as "Permitted
Transferees"). Notwithstanding the foregoing in this Section 7(b), Shares shall
not be Transferred pursuant to this Section 7(b) until the Permitted Transferee
executes a valid undertaking, in form and substance reasonably satisfactory to
the Company and FSEP IV (as defined below) to the effect that the Permitted
Transferee and the Shares so Transferred shall thereafter remain subject to all
of the provisions of this Agreement (including the Repurchase Option (as defined
in Section 8(c) hereof)), as though the Permitted Transferee were a party to
this Agreement, bound in every respect in the same way as Optionee. Transfers
made in accordance with this subparagraph (b) shall not be subject to the
provisions of Section 8 of this Agreement.
8. Right of First Refusal; Drag Along Rights; Repurchase Option.
------------------------------------------------------------
(a) At any time on or after July 8, 2000, Optionee may sell for cash
(and only for such form of consideration) any or all of the Shares to any third
party subject to the provisions of this Section 8 and Section 10(b). Prior to
any such intended sale, Optionee shall first give written notice (the "Notice")
to the Company specifying (i) Optionee's bona fide intention to sell such
Shares; (ii) the name(s) and address(es) of the proposed purchaser(s); (iii) the
number of Shares Optionee proposes to sell (the "Offered Shares"); (iv) the
price for which Optionee proposes to sell the Offered Shares (the "Proposed
Purchase Price"); and (v) all other material terms and conditions of the
proposed sale. Within thirty (30) days of receipt of the Notice, the Company
may elect to purchase any or all of the Offered Shares at the Proposed Purchase
Price and on the terms and conditions set forth in the Notice by delivery of
written notice of such election to Optionee. Dennis Bearden and FS Equity
Partners IV, L.P., a Delaware limited partnership ("FSEP IV"), shall then have
an additional thirty (30) days to notify the Optionee of their decision to
purchase any shares not purchased by the Company, on a pro rata basis. The
notice(s) from the Company, Dennis Bearden, and/or FSEP IV shall specify a day,
which shall not be more than sixty (60) days after such second notice is
delivered, on or before which Optionee shall surrender (if Optionee has not
already done so) the certificate or certificates representing the
4
<PAGE>
Offered Shares (with a stock assignment or stock assignments duly endorsed in
blank) at the principal office of the Company. Within sixty (60) days after
delivery of such second notice to Optionee, the Company, Dennis Bearden, and/or
FSEP IV shall deliver to Optionee one or more checks, payable to Optionee, in an
amount equal to the Proposed Purchase Price. If Optionee fails to so surrender
such certificate or certificates on or before such date, from and after such
date the Offered Shares shall be deemed to be no longer outstanding, and
Optionee shall cease to be a stockholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the price determined pursuant to this Section 8(a), without interest, upon
surrender of the certificate or certificates therefor (with a stock assignment
or assignments duly endorsed in blank). If the Company, Dennis Bearden, and FSEP
IV do not elect to purchase all of the Offered Shares, Optionee shall be
entitled to sell the remaining portion of the Offered Shares to the purchaser(s)
named in the Notice at the price specified in the Notice or at a higher price
and on the terms and conditions set forth in the Notice; provided, however, that
such sale must be consummated within one hundred twenty (120) days from the date
of the Notice and any proposed sale after such one hundred twenty (120) day
period may be made only by again complying with the procedures set forth in this
Section 8(a). This right of first refusal shall terminate upon an Initial Public
Offering.
(b) If FSEP IV (and its affiliates) proposes to sell to a third-party
buyer all or (in a transaction which contemplates the partial retention by the
Company's existing securityholders of a portion of the Company's issued and
outstanding securities) a substantial portion of its interest in the Company
(whether such sale is by way of purchase, merger, recapitalization or other form
of transaction), then at the request of FSEP IV, the Optionee shall sell the
same percentage of his or her Options and/or Shares to such third party on the
same terms and conditions as apply to the sale by FSEP IV of its interest in
Company (in the case of Options, deducting the Option Price from the
consideration to be received for shares of Common Stock; if the Option Price is
greater than the consideration to be received, then such Options shall be
canceled without any payment to Optionee). Optionee agrees to such sale and to
execute such agreements, powers of attorney, voting proxies or other documents
and instruments as may be necessary or desirable to consummate such sale.
Optionee further agrees to timely take such other actions as FSEP IV may
reasonably request as necessary in connection with the approval of the
consummation of such sale, including voting all Shares in favor of such sale and
waiving any dissenters' rights and, in the event such transaction is structured
as a recapitalization, agreeing to transfer and retain those percentages of
Shares and Options as are requested by FSEP IV. Optionee shall be required to
make customary representations and warranties in connection with such transfer
with respect to its own authority to transfer and its title to the securities
transferred. This obligation will survive the Company's Initial Public Offering,
but will terminate once FSEP IV's percentage ownership in the Company
(calculated on a fully-diluted basis) drops below twenty percent (20%).
(c) In the event that Optionee's employment or other relationship with
the Company and all of its Subsidiaries terminates for any reason (including,
without limitation, by reason of Optionee's death, disability, retirement,
voluntary resignation or dismissal by the Company or any of its Subsidiaries,
with or without Cause), the Company shall have the option (the "Repurchase
Option") to purchase from Optionee all or any portion of the Shares acquired by
5
<PAGE>
Optionee pursuant to this Option for a period of one hundred eighty (180) days
after the effective date of such termination (the effective date of termination
is hereinafter referred to as the "Termination Date"); provided that such one
hundred eighty (180) day period shall be extended to a date ten (10) days after
the one hundred eighty (180) day anniversary of the date on which Optionee
purchased any Shares pursuant to this Option Agreement after the Termination
Date. The purchase price (the "Repurchase Price") for each Share to be purchased
pursuant to the Repurchase Option shall be equal to (i) the Fair Market Value
(as defined below), in the event Optionee's employment or other relationship
with the Company and all of its Subsidiaries terminates by reason of Optionee's
death or Disability, (ii) the greater of the Option Price or Book Value, in the
event such employment or other relationship is terminated for any other reason.
As used herein, (i) the "Fair Market Value" shall be the fair market value (as
determined in good faith by the Board of Directors of the Company) of a Share as
of the date of repurchase by the Company, (ii) the "Book Value" shall be equal
to the Option Price (subject to adjustment as set forth below) plus the net
income or minus the net loss per Share for all shares of Common Stock from the
Grant Date to the end of the fiscal quarter immediately preceding the
Termination Date, in each case, as determined by the Board of Directors of the
Company, which determination shall be binding. The Repurchase Price for any
Shares to be purchased pursuant to the Repurchase Option shall be increased or
decreased appropriately to reflect any distribution of stock or other securities
of the Company or any successor or assign of the Company which is made in
respect of, in exchange for or in substitution of the Shares by reason of any
split, reverse split, combination, recapitalization, reclassification, merger,
consolidation or otherwise. The Repurchase Option shall be exercised by the
Company by delivery to Optionee, within the period specified above, of a written
notice specifying (a) the number of Shares to be purchased and (b) a day, which
shall not be more than thirty (30) days after the date such notice is delivered,
on or before which Purchaser shall surrender the certificate or certificates
representing the Shares to be purchased pursuant to the Repurchase Option (duly
endorsed in blank) at the principal office of the Company in exchange for a
check, payable to Optionee in the amount equal to the Repurchase Price,
calculated as provided in this Section 8(c), for all Shares to be purchased. If
Optionee fails to surrender the certificate or certificates evidencing the
Shares on or before such date, from and after such date the Shares which the
Company elected to repurchase shall be deemed to be no longer outstanding, and
Purchaser shall cease to be a stockholder with respect to such Shares and shall
have no rights with respect thereto, except only the right to receive payment of
the Repurchase Price, without interest, upon surrender of the certificate or
certificates therefor (with a stock assignment or stock assignments duly
endorsed in blank). The provisions of this Section 8(c) will terminate upon the
Company's Initial Public Offering.
(d) The obligations of the Optionee pursuant to this Section 8 shall
be binding on any transferee of any of the Options or the Shares and any
transfer of any of the Options or Shares shall be void unless a written
commitment to be bound by such provisions from such transferee is delivered to
the Company, Dennis Bearden and FSEP IV prior to any transfer. The obligations
of the Optionee pursuant to this Section 8 shall apply to any securities
received in substitution or exchange for the Options or the Shares, including
(without limitation) pursuant to Section 11 of the Plan. The rights of FSEP IV
under this Section 8 shall be assignable to a Permitted Transferee or to an
entity which purchases at least 50% of the shares of Common Stock then held by
FSEP IV.
6
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9. Tag-Along Right.
---------------
(a) Prior to the consummation by FSEP IV of any sale of all or any
portion of its interest in the Company (the "FS Shares") to any person (other
than a Permitted Transferee) (a "Third Party"), FSEP IV and/or Dennis Bearden
shall cause each bona fide offer from such Third Party to purchase such FS
Shares from FSEP IV (an "FS Third-Party Offer") to be reduced to writing and
shall send written notice of such FS Third-Party Offer (the "FS Initial Offer
Notice") to Optionee. Each FS Third-Party Offer shall include an offer to
purchase Shares from Optionee in the amounts determined in accordance with
Section 9(b), at the same time, at the same price and on the same terms as the
sale by FSEP IV and, if applicable, Dennis Bearden, to the Third Party, and
according to the terms and conditions of this Agreement. The FS Initial Offer
Notice shall be accompanied by a true copy of the FS Third-Party Offer. If any
Optionee desires to accept the offer contained in the FS Initial Offer Notice,
such Optionee shall furnish written notice to FSEP IV, within 20 days after its
receipt of the FS Initial Offer Notice, indicating such Optionee's irrevocable
acceptance of the offer included in the FS Initial Offer Notice and setting
forth the maximum number of Shares such Optionee agrees to sell to the Third
Party (the "FS Acceptance Notice"). If such Optionee does not furnish an FS
Acceptance Notice to FSEP IV in accordance with these provisions by the end of
such 20-day period, such Optionee shall be deemed to have irrevocably rejected
the offer contained in the FS Initial Offer Notice. All Shares set forth in the
FS Acceptance Notice of such Optionee together with the Shares proposed to be
sold by FSEP IV and, if applicable, Dennis Bearden to the Third Party are
referred to collectively as "All Offered Shares". Within three days after the
date on which the Third Party informs FSEP IV of the total number of Shares
which such Third Party has agreed to purchase in accordance with the terms
specified in the FS Initial Offer Notice, FSEP IV shall send written notice (the
"FS Final Notice") to such Optionee setting forth the number of Shares such
Optionee shall sell to the Third Party as determined in accordance with Section
9(b), which number shall not exceed the maximum number specified by such
Optionee in its FS Acceptance Notice. Within five days after the date of the FS
Final Notice (or such shorter period as may reasonably be requested by FSEP IV
to facilitate the sale), such Optionee shall furnish to FSEP IV (i) a written
undertaking to deliver, upon the consummation of the sale of Shares to the Third
Party as indicated in the FS Final Notice, the certificates representing the
Shares held by such Optionee which will be transferred pursuant to such FS
Third-Party Offer (such shares shall be referred to herein as the "Optionee
Included Shares") and (ii) a limited power-of-attorney authorizing FSEP IV to
transfer the Optionee Included Shares pursuant to the terms of such FS Third-
Party Offer. Each of FSEP IV, Dennis Bearden, if applicable, and such Optionee
shall be required to make representations and warranties in connection with such
transfer with respect to its own authority to transfer and its title to the
Shares transferred. In any such transaction, such Optionee will cooperate with
FSEP IV, Dennis Bearden, if applicable, and the Company to facilitate the
transaction.
(b) Allocation of Included Shares. The maximum number of Shares that
-----------------------------
may be sold by FSEP IV, Dennis Bearden, if applicable, the Optionees and all
other holders of the Company's Common Stock who have rights to participate in
sales of FS Shares pursuant to written agreements by and between FSEP IV and any
such holder (the "Other FS Tag-Along Rights Holders") in any sale governed by
this Section 9 shall be (i) All Offered Shares in the event
7
<PAGE>
the Third Party has agreed to purchase All Offered Shares as well as all shares
of the Company's Common Stock that the Other FS Tag-Along Rights Holders who
have elected to participate in such sale seek to include in such sale, or (ii)
such number of shares of the Company's Common Stock equal to the product of (A)
the total number of shares of the Company's Common Stock which the Third Party
has agreed to purchase times (B) a fraction, the numerator of which is the total
number of shares of the Company's Common Stock owned by FSEP IV, Dennis Bearden,
the Optionees, or each Other FS Tag-Along Rights Holder who has elected to
participate in such sale, as the case may be, specified in the FS Final Notice
on the date of the FS Final Notice, and the denominator of which is the total
number of shares of the Company's Common Stock, in the aggregate, owned on the
date of the FS Final Notice by FSEP IV, Dennis Bearden, the Optionees and the
Other FS Tag-Along Rights Holder who have elected to participate in such sale;
provided, however, that, in the event FSEP IV, Dennis Bearden, the Optionees or
- -------- -------
any Other FS Tag-Along Rights Holder elects to sell a number of shares of the
Company's Common Stock which is less than the number of shares such holder could
sell pursuant to clause (ii) above, the shares of the Company's Common Stock
that the others of such holders can sell in such transaction shall be increased
by an aggregate amount equal to the number of shares which any of FSEP IV,
Dennis Bearden, the Optionees or any Other FS Tag-Along Rights Holder could have
sold in such transaction but chose not to sell, and any such increase shall be
allocated among such other holders on a pro rata basis based upon the total
number of shares of the Company's Common Stock owned on the date of the FS Final
Notice by such other holders.
(c) Consummation. FSEP IV shall have 180 days from the date of the FS
------------
Final Notice in which to sell to the Third Party the shares owned by FSEP IV,
Dennis Bearden, if applicable, and the Optionee Included Shares on terms which
are not materially less favorable to the sellers of Shares than those specified
in the applicable FS Initial Offer Notice; provided, however, that in the event
-------- -------
there is a decrease in the price to be paid by the Third Party for the Shares to
be sold from the price set forth in the FS Initial Offer Notice, which decrease
is acceptable to FSEP IV, other than material change in terms which are less
favorable to FSEP IV, but which are acceptable to FSEP IV, FSEP IV shall notify
the selling Optionee of such decrease or change in terms, and such Optionee
shall have five business days from the date of receipt of the notice of such
decrease or change in terms to reduce the number of Shares it will sell to such
Third Party as previously indicated in the applicable FS Acceptance Notice, and
the number of shares that all other participating stockholders (including Other
FS Tag-Along Rights Holders) may transfer shall be increased in accordance with
the provisions of Section 9(b). FSEP IV shall act as agent for such Optionee in
connection with such sale and shall cause to be remitted to such Optionee the
total sales price of the Optionee Included Shares sold pursuant thereto, which
consideration shall be in the same form as the consideration received by FSEP IV
and as specified in the applicable FS Initial Offer Notice, net of such
Optionee's pro rata portion (based on the total value of the consideration
received by such Optionee compared to the aggregate consideration received by
all stockholders in the transaction) of the reasonable out-of-pocket expenses
(not including any expenses paid or payable to an affiliate of FSEP IV) incurred
and paid by FSEP IV in connection with such sale. If and to the extent that, at
the end of 180 days following the date of the FS Final Notice, FSEP IV has not
completed the sale contemplated thereby, FSEP IV shall return to such Optionee
all certificates representing the Optionee Included
8
<PAGE>
Shares and all powers-of-attorney which such Optionee may have transmitted
pursuant to the terms thereof.
(d) Termination and Assignment. The obligations of FSEP IV pursuant
--------------------------
to the provisions of this Section 9 shall not apply to sales of shares by FSEP
IV in connection with, and will terminate upon, the consummation of an Initial
Public Offering. The rights granted to the Optionees under this Section 9 shall
not be assignable except to a Permitted Transferee in accordance with Section
7(b); provided, that the Permitted Transferee executes a written undertaking to
be and becomes bound by this Agreement in the same manner and to the same extent
as the other Optionees. A distribution by FSEP IV to its partners of the FS
Shares shall not give rise to any rights under this Section 9.
10. Representations and Warranties of Optionee.
------------------------------------------
(a) Optionee represents and warrants that the Shares to be purchased
pursuant to the exercise of the Option are being acquired by Optionee for
Optionee's personal account, for investment purposes only, and not with a view
to the distribution, resale or other disposition thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Common Stock under the
Securities Act of 1933, as amended (the "Securities Act"), on the basis of
certain exemptions from such registration requirement. Accordingly, Optionee
agrees that Optionee's exercise of the Option may be expressly conditioned upon
Optionee's delivery to the Company of such representations and undertakings as
the Company may require in order to secure the availability of such exemptions,
including a representation that Optionee is acquiring the Shares for investment
and not with a present intention of selling or otherwise disposing of such
Shares. Optionee acknowledges that, because Shares received upon exercise of an
Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
11. No Rights as Stockholder. Optionee shall have no rights as a
------------------------
stockholder of any shares of Common Stock covered by the Option until the date
an entry evidencing such ownership is made in the stock transfer books of the
Company (the "Exercise Date"). Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
12. Limitation of Company's Liability for Nonissuance. The inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction or stock
exchange on which the Common Stock is traded, registration, qualification or
other necessary authorization, or the unavailability of
9
<PAGE>
an exemption from registration or qualification obligation deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
of its Common Stock hereunder and under the Plan shall suspend the Company's
obligation to permit the exercise of this Option or to issue any Shares
thereupon and shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority or
exemption shall not have been obtained.
13. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal executive offices upon request and
without charge. The interpretation of the Committee of any provision of the
Plan or this Agreement, and any determination with respect thereto or hereto by
the Committee, shall be binding on all parties.
14. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
or is employed may require the placement of certain restrictive legends upon the
Shares issued upon exercise of the Option, and Optionee hereby consents to the
placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may deem necessary. Any and all certificates now or
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE TERMS
AND CONDITIONS OF THAT CERTAIN OPTION AGREEMENT DATED AS OF JULY __, 1998,
BY AND BETWEEN CENTURY MAINTENANCE SUPPLY, INC. AND THE ORIGINAL PURCHASER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE COMPANY."
15. Notices. All notices, requests and other communications hereunder
-------
shall be in writing and, (a) if given by telegram, telecopy or telex, shall be
deemed to have been validly served, given or delivered when sent, (b) if given
by personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery and, (c) if mailed, shall be deemed to have been
validly served, given or delivered three (3) business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses and numbers (or such other address(es) and numbers as a party may
designate for itself by like notice):
10
<PAGE>
If to the Company or Dennis Bearden:
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attention: President
Telecopy No.: (713) 943-8443
If to FSEP IV:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90085
Attention: J. Frederick Simmons
Telecopy No.: (310) 444-1870
If to Optionee, at the address appearing on the signature page hereof.
16. Not an Employment or Other Agreement. Nothing contained in this
------------------------------------
Agreement shall confer or imply any rights to an employment or other
relationship or rights to a continued employment by, or rights to any other
relationship with, the Company and/or any Subsidiary in favor of Optionee or
limit the ability of the Company and/or any Subsidiary to terminate, with or
without cause, in its sole and absolute discretion, the employment of, or other
relationship with, Optionee, subject to the terms of any written employment or
other agreement to which Optionee is a party.
17. Governing Law. This Agreement shall be construed under and governed
-------------
by the laws of the State of Delaware without regard to the conflict of law
provisions thereof.
18. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and both of which together shall be deemed one
Agreement.
19. Amendments; Further Assurances. This Agreement may be amended only by
------------------------------
a written agreement executed by both of the parties hereto, Bearden and FSEP IV
(if the amendment would affect Bearden or FSEP IV). Each party hereto agrees to
perform any further acts and execute and deliver any documents which may be
necessary to carry out the intent of this Agreement.
20. Recapitalizations or Exchanges Affecting the Company's Capital. The
--------------------------------------------------------------
provisions of this Agreement shall apply to any and all stock or other
securities of the Company or any successor or assign of the Company, which may
be issued in respect of, in exchange for or in substitution of, the Shares by
reason of any split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such Shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement.
11
<PAGE>
21. Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Optionee, and Optionee shall have no right to be
advised of, any material information regarding the Company or any Subsidiaries
at any time prior to, upon or in connection with (a) the Optionee's purchase of
Shares under this Agreement, or (b) the Company's repurchase of Shares under
this Agreement.
22. Successors and Assigns. The Company, FSEP IV and Bearden may assign
----------------------
with absolute discretion any or all of its rights and/or obligations and/or
delegate any of its duties under this Agreement to any of its affiliates,
successors and/or assigns, and this Agreement shall inure to the benefit of, and
be binding upon, such respective affiliates, successors and/or assigns of the
Company in the same manner and to the same extent as if such affiliates,
successors and/or assigns were original parties hereto. Without limiting the
foregoing, the Company may assign the Repurchase Option and/or the right of
first refusal provided for in Section 8 of this Agreement, respectively, to any
nominee, affiliate, successor and/or assign, and FSEP IV may assign its rights
under Section 8 hereof to any transferee. Optionee may not assign any or all of
his or her rights and/or obligations and/or delegate any or all of his or her
duties under this Agreement without the prior written consent of the Company,
Bearden and FSEP IV, as applicable.
In witness whereof, the Company and Optionee have executed this Agreement
as of the date first above written.
THE COMPANY:
CENTURY MAINTENANCE SUPPLY, INC.
By: ___________________________________
Name: ____________________________
Title: ___________________________
OPTIONEE:
_______________________________________
Address:
____________________________
____________________________
____________________________
12
<PAGE>
[Time-Vested Options]
SCHEDULE A
SCHEDULE OF EXERCISABILITY
Percentage of Option Exercisable Date Exercisable/1/
-------------------------------- ----------------
33-1/3rd First Anniversary of Grant Date
33-1/3rd Second Anniversary of Grant Date
33-1/3rd Third Anniversary of Grant Date
- ----------------
/1/ In the event of an "Extraordinary Event," as defined in Section 11 of the
Plan, all of the shares of Common Stock that are subject to the Option shall
become exercisable immediately prior to the consummation of such event.
13
<PAGE>
[Performance-Vested Options]
SCHEDULE A
SCHEDULE OF EXERCISABILITY
The shares of Common Stock subject to the Option shall become exercisable
based on satisfaction of Annual EBITDA targets and Cumulative EBITDA Targets
(each as defined in the table listed below). For purposes of the Option,
"EBITDA" is defined as earnings before taking into consideration interest
expense, income taxes, depreciation and amortization expense, extraordinary
charges related to the writeoff of deferred financing fees, and noncash
compensation expenses, if applicable (and also includes the fees and expenses
incurred in connection with the recapitalization of the Company in July 1998, as
well as in connection with any financing or other public offering), as reported
in the Company's financial statements for the fiscal years ended December 31,
1998, 1999, 2000 and 2001. EBITDA targets at all times are adjustable in the
discretion of the Board of Directors, taking into account, for example, mergers,
acquisitions, asset sales, deviations from the Company's business plan in the
number of new distribution centers that are opened, other extraordinary
corporate events and extraordinary losses and gains, significant changes in the
level of capital expenditures, as well as changes in accounting treatment.
<TABLE>
<CAPTION>
($ IN MILLIONS) 1998 1999 2000 2001
- --------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Annual EBITDA Target $26.9 $33.9 $42.0 $52.4
Annual % Vested 25% 25% 25% 25%
90-100% of Cumulative EBITDA Target --- --- --- $139.7-
$155.2
Non-duplicative Cumulative % Vested --- --- --- 50% -
100%
</TABLE>
25% of Options vest and become exercisable on each of December 31, 1998,
1999, 2000 and 2001 upon determination by the Board that the Company has
achieved the Annual EBITDA Target for such fiscal year specified above. In
addition, to the extent that any such installment remains unvested as of
December 31, 2001, the remaining unvested Options will vest upon determination
by the Board that the Company has achieved a Cumulative EBITDA Target of $155.2
million for the four year period ending December 31, 2001. If greater than 90%
but less than 100% of the Cumulative EBITDA Target of $155.2 million is
achieved, then a pro rata amount (between 50% and 100%) of the original number
of options will vest and become exercisable (inclusive of installments
previously vested). However, the Cumulative EBITDA Target will only vest
options to the extent that a greater number of options would vest under such
test than have previously vested based on achievement of the Annual EBITDA
Target.
14
<PAGE>
For example, if 50% of the Options would have vested upon application of
the Annual EBITDA Targets, but 80% would have vested when applying the
Cumulative EBITDA Targets, then an additional 30% of the Options originally
granted will also vest.
15
<PAGE>
[Bearden Performance Options]
SCHEDULE A
SCHEDULE OF EXERCISABILITY
The shares of Common Stock subject to the Option shall vest based on
satisfaction of Annual EBITDA targets and Cumulative EBITDA Targets (each as
defined in the table listed below). For purposes of the Option, "EBITDA" is
defined as earnings before taking into consideration interest expense, income
taxes, depreciation and amortization expense, extraordinary charges related to
the writeoff of deferred financing fees, and noncash compensation expenses, if
applicable (and also includes the fees and expenses incurred in connection with
the recapitalization of the Company in July 1998, as well as in connection with
any financing or other public offering), as reported in the Company's financial
statements for the fiscal years ended December 31, 1998, 1999 and 2000. EBITDA
targets at all times are adjustable in the discretion of the Board of Directors,
taking into account, for example, mergers, acquisitions, asset sales, deviations
from the Company's business plan in the number of new distribution centers that
are opened, other extraordinary corporate events and extraordinary losses and
gains, significant changes in the level of capital expenditures, as well as
changes in accounting treatment.
<TABLE>
<CAPTION>
($ IN MILLIONS) 1998 1999 2000
- --------------- ---- ---- ----
<S> <C> <C> <C>
Annual EBITDA Target $26.9 $33.9 $42.0
Annual % Vested 33-1/3% 33-1/3% 33-1/3%
90-100% of Cumulative EBITDA Target --- --- $92.5-
$102.8
Non-duplicative Cumulative % Vested --- --- 75%-
100%
</TABLE>
33-1/3% of Options vest on each of December 31, 1998, 1999 and 2000 upon
determination by the Board that the Company has achieved the Annual EBITDA
Target for such fiscal year specified above, and shall become exercisable on
that date which is one year following the applicable vesting date as described
in the last paragraph below of this Schedule A. In addition, to the extent that
any such installment remains unvested as of December 31, 2000, the remaining
unvested Options will vest upon determination by the Board that the Company has
achieved a Cumulative EBITDA Target of $102.8 million for the three year period
ending December 31, 2000. If greater than 90% but less than 100% of the
Cumulative EBITDA Target of $102.8 million is achieved, then a pro rata amount
(between 75% and 100%) of the original number of options will vest and become
exercisable (inclusive of installments previously vested). However, the
Cumulative EBITDA Target test will only vest options to the extent that a
greater
16
<PAGE>
number of options would vest under such test than have previously vested
based on achievement of the Annual EBITDA Targets.
For example, if 50% of the Options would have vested upon application of
the Annual EBITDA Targets, but 80% would have vested when applying the
Cumulative EBITDA Target, then an additional 30% of the Options originally
granted will also vest.
Notwithstanding the foregoing, options that vest will not become
exercisable until the date that is one year following the applicable vesting
date; provided, that in the case of an "Extraordinary Event" as described in
Section 11 of the Plan, all Options that have vested but which are not yet
exercisable because of this one-year delay shall accelerate and become
immediately exercisable.
17
<PAGE>
SCHEDULE B
SECTION 83(b) MEMO
18
<PAGE>
EXHIBIT 10.15
CENTURY MAINTENANCE SUPPLY, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
CENTURY MAINTENANCE SUPPLY, INC., a Delaware corporation (the "COMPANY"),
hereby grants to _____________ (the "OPTIONEE") a non-qualified stock option
(the "OPTION") to purchase a total of ________ shares (the "SHARES") of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"), at the
price determined as provided herein, and in all respects subject to the terms
and conditions of the Company's 1997 Incentive Stock Plan (the "PLAN"), which is
incorporated herein in its entirety by reference. Capitalized terms not
otherwise defined in this agreement (the "OPTION AGREEMENT") shall have the
meaning given to such terms in the Plan.
1. NATURE OF OPTION. This Option is intended to constitute a non-
qualified stock option.
2. EXERCISE PRICE. The exercise price of this Option is $ per share of
Common Stock acquired on exercise, which price is not less than the minimum
price required by law and represents the fair market value per share of the
Common Stock as determined in good faith by the Company's board of directors.
3. TERM OF OPTION. This Option may not be exercised after the expiration
of three years after such date of grant; provided, that this Option may be
exercised during such term only in accordance with the terms and conditions of
the Plan and this Option Agreement, subject specifically to Sections 5 and 6 of
the Plan and Sections 4 and 6 of this Option Agreement.
4. TERMINATION OF OPTIONEE'S EMPLOYMENT. If the Optionee's employment
with the Company is terminated for reasons other than Cause as defined in
Section 2(b) of the Plan, "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended ( the
"CODE"), or death of the Optionee, those Shares that had vested under the terms
of this Option Agreement shall remain exercisable for a period of ninety (90)
days after the date of such termination of the Optionee's employment with the
Company; provided, however, that after the expiration of this ninety-day period,
this Option Agreement, and the Optionee's right to exercise any vested portion
of this Option, shall terminate. If the Optionee's employment with the Company
is terminated because of the "permanent or total disability" (within the meaning
of Section 22(e)(3) of the Code) or death of the Optionee, those Shares that had
vested in accordance with this Option Agreement shall remain exercisable for a
period of one year after the date of such termination; provided, however, that
after the expiration of such one year period, this Option Agreement, and the
Optionee's right to exercise any vested portion of this Option, shall terminate.
If the Optionee's employment with the Company terminates for Cause, this Option
Agreement, and the Optionee's right to exercise any outstanding Option, whether
or not vested, shall terminate at 7:00 a.m. local time in Houston, Texas on the
date of such termination.
5. TERM OF EMPLOYMENT. This Option shall not grant to Optionee any right
to continue serving as an officer or employee of the Company.
-1-
<PAGE>
6. EXERCISE OF OPTION. This Option shall be exercisable during its term,
subject to the provisions of Sections 3 and 4 hereof and Sections 5 and 6 of the
Plan, as follows:
(i) Vesting. The options are fully vested on the date of grant.
-------
(ii) Right of Exercise. This Option is exercisable at any time
-----------------
during the term of this Option Agreement, in whole or in part, to acquire those
Shares that have vested in accordance with this Option Agreement; provided,
however, that this Option may only be exercisable to acquire whole shares of
Common Stock.
(iii) Method of Exercise. This Option is exercisable by delivery of
------------------
this Option Agreement and a written notice to the attention of the Secretary of
the Company, no fewer than five business days before the proposed effective date
of exercise, signed by the Optionee, specifying the number of Shares to be
acquired on, and the effective date of, such exercise. The Optionee may
withdraw notice of exercise of this Option at any time before close of business
on the business day preceding the proposed exercise date, and in this instance,
the Company will return this Option Agreement to the Optionee.
(iv) Method of Payment. Payment of the exercise price for the Shares
-----------------
purchased under this Option shall be delivered, in person or by certified mail
to the attention of the Secretary of the Company, on the effective date of
exercise in cash, or by certified check, bank cashier's check, or wire transfer.
(v) Stockholders' Agreement. As a condition precedent to the
-----------------------
Company's obligation to issue any of the Shares upon the Optionee's exercise of
this Option, in whole or in part, and pursuant to Section 5 of the Plan,
Optionee and his or her spouse (if any) shall become parties to that certain
Stockholders' Agreement dated June 30, 1997, among the Company and its
stockholders. Any refusal or failure by the Optionee and his or her spouse (if
any) to become parties to such Stockholders' Agreement shall constitute a
forfeiture of this Option and any Shares relating thereto.
(vi) Irrevocable Proxy. As a condition precedent to the Company's
-----------------
obligation to issue any of the Shares upon the Optionee's exercise of this
Option, in whole or in part, and as part of the consideration for such Shares,
Optionee shall grant to Dennis Bearden, as of the initial exercise date of this
Option, an irrevocable proxy to vote all Shares for so long as he is alive and
owns 25% or more of the issued and outstanding shares of Common Stock, such
proxy to be in a form reasonably acceptable to the Company and Dennis Bearden.
Such proxy shall appoint Dennis Bearden as the proxy in respect of any and all
of the Shares held by Optionee or any transferee of such Shares and shall grant
to Dennis Bearden the right to vote and act for such Optionee or transferee at
all meetings and on all actions (by written consent or otherwise) of the
Company's stockholders in the same manner and to same extent as if such Optionee
or transferee voted or acted in respect of such Shares. Such proxy shall be
exercised by Dennis Bearden in his sole and absolute discretion, and Dennis
Bearden shall not be considered a fiduciary of, or to be in a confidential or
special relationship with Optionee or any transferee of the Shares.
Notwithstanding any other provision to the contrary, any such proxy granted
pursuant to this Section 6(vi) shall terminate on the consummation of the
initial sale of Common Stock by the Company to the general public in a bona
-2-
<PAGE>
fide firm commitment underwritten public offering pursuant to a registration
statement filed with, and declared or ordered effective by, the Securities
Exchange Commission under the Securities Act (the "INITIAL PUBLIC OFFERING").
EACH PROXY TO BE GRANTED HEREUNDER, SHALL BE COUPLED WITH AN INTEREST, AND THUS,
SHALL BE IRREVOCABLE PRIOR TO THE CONSUMMATION OF THE INITIAL PUBLIC OFFERING
FOR SO LONG AS DENNIS BEARDEN IS ALIVE AND OWNS MORE THAN 25% OF THE COMMON
STOCK, UNLESS AND ONLY TO THE EXTENT THAT DENNIS BEARDEN IN HIS SOLE AND
ABSOLUTE DISCRETION, DETERMINES TO SOONER TERMINATE SUCH PROXY AS TO ALL OR ANY
PORTION OF THE SHARES COVERED THEREBY. Any refusal or failure by the Optionee to
grant such proxy or any attempted revocation of such proxy shall, without
further act or deed by the Optionee or any transferee of such Shares, constitute
a forfeiture of this Option and any Shares acquired pursuant to this Option and
shall be deemed transferred to the Company and shall thereafter constitute
treasury shares.
7. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares or the method of payment of the consideration for such
Shares would constitute a violation of any applicable federal or state
securities or other laws or regulations, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations ("REGULATION G") as promulgated by
the Federal Reserve Board, or any rules or regulations of any stock exchange on
which the Common Stock may be listed.
This Option may only be exercised in accordance with the terms and
conditions of the Plan and this Option Agreement. If a conflict exists between
any term or provision contained in this Option Agreement and a term or provision
in the Plan, the applicable terms and provisions of the Plan shall govern and
prevail.
8. NON-TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option may only be exercised by the Optionee. This Option is not
assignable or transferable otherwise than by will or by the laws of descent and
distribution. The terms of this Option Agreement shall be binding on the
Optionee's heirs and successors and on the administrators and executors of the
Optionee's estate. Notwithstanding the foregoing, this Option may be
transferred by the Optionee to an inter-vivos trust established by the Optionee
for estate planning purposes.
9. INDEPENDENT LEGAL AND TAX ADVICE. The Optionee has been advised and
been provided the opportunity to obtain independent legal and tax advice
regarding the grant and exercise of this Option and the disposition of any
Shares acquired thereby.
10. AMENDMENT. This Option Agreement may not be amended, modified or
waived except by a written instrument signed by the party against whom
enforcement of any such modification, amendment or waiver is sought; provided,
however, Section 6(vi) shall not be amended, modified or waived without the
written consent of Dennis Bearden.
11. GOVERNING LAW. This Option Agreement shall be governed by and shall
be construed and enforced in accordance with the internal laws, but not the laws
of conflict, of the State of Delaware.
-3-
<PAGE>
12. SUPERSEDES PRIOR AGREEMENTS. This Option Agreement shall supersede
and replace all prior agreements and understandings, oral or written, between
the Company and the Optionee regarding the grant of this Option under the Plan.
IN WITNESS WHEREOF, the Company has as of _______________, ________ caused
this Option Agreement to be executed on its behalf by its President or any Vice
President and Optionee has hereunto set his hand as of the same date, which date
is the date of grant of this Option.
CENTURY MAINTENANCE SUPPLY, INC.
--------------------------------------------
Richard E. Penick,
Vice President
OPTIONEE
--------------------------------------------
-4-
<PAGE>
EXHIBIT 10.16
EXECUTIVE EMPLOYMENT AGREEMENT
(Dennis C. Bearden)
THIS AGREEMENT is made and entered into as of July 8, 1998 between CENTURY
MAINTENANCE SUPPLY, INC., a Delaware corporation having its principal executive
office at 9100 Winkler, Houston, Texas 77017 (the "COMPANY"), and DENNIS C.
BEARDEN (the "EMPLOYEE").
RECITALS
The Company desires to employ the Employee in an executive capacity and the
Employee desires to enter the Company's employ.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Employee hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms have
-------------------
the meanings prescribed below:
AFFILIATE is used in this Agreement to define a relationship to a person or
entity and means a person or entity who, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, such person or entity.
ANNUAL BONUS shall have the meaning assigned thereto in SECTION 4.2 hereof.
BASE SALARY shall have the meaning assigned thereto in SECTION 4.1 hereof.
BENEFICIAL OWNER shall have the meaning assigned thereto in Rule 13(d)-3
under the Exchange Act; provided, however, and without limitation, that any
individual, corporation, partnership, group, association or other person or
entity that has the right to acquire any Voting Stock at any time in the future,
whether such right is (a) contingent or absolute or (b) exercisable presently or
at any time in the future, pursuant to any agreement or understanding or upon
the exercise or conversion of rights, options or warrants, or otherwise, shall
be the Beneficial Owner of such Voting Stock.
CAUSE shall have the meaning assigned thereto in SECTION 5.3 hereof.
CHANGE IN CONTROL of the Company shall be deemed to have occurred if (a)
the Company merges or consolidates with any other corporation (other than a
wholly-owned direct or indirect subsidiary of the Company) and is not the
surviving corporation (or survives as a subsidiary of another corporation) and,
after such merger or consolidation, the Company's shareholders
<PAGE>
immediately prior to such merger or consolidation do not own Voting Stock
representing a majority of the outstanding shares of Voting Stock of the
surviving corporation or do not otherwise have the right to elect a majority of
the board of directors of the surviving corporation, (b) the Company sells, or
agrees to sell, all or substantially all of its assets to any other person or
entity, (c) the Company is dissolved, (d) any third person or entity (other than
the Company's shareholders on the Effective Date, a trustee or committee of any
qualified employee benefit plan of the Company) together with its Affiliates
shall become (by tender offer or otherwise), directly or indirectly, the
Beneficial Owner of at least 30% of the Voting Stock of the Company (unless at
such time FS Equity Partners IV, L.P. ("FSEP IV"), Employee and the other
members of Company's management collectively are, directly or indirectly, the
Beneficial Owner of a greater percentage of the outstanding Voting Stock of the
Company than such person or entity) or (e) the individuals who constitute the
Board of Directors of the Company as of the Effective Date (the "INCUMBENT
BOARD") shall cease for any reason to constitute at least a majority of the
Board of Directors; provided, that any person becoming a director whose election
or nomination for election was approved by a majority of the members of the
Incumbent Board shall be considered, for the purposes of this Agreement, a
member of the Incumbent Board.
CODE means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated by the Internal Revenue Service thereunder, all as in
effect from time to time during the Employment Period.
COMMON STOCK means the Company's common stock, par value $.001 per share.
COMPANY means Century Maintenance Supply, Inc., a Delaware corporation, the
principal executive office of which as of the date hereof is located at 9100
Winkler, Houston, Texas 77017.
CONFIDENTIAL INFORMATION shall have the meaning assigned thereto in SECTION
8.2 hereof.
DATE OF TERMINATION means the earliest to occur of (a) the date of the
Employee's death, (b) the date on which the Employee terminates his employment
with the Company for any reason other than Good Reason or (c) the date of
receipt of the Notice of Termination, or such later date as may be prescribed in
the Notice of Termination in accordance with Section 5.6 hereof.
DISABILITY means an illness or other disability which prevents the Employee
from discharging his responsibilities under this Agreement for a period of 180
consecutive calendar days, or an aggregate of 180 calendar days in any calendar
year, during the Employment Period, all as determined in good faith by the Board
of Directors of the Company (or a committee thereof).
EFFECTIVE DATE means the date of execution hereof.
EMPLOYEE means Dennis C. Bearden, an individual residing at 1215 Meadowlark
Lane, Sugarland, Texas 77478.
2
<PAGE>
EMPLOYMENT PERIOD shall have the meaning assigned thereto in SECTION 3
hereof.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder, all as in effect from time to time during the Employment Period.
GOOD REASON shall have the meaning assigned thereto in SECTION 5.5 hereof.
MERGER AGREEMENT shall mean that certain Agreement and Plan of Merger made
and entered into as of May 5, 1998 by and among the Company, Century
Acquisition Corporation, Employee and the other shareholders that Company listed
therein.
NON-COMPETITION AGREEMENT shall mean that certain Non-competition Agreement
of even date herewith made and entered into by and among the Company, Employee,
Century Airconditioning Supply, Inc., a Texas corporation ("CACS"), and Air
Management Supply, Inc., a Nebraska corporation ("AIR MANAGEMENT").
NOTICE OF TERMINATION shall have the meaning assigned thereto in SECTION
5.6 hereof.
SHAREHOLDERS AGREEMENT shall mean that certain shareholders agreement
entered into as of the Effective Date by and among the Company, Employee and
FSEP IV.
VACATION TIME shall have the meaning assigned thereto in SECTION 4.3
hereof.
VOTING STOCK means all outstanding shares of capital stock of the Company
entitled to vote generally in an election of directors; provided, however, that
if the Company has shares of Voting Stock entitled to more or less than one vote
per share, each reference to a proportion of the issued and outstanding shares
of Voting Stock shall be deemed to refer to the proportion of the aggregate
votes entitled to be cast by the issued and outstanding shares of Voting Stock.
WITHOUT CAUSE shall have the meaning assigned thereto in SECTION 5.4
hereof.
2. General Duties of Company and Employee.
--------------------------------------
2.1 The Company agrees to employ the Employee, and the Employee agrees to
accept employment by the Company and to serve the Company as President and Chief
Executive Officer, and shall also be entitled to serve as a director of the
Company until such right dissolves in accordance with the terms and provisions
of the Shareholders Agreement, or until the Date of Termination, whichever is
earlier. The authority, duties and responsibilities of the Employee shall
include those described in this Agreement, and such other or additional duties
as may from time to time be assigned to the Employee by the Board of Directors
(or a committee thereof). While employed hereunder, the Employee shall devote
substantially all of his business time and attention to the affairs of the
Company and use his best efforts to perform faithfully and efficiently his
duties and
3
<PAGE>
responsibilities. The Employee may (a) serve on corporate, civic or charitable
boards or committees, (b) deliver lectures or fulfill speaking engagements and
(c) manage personal investments, so long as such activities do not interfere
with the performance of the Employee's duties and responsibilities.
Notwithstanding the foregoing, Employee shall not serve as an officer of any
other business, other than in connection with Employee's operation of CACS.
2.2 The Employee agrees and acknowledges that he owes a duty of loyalty,
fidelity and allegiance to act at all times in the best interests of the Company
and to not knowingly do any act or knowingly make any statement, oral or
written, which would injure the Company's business, its interests or its
reputation unless required to do so in any legal proceeding by a competent court
with proper jurisdiction.
2.3 The Employee agrees to comply at all times during the Employment
Period with all applicable policies, rules and regulations of the Company,
including, without limitation, the Company's Code of Ethics and the Company's
policy regarding trading in the Common Stock, as each is in effect from time to
time during the Employment Period.
3. Term. Unless sooner terminated pursuant to other provisions hereof, the
----
Employee's period of employment under this Agreement shall be a period of five
years beginning on the Effective Date (the "EMPLOYMENT PERIOD").
4. Compensation and Benefits.
-------------------------
4.1 Base Salary. As compensation for services to the Company, the Company
-----------
shall pay to the Employee until the Date of Termination an annual base salary of
$125,000.00 (the "BASE SALARY"). The Board of Directors (or a committee
thereof), in its discretion, may increase the Base Salary based upon relevant
circumstances. The Base Salary shall be payable in equal semi-monthly
installments or in accordance with the Company's established policy, subject
only to such payroll and withholding deductions as may be required by law and
other deductions, as directed by the Employee, applied generally to employees of
the Company for insurance and other employee benefit plans.
4.2 Bonus. In addition to the Base Salary, the Employee may be awarded,
-----
for each fiscal year until the Date of Termination, an annual bonus (either
pursuant to a bonus or incentive plan or program of the Company or otherwise) in
an amount to be determined by the Board of Directors (or a committee thereof),
in its sole discretion (the "ANNUAL BONUS"). Each such Annual Bonus would be
payable at a time to be determined by the Board of Directors (or a committee
thereof) in its sole discretion.
4.3 Vacation. Until the Date of Termination, the Employee shall be
--------
entitled to SIX (6) weeks paid vacation during each one year period commencing
on the Effective Date (the "VACATION TIME"). Any Vacation Time not taken during
the applicable one year period will accrue and cumulate, or at the option of
Executive, shall be paid to the extent unused in any one year period. In the
event of
4
<PAGE>
termination of this Agreement, if any Vacation Time has accumulated, the
Employee shall have the right to receive payment in cash for the pro rata amount
on an annual basis for such accumulation.
4.4 Automobile Allowance. Until the Date of Termination, the Company
--------------------
shall provide the Employee an automobile acceptable to the Employee and shall
also reimburse the Employee for all expenses relating to the operation and the
maintenance of the automobile on a monthly basis (the "AUTOMOBILE ALLOWANCE").
The Company shall be responsible for any and all insurance obligations relating
to the said automobile.
4.5 Incentive, Savings and Retirement Plans. Until the Date of
---------------------------------------
Termination, the Employee shall be eligible to participate in and shall receive
all benefits under all executive incentive, savings and retirement plans
(including 401(k) plans) and programs currently maintained or hereinafter
established by the Company for the benefit of its executive officers and/or
employees.
4.6 Welfare Benefit Plan. Until the Date of Termination, the Employee
--------------------
and/or the Employee's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under each welfare benefit plan of
the Company currently maintained or hereinafter established by the Company for
the benefit of its employees. Such welfare benefit plans may include, without
limitation, medical, dental, disability, group life, accidental death and travel
accident insurance plans and programs established with commercially reasonable
companies.
4.7 Reimbursement of Expenses. The Employee may from time to time until
-------------------------
the Date of Termination incur various business expenses customarily incurred by
persons holding positions of like responsibility at companies of comparable
size, including, without limitation, travel, entertainment and similar expenses
incurred for the benefit of the Company, and will receive a Company credit card
for use for such expenses. Subject to the Company's policy regarding the
reimbursement of such expenses as in effect from time to time during the
Employment Period, the Company shall reimburse the Employee for such expenses
from time to time, at the Employee's request upon presentation of expense
statements and such other supporting information as the Company may customarily
require of its executives.
4.8 Life Insurance. The Company shall provide to the Employee, at the
--------------
Company's cost, life insurance on terms that are mutually agreeable to the
Company and the Employee.
4.9 Stock Options. On the Effective Date, the Employee will be granted
-------------
nonqualified stock options to acquire 180,000 shares of the Company's Common
Stock, at an exercise price of $10.00 per share pursuant to the Company's 1998
Performance Stock Option Plan, which options will have such vesting and
termination provisions as is outlined in the Term Sheets for Stock Option Plans
of Century Maintenance Supply, Inc. attached to the Merger Agreement.
5
<PAGE>
5. Termination.
-----------
5.1 Death. This Agreement shall terminate automatically upon the death of
-----
the Employee.
5.2 Disability. The Company may terminate this Agreement, upon written
----------
notice to the Employee delivered in accordance with SECTIONS 5.6 and 9.1 hereof,
upon the Disability of the Employee.
5.3 Cause. The Company may terminate this Agreement, upon written notice
-----
to the Employee delivered in accordance with SECTIONS 5.6 and 9.1 hereof, for
Cause. For purposes of this Agreement, "CAUSE" means (a) the conviction of
the Employee of a felony or other serious crime, (b) the Employee's grossly
negligent or willful refusal to perform his duties and responsibilities as
contemplated in this Agreement or (c) the Employee's grossly negligent of
willful engaging in activities which would (A) constitute a material breach of
any term of this Agreement, the Company's Code of Ethics, the Company's policies
regarding trading in the Common Stock or reimbursement of business expenses or
any other applicable policies, rules or regulations of the Company, or (B)
result in a material injury to the business, condition (financial or otherwise),
results of operations or prospects of the Company or its Affiliates (as
determined in good faith by the Board of Directors of the Company or a committee
thereof), (d) Employee's engaging in fraud or other illegal conduct to the
detriment of the Company, (e) Employee's material breach of the confidentiality
provisions contained in SECTION 8 of this Agreement, (f) the Company's
determination that Employee has entered into a conflict of interest pursuant to
the terms of SECTION 7 of this Agreement, (g) the material breach by Employee,
CACS (including when doing business as Core Distributing) or Air Management of
the terms and provisions of the Non-competition Agreement, or (h) Employee's
material breach of the terms and provisions of the Shareholders Agreement or the
option agreements that Employee will enter into in connection with the
transactions contemplated by SECTION 4.9 of this Agreement (the "OPTION
AGREEMENTS").
5.4 Without Cause. The Company may terminate this Agreement Without
-------------
Cause, upon written notice to the Employee delivered in accordance with SECTIONS
5.6 and 9.1 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "WITHOUT CAUSE" if the Employee is terminated by the
Company for any reason other than Cause, Disability or death.
5.5 Good Reason. The Employee may terminate this Agreement for Good
-----------
Reason, upon written notice to the Company delivered in accordance with SECTIONS
5.6 and 9.1 hereof. For purposes of this Agreement, "GOOD REASON" means (a) the
assignment to the Employee of any substantial ongoing duties inconsistent in any
material adverse respect with the Employee's duties or responsibilities as
contemplated in this Agreement, (b) any other action by the Company which
results in a material adverse diminishment in the Employee's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities, (c) any material breach by the Company of any of the
provisions of this Agreement, the Shareholders Agreement or the Option
Agreements, (d) requiring the Employee to relocate permanently to any office or
location other than Houston,
6
<PAGE>
Texas without his consent, or (e) any reduction, or attempted reduction, at any
time during the Employment Period, of the Base Salary or other material benefits
granted herein of the Employee.
5.6 Notice of Termination. Any termination of this Agreement by the
---------------------
Company for Cause, Without Cause or as a result of the Employee's Disability, or
by the Employee for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with this Agreement. For purposes
of this Agreement, a "NOTICE OF TERMINATION" means a written notice which (a)
indicates the specific termination provision in this Agreement relied upon, (b)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated and (c) specifies the termination date, if such date is other than the
date of receipt of such notice (which termination date shall not be more than 15
days after the giving of such notice).
6. Obligations of Company upon Termination.
---------------------------------------
6.1 Cause; Other Than Good Reason. If this Agreement shall be terminated
-----------------------------
either by the Company for Cause or by the Employee for any reason other than
Good Reason, the Company shall pay to the Employee, in a lump sum in cash within
30 days after the Date of Termination, the aggregate of the Employee's Base
Salary (as in effect on the Date of Termination) through the Date of
Termination, if not theretofore paid, and, in the case of compensation
previously deferred by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company.
6.2 Death or Disability.
-------------------
(a) Subject to the provisions of this SECTION 6.2, if this Agreement
is terminated as a result of the Employee's death or Disability, the Company
shall pay to the Employee or his estate, in a lump sum in cash within 30 days of
the Date of Termination, the greater of (i) that portion of the Employee's Base
Salary (as in effect on the Date of Termination) owing in respect of the balance
of the Employment Period or (ii) the Employee's Base Salary (as in effect on the
Date of Termination). The Company may purchase insurance to cover all or any
part of the obligation contemplated in the foregoing sentence, and the Employee
agrees to submit to a physical examination to facilitate the procurement of such
insurance.
(b) Whenever compensation is payable to the Employee hereunder during
a period in which he is partially or totally disabled, and such Disability would
(except for the provisions hereof) entitle the Employee to Disability income or
salary continuation payments from the Company according to the terms of any plan
or program presently maintained or hereafter established by the Company, the
Disability income or salary continuation paid to the Employee pursuant to any
such plan or program shall be considered a portion of the payment to be made to
the Employee pursuant to this SECTION 6.2 and shall not be in addition hereto.
If Disability income is payable directly to the Employee by an insurance company
under the terms of an insurance policy paid for by the Company, the amounts paid
to the Employee by such insurance company shall be considered a portion of the
payment to be made to the Employee pursuant to this SECTION 6.2 and shall not be
in addition hereto.
7
<PAGE>
If life insurance proceeds under a policy, for which the Company pays the
premiums but of which the Company (or an affiliate of the Company) is not the
beneficiary, are paid to Employee's estate or to the beneficiary designated by
Employee, such proceeds shall be considered a portion of the payment to be made
to or for the benefit of Employee pursuant to this SECTION 6.2 and shall not be
in addition hereto.
6.3 Good Reason; Without Cause. If this Agreement shall be terminated
--------------------------
either by the Employee for Good Reason or by the Company Without Cause:
(a) the Company shall pay to the Employee, in a lump sum in cash
within 30 days after the Date of Termination, the aggregate of the
following amounts:
(1) if not theretofore paid, the Employee's Base Salary (as in
effect on the Date of Termination) through the Date of Termination;
(2) the product of (x) the Annual Bonus paid to the Employee for
the last full fiscal year preceding the Date of Termination and (y) the
fraction obtained by dividing (i) the number of days between the Date of
Termination and the last day of the last full fiscal year preceding the
Date of Termination and (ii) 365; and
(3) in the case of compensation previously deferred by the
Employee, all amounts of such compensation previously deferred and not yet
paid by the Company;
(b) the Company shall, promptly upon submission by the Employee of
supporting documentation, pay or reimburse to the Employee any costs and
expenses paid or incurred by the Employee which would have been payable
under SECTION 4.7 of this Agreement if the Employee's employment had not
terminated; and
(c) until the expiration of the 24-month period commencing on the Date
of Termination, the Company shall (i) continue benefits to the Employee
and/or the Employee's family at least equal to those which would have been
provided to them under SECTION 4.6 if the Employee's employment had not
been terminated (provided, that to the extent such benefits cannot be
continued for any reason during such period (e.g., disability insurance
---
that may not be portable), then the Company will pay to Employee during
such period, on a monthly basis, the dollar equivalent that the Company had
spent to keep such insurance in place under the Company's plans during the
period that Employee was employed by the Company); and (ii) pay to the
Employee, in equal semi-monthly installments the Employee's Base Salary (as
in effect on the Date of Termination).
6.4 Change in Control. If (a) this Agreement shall be terminated either
-----------------
by the Employee for Good Reason or by the Company Without Cause and (b) a Change
in Control of the Company has occurred within the two-year period preceding the
Date of Termination, then, in addition to the obligations of the Company set
forth in SECTION 6.3(a),(b) AND (c)(i) hereof, but in lieu of the
8
<PAGE>
obligations of the Company set forth in SECTION 6.3(c)(ii), the Company shall
pay to the Employee, in a lump sum in cash within 30 days after the Date of
Termination, two times the sum of (x) the Employee's Base Salary (as in effect
on the Date of Termination or such higher rate as may have been in effect at any
time during the 90-day period preceding the Date of Termination) and (y) the
Annual Bonus paid to the Employee for the last full fiscal year.
6.5 Notwithstanding anything contained in this Agreement to the contrary,
the aggregate amount payable to and benefits received or to be received by
Employee under this Agreement and under all other existing or future agreements
or arrangements that would be considered "parachute payments" under Section 280G
of the Internal Revenue Code of 1986, as amended (the "CODE"), shall in no event
exceed one dollar less than the amount that would trigger the application of the
excise tax imposed by Section 4999 of the Code on such payments for benefits.
7. Employee's Obligation to Avoid Conflicts of Interest.
----------------------------------------------------
7.1 In keeping with the Employee's duties to the Company, the Employee
agrees that he shall not knowingly become involved in a conflict of interest
with the Company, or upon discovery thereof, allow such a conflict to continue.
The Employee further agrees to disclose to the Company, promptly after
discovery, any facts or circumstances which might involve a conflict of interest
with the Company.
7.2 The Company and the Employee recognize that it is impossible to
provide an exhaustive list of actions or interests which constitute a "CONFLICT
OF INTEREST." Moreover, the Company and the Employee recognize that there are
many borderline situations. In some instances, full disclosure of facts by the
Employee to the Company is all that is necessary to enable the Company to
protect its interests. In others, if no improper motivation appears to exist
and the Company's interests have not suffered, prompt elimination of the outside
interest will suffice. In still others, it may be necessary for the Company to
terminate the employment relationship. The Company and the Employee agree that
the Company's determination as to whether or not a conflict of interest exists
shall be conclusive. The Company reserves the right to take such action as, in
its judgment, will end the conflict of interest.
7.3 In this connection, it is agreed that any direct or indirect interest
in, connection with or benefit from any outside activities, particularly
commercial activities, which interest might in any way adversely affect the
Company or its Affiliates, involves a possible conflict of interest.
7.4 Subject to all of the terms and conditions of this Agreement, the
Employee shall not be prohibited from engaging in any activity not prohibited by
the Non-Competition Agreement.
8. Employee's Confidentiality Obligation.
-------------------------------------
8.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall
9
<PAGE>
at all times be regarded, treated and protected as such in accordance with this
SECTION 8. The Employee acknowledges that all such Confidential Information is
in the nature of a trade secret.
8.2 For purposes of this Agreement, "CONFIDENTIAL INFORMATION" means
information, which is used in the business of the Company or its Affiliates and
(a) is proprietary to, about or created by the Company or its Affiliates, (b)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (c) is designated
as Confidential Information by the Company or its Affiliates, is known by the
Employee to be considered confidential by the Company or its Affiliates, or from
all the relevant circumstances should reasonably be assumed by the Employee to
be confidential and proprietary to the Company or its Affiliates, or (d) is not
generally known by non-Company personnel.
8.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be
provided to the Employee, the Employee agrees that it is reasonable and
necessary that the Employee make each of the following covenants:
(a) At any time during the Employment Period and thereafter, the
Employee shall not disclose Confidential Information to any person or
entity, either inside or outside of the Company, other than as necessary in
carrying out his duties and responsibilities as set forth in Section 2
hereof, without first obtaining the Company's prior written consent (unless
such disclosure is compelled pursuant to court orders or subpoena, and at
which time the Employee shall give notice of such proceedings to the
Company and provide the Company with an opportunity to resolve such
disclosure in a manner reasonably acceptable to the Company).
(b) At any time during the Employment Period and thereafter, the
Employee shall not use, copy or transfer Confidential Information other
than as necessary in carrying out his duties and responsibilities as set
forth in Section 2 hereof, without first obtaining the Company's prior
written consent.
(c) On the Date of Termination, the Employee shall promptly deliver to
the Company (or its designee) all written materials, records and documents
made by the Employee or which came into his possession prior to or during
the Employment Period concerning the business or affairs of the Company or
its Affiliates, including, without limitation, all materials containing
Confidential Information.
10
<PAGE>
9. Miscellaneous.
-------------
9.1 Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mail, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses:
If to the Company to:
---------------------
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attn: President
Telephone No. (713) 947-6703
Fax No.: (713) 943-8443
If to the Employee to:
----------------------
Dennis C. Bearden
1215 Meadowlark Lane
Sugarland, Texas 77478
Telephone No. (281) 242-9581
Fax No. (713) 943-8443
or to such other names, addresses, telephone and fax numbers as the Company or
the Employee, as the case may be, shall designate by notice to the other party
hereto in the manner specified in this Section 9.1.
9.2 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall neither operate nor be construed as a waiver
of the breach of any other provision or of any subsequent breach by any party.
9.3 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, the Employee agrees that his rights and obligations
hereunder are personal to him and may not be assigned without the express
written consent of the Company.
9.4 Entire Agreement; No Oral Amendments. This Agreement and the Non-
------------------------------------
Competition Agreement referenced in SECTION 7.4 constitutes the entire agreement
between the Employee and the
11
<PAGE>
Company with respect to the subject matter of this Agreement. This Agreement may
not be modified in any respect by any oral statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
9.5 Enforceability. If any provision of this Agreement or application
--------------
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
9.6 Jurisdiction; Arbitration. The laws of the State of Texas shall
-------------------------
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. Any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration located in Houston, Texas administered by the
American Arbitration Association in accordance with its applicable arbitration
rules, and the judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof, which judgment shall be
binding upon the parties hereto.
9.7 Injunctive Relief. The Company and the Employee agree that a breach
-----------------
of any term of this Agreement by the Employee would cause irreparable damage to
the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
the Employee's duties or responsibilities hereunder.
9.8 Employee's Representation. Employee shall be, and he represents that
-------------------------
he is, free to enter into this Agreement and not under any contractual restraint
which would prohibit his satisfactorily performing his duties to the Company
hereunder.
9.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
[Signature on Immediately Following Page]
12
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first written above.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard E. Penick
-----------------------------------------------
Name: Richard E. Penick
--------------------------------------------
Title Vice President
---------------------------------------------
/s/ Dennis C. Bearden
--------------------------------------------------
Dennis C. Bearden
13
<PAGE>
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
(Richard E. Penick)
THIS AGREEMENT is made and entered into as of July 8, 1998 between CENTURY
MAINTENANCE SUPPLY, INC., a Delaware corporation having its principal executive
office at 9100 Winkler, Houston, Texas 77017 (the "COMPANY"), and RICHARD E.
PENICK (the "EMPLOYEE").
RECITALS
The Company desires to employ the Employee in an executive capacity and the
Employee desires to enter the Company's employ.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Employee hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms have
-------------------
the meanings prescribed below:
AFFILIATE is used in this Agreement to define a relationship to a person or
entity and means a person or entity who, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, such person or entity.
ANNUAL BONUS shall have the meaning assigned thereto in SECTION 4.2 hereof.
BASE SALARY shall have the meaning assigned thereto in SECTION 4.1 hereof.
BENEFICIAL OWNER shall have the meaning assigned thereto in Rule 13(d)-3
under the Exchange Act; provided, however, and without limitation, that any
individual, corporation, partnership, group, association or other person or
entity that has the right to acquire any Voting Stock at any time in the future,
whether such right is (a) contingent or absolute or (b) exercisable presently or
at any time in the future, pursuant to any agreement or understanding or upon
the exercise or conversion of rights, options or warrants, or otherwise, shall
be the Beneficial Owner of such Voting Stock.
CAUSE shall have the meaning assigned thereto in SECTION 5.3 hereof.
CHANGE IN CONTROL of the Company shall be deemed to have occurred if (a)
the Company merges or consolidates with any other corporation (other than a
wholly-owned direct or indirect subsidiary of the Company) and is not the
surviving corporation (or survives as a subsidiary of another corporation) and,
after such merger or consolidation, the Company's shareholders immediately prior
to such merger or consolidation do not own Voting Stock representing a majority
<PAGE>
of the outstanding shares of Voting Stock of the surviving corporation or do not
otherwise have the right to elect a majority of the board of directors of the
surviving corporation, (b) the Company sells, or agrees to sell, all or
substantially all of its assets to any other person or entity, (c) the Company
is dissolved, (d) any third person or entity (other than the Company's
shareholders on the Effective Date, a trustee or committee of any qualified
employee benefit plan of the Company) together with its Affiliates shall become
(by tender offer or otherwise), directly or indirectly, the Beneficial Owner of
at least 30% of the Voting Stock of the Company (unless at such time FS Equity
Partners IV, L.P. ("FSEP IV"), Employee and the other members of Company's
management collectively are, directly or indirectly, the Beneficial Owner of a
greater percentage of the outstanding Voting Stock of the Company than such
person or entity) or (e) the individuals who constitute the Board of Directors
of the Company as of the Effective Date (the "INCUMBENT BOARD") shall cease for
any reason to constitute at least a majority of the Board of Directors;
provided, that any person becoming a director whose election or nomination for
election was approved by a majority of the members of the Incumbent Board shall
be considered, for the purposes of this Agreement, a member of the Incumbent
Board.
CODE means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated by the Internal Revenue Service thereunder, all as in
effect from time to time during the Employment Period.
COMMON STOCK means the Company's common stock, par value $.001 per share.
COMPANY means Century Maintenance Supply, Inc., a Delaware corporation, the
principal executive office of which as of the date hereof is located at 9100
Winkler, Houston, Texas 77017.
CONFIDENTIAL INFORMATION shall have the meaning assigned thereto in SECTION
8.2 hereof.
DATE OF TERMINATION means the earliest to occur of (a) the date of the
Employee's death, (b) the date on which the Employee terminates his employment
with the Company for any reason other than Good Reason or (c) the date of
receipt of the Notice of Termination, or such later date as may be prescribed in
the Notice of Termination in accordance with SECTION 5.6 hereof.
DISABILITY means an illness or other disability which prevents the Employee
from discharging his responsibilities under this Agreement for a period of 180
consecutive calendar days, or an aggregate of 180 calendar days in any calendar
year, during the Employment Period, all as determined in good faith by the Board
of Directors of the Company (or a committee thereof).
EFFECTIVE DATE means the date of execution hereof.
EMPLOYEE means Richard E. Penick, an individual residing at 608 South
Kansas, Anahuac, Texas 77514.
EMPLOYMENT PERIOD shall have the meaning assigned thereto in SECTION 3
hereof.
2
<PAGE>
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder, all as in effect from time to time during the Employment Period.
GOOD REASON shall have the meaning assigned thereto in SECTION 5.5 hereof.
MERGER AGREEMENT shall mean that certain Agreement and Plan of Merger made
and entered into as of May 5, 1998 by and among the Company, Century Acquisition
Corporation, Dennis C. Bearden and the other shareholders that Company listed
therein.
NOTICE OF TERMINATION shall have the meaning assigned thereto in SECTION
5.6 hereof.
VACATION TIME shall have the meaning assigned thereto in SECTION 4.3
hereof.
VOTING STOCK means all outstanding shares of capital stock of the Company
entitled to vote generally in an election of directors; provided, however, that
if the Company has shares of Voting Stock entitled to more or less than one vote
per share, each reference to a proportion of the issued and outstanding shares
of Voting Stock shall be deemed to refer to the proportion of the aggregate
votes entitled to be cast by the issued and outstanding shares of Voting Stock.
WITHOUT CAUSE shall have the meaning assigned thereto in SECTION 5.4
hereof.
2. General Duties of Company and Employee.
--------------------------------------
2.1 The Company agrees to employ the Employee, and the Employee agrees to
accept employment by the Company and to serve the Company as Vice President and
Chief Financial Officer. The authority, duties and responsibilities of the
Employee shall include those described in this Agreement, and such other or
additional duties as may from time to time be assigned to the Employee by the
Board of Directors (or a committee thereof). While employed hereunder, the
Employee shall devote substantially all of his business time and attention to
the affairs of the Company and use his best efforts to perform faithfully and
efficiently his duties and responsibilities. The Employee may (a) serve on
corporate, civic or charitable boards or committees, (b) deliver lectures or
fulfill speaking engagements and (c) manage personal investments, so long as
such activities do not interfere with the performance of the Employee's duties
and responsibilities.
2.2 The Employee agrees and acknowledges that he owes a duty of loyalty,
fidelity and allegiance to act at all times in the best interests of the Company
and to not knowingly do any act or knowingly make any statement, oral or
written, which would injure the Company's business, its interests or its
reputation unless required to do so in any legal proceeding by a competent court
with proper jurisdiction.
2.3 The Employee agrees to comply at all times during the Employment
Period with all applicable policies, rules and regulations of the Company,
including, without limitation, the
3
<PAGE>
Company's Code of Ethics and the Company's policy regarding trading in the
Common Stock, as each is in effect from time to time during the Employment
Period.
3. Term. Unless sooner terminated pursuant to other provisions hereof, the
----
Employee's period of employment under this Agreement shall be a period of five
years beginning on the Effective Date (the "EMPLOYMENT PERIOD").
4. Compensation and Benefits.
-------------------------
4.1 Base Salary. As compensation for services to the Company, the Company
-----------
shall pay to the Employee until the Date of Termination an annual base salary of
$115,000 (the "BASE SALARY"). The Board of Directors (or a committee thereof),
in its discretion, may increase the Base Salary based upon relevant
circumstances. The Base Salary shall be payable in equal semi-monthly
installments or in accordance with the Company's established policy, subject
only to such payroll and withholding deductions as may be required by law and
other deductions, as directed by the Employee, applied generally to employees of
the Company for insurance and other employee benefit plans.
4.2 Bonus. In addition to the Base Salary, the Employee may be awarded,
-----
for each fiscal year until the Date of Termination, an annual bonus (either
pursuant to a bonus or incentive plan or program of the Company or otherwise) in
an amount to be determined by the Board of Directors (or a committee thereof),
in its sole discretion (the "ANNUAL BONUS"). Each such Annual Bonus would be
payable at a time to be determined by the Board of Directors (or a committee
thereof) in its sole discretion.
4.3 Vacation. Until the Date of Termination, the Employee shall be
--------
entitled to FOUR (4) weeks paid vacation during each one year period commencing
on the Effective Date (the "VACATION TIME"). Any Vacation Time not taken during
the applicable one year period will accrue and cumulate, or at the option of
Executive, shall be paid to the extent unused in any one year period. In the
event of termination of this Agreement, if any Vacation Time has accumulated,
the Employee shall have the right to receive payment in cash for the pro rata
amount on an annual basis for such accumulation.
4.4 Automobile Allowance. Until the Date of Termination, the Company
--------------------
shall provide the Employee an automobile acceptable to the Employee and shall
also reimburse the Employee for all expenses relating to the operation and the
maintenance of the automobile on a monthly basis (the "AUTOMOBILE ALLOWANCE").
The Company shall be responsible for any and all insurance obligations relating
to the said automobile.
4.5 Incentive, Savings and Retirement Plans. Until the Date of
---------------------------------------
Termination, the Employee shall be eligible to participate in and shall receive
all benefits under all executive incentive, savings and retirement plans
(including 401(k) plans) and programs currently maintained or hereinafter
established by the Company for the benefit of its executive officers and/or
employees.
4
<PAGE>
4.6 Welfare Benefit Plan. Until the Date of Termination, the Employee
--------------------
and/or the Employee's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under each welfare benefit plan of
the Company currently maintained or hereinafter established by the Company for
the benefit of its employees. Such welfare benefit plans may include, without
limitation, medical, dental, disability, group life, accidental death and travel
accident insurance plans and programs established with commercially reasonable
companies.
4.7 Reimbursement of Expenses. The Employee may from time to time until
-------------------------
the Date of Termination incur various business expenses customarily incurred by
persons holding positions of like responsibility at companies of comparable
size, including, without limitation, travel, entertainment and similar expenses
incurred for the benefit of the Company, and will receive a Company credit card
for use for such expenses. Subject to the Company's policy regarding the
reimbursement of such expenses as in effect from time to time during the
Employment Period, the Company shall reimburse the Employee for such expenses
from time to time, at the Employee's request upon presentation of expense
statements and such other supporting information as the Company may customarily
require of its executives.
4.8 Life Insurance. The Company shall provide to the Employee, at the
--------------
Company's cost, life insurance on terms that are mutually agreeable to the
Company and the Employee.
5. Termination.
-----------
5.1 Death. This Agreement shall terminate automatically upon the death of
-----
the Employee.
5.2 Disability. The Company may terminate this Agreement, upon written
----------
notice to the Employee delivered in accordance with SECTIONS 5.6 and 9.1 hereof,
upon the Disability of the Employee.
5.3 Cause. The Company may terminate this Agreement, upon written notice
-----
to the Employee delivered in accordance with SECTIONS 5.6 and 9.1 hereof, for
Cause. For purposes of this Agreement, "CAUSE" means (a) the conviction of the
Employee of a felony or other serious crime, (b) the Employee's grossly
negligent or willful refusal to perform his duties and responsibilities as
contemplated in this Agreement or (c) the Employee's grossly negligent of
willful engaging in activities which would (A) constitute a material breach of
any term of this Agreement, the Company's Code of Ethics, the Company's policies
regarding trading in the Common Stock or reimbursement of business expenses or
any other applicable policies, rules or regulations of the Company, or (B)
result in a material injury to the business, condition (financial or otherwise),
results of operations or prospects of the Company or its Affiliates (as
determined in good faith by the Board of Directors of the Company or a committee
thereof), (d) Employee's engaging in fraud or other illegal conduct to the
detriment of the Company, (e) Employee's material breach of the confidentiality
provisions contained in SECTION 8 of this Agreement, or (f) the Company's
determination that Employee has entered into a conflict of interest pursuant to
the terms of SECTION 7 of this Agreement., or (g)
5
<PAGE>
Employee's material breach of the terms and provisions of the option agreements
that Employee and the Company will enter into (the "OPTION AGREEMENTS").
5.4 Without Cause. The Company may terminate this Agreement Without
-------------
Cause, upon written notice to the Employee delivered in accordance with SECTIONS
5.6 and 9.1 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "WITHOUT CAUSE" if the Employee is terminated by the
Company for any reason other than Cause, Disability or death.
5.5 Good Reason. The Employee may terminate this Agreement for Good
-----------
Reason, upon written notice to the Company delivered in accordance with SECTIONS
5.6 and 9.1 hereof. For purposes of this Agreement, "GOOD REASON" means (a) the
assignment to the Employee of any substantial ongoing duties inconsistent in any
material adverse respect with the Employee's duties or responsibilities as
contemplated in this Agreement, (b) any other action by the Company which
results in a material adverse diminishment in the Employee's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities, (c) any material breach by the Company of any of the
provisions of this Agreement, the Option Agreements, (d) requiring the Employee
to relocate permanently to any office or location other than Houston, Texas
without his consent, or (e) any reduction, or attempted reduction, at any time
during the Employment Period, of the Base Salary or other material benefits
granted herein of the Employee.
5.6 Notice of Termination. Any termination of this Agreement by the
---------------------
Company for Cause, Without Cause or as a result of the Employee's Disability, or
by the Employee for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with this Agreement. For purposes
of this Agreement, a "NOTICE OF TERMINATION" means a written notice which (a)
indicates the specific termination provision in this Agreement relied upon, (b)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated and (c) specifies the termination date, if such date is other than the
date of receipt of such notice (which termination date shall not be more than 15
days after the giving of such notice).
6. Obligations of Company upon Termination.
---------------------------------------
6.1 Cause; Other Than Good Reason. If this Agreement shall be terminated
-----------------------------
either by the Company for Cause or by the Employee for any reason other than
Good Reason, the Company shall pay to the Employee, in a lump sum in cash within
30 days after the Date of Termination, the aggregate of the Employee's Base
Salary (as in effect on the Date of Termination) through the Date of
Termination, if not theretofore paid, and, in the case of compensation
previously deferred by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company.
6.2 Death or Disability.
-------------------
(a) Subject to the provisions of this SECTION 6.2, if this Agreement
is terminated as a result of the Employee's death or Disability, the
Company shall pay to the Employee or
6
<PAGE>
his estate, in a lump sum in cash within 30 days of the Date of
Termination, the greater of (i) that portion of the Employee's Base Salary
(as in effect on the Date of Termination) owing in respect of the balance
of the Employment Period or (ii) the Employee's Base Salary (as in effect
on the Date of Termination). The Company may purchase insurance to cover
all or any part of the obligation contemplated in the foregoing sentence,
and the Employee agrees to submit to a physical examination to facilitate
the procurement of such insurance.
(b) Whenever compensation is payable to the Employee hereunder during
a period in which he is partially or totally disabled, and such Disability
would (except for the provisions hereof) entitle the Employee to Disability
income or salary continuation payments from the Company according to the
terms of any plan or program presently maintained or hereafter established
by the Company, the Disability income or salary continuation paid to the
Employee pursuant to any such plan or program shall be considered a portion
of the payment to be made to the Employee pursuant to this SECTION 6.2 and
shall not be in addition hereto. If Disability income is payable directly
to the Employee by an insurance company under the terms of an insurance
policy paid for by the Company, the amounts paid to the Employee by such
insurance company shall be considered a portion of the payment to be made
to the Employee pursuant to this SECTION 6.2 and shall not be in addition
hereto. If life insurance proceeds under a policy, for which the Company
pays the premiums but of which the Company (or an affiliate of the Company)
is not the beneficiary, are paid to Employee's estate or to the beneficiary
designated by Employee, such proceeds shall be considered a portion of the
payment to be made to or for the benefit of Employee pursuant to this
SECTION 6.2 and shall not be in addition hereto.
6.3 Good Reason; Without Cause. If this Agreement shall be terminated
--------------------------
either by the Employee for Good Reason or by the Company Without Cause:
(a) the Company shall pay to the Employee, in a lump sum in cash
within 30 days after the Date of Termination, the aggregate of the
following amounts:
(1) if not theretofore paid, the Employee's Base Salary (as in
effect on the Date of Termination) through the Date of Termination;
(2) the product of (x) the Annual Bonus paid to the Employee for
the last full fiscal year preceding the Date of Termination and (y) the
fraction obtained by dividing (i) the number of days between the Date of
Termination and the last day of the last full fiscal year preceding the
Date of Termination and (ii) 365; and
(3) in the case of compensation previously deferred by the
Employee, all amounts of such compensation previously deferred and not yet
paid by the Company;
(b) the Company shall, promptly upon submission by the Employee of
supporting documentation, pay or reimburse to the Employee any costs and
expenses paid or incurred
7
<PAGE>
by the Employee which would have been payable under SECTION 4.7 of this
Agreement if the Employee's employment had not terminated; and
(c) until the expiration of the 24-month period commencing on the Date
of Termination, the Company shall (i) continue benefits to the Employee
and/or the Employee's family at least equal to those which would have been
provided to them under SECTION 4.6 if the Employee's employment had not
been terminated (provided that to the extent such benefits cannot be
continued for any reason during such period (e.g., disability insurance
that may not be portable), then the Company will pay to Employee during
such period, on a monthly basis, the dollar equivalent that the Company had
spent to keep such insurance in place under the Company's plans during the
period that Employee was employed by the Company); and (ii) pay to the
Employee, in equal semi-monthly installments the Employee's Base Salary (as
in effect on the Date of Termination).
6.4 Change in Control. If (a) this Agreement shall be terminated either
-----------------
by the Employee for Good Reason or by the Company Without Cause and (b) a Change
in Control of the Company has occurred within the two-year period preceding the
Date of Termination, then, in addition to the obligations of the Company set
forth in SECTION 6.3(a),(b) and (c)(i) hereof, but in lieu of the obligations of
the Company set forth in SECTION 6.3(c)(ii), the Company shall pay to the
Employee, in a lump sum in cash within 30 days after the Date of Termination,
two times the sum of (x) the Employee's Base Salary (as in effect on the Date of
Termination or such higher rate as may have been in effect at any time during
the 90-day period preceding the Date of Termination) and (y) the Annual Bonus
paid to the Employee for the last full fiscal year.
6.5 Notwithstanding anything contained in this Agreement to the contrary,
the aggregate amount payable to and benefits received or to be received by
Employee under this Agreement and under all other existing or future agreements
or arrangements that would be considered "parachute payments" under Section 280G
of the Internal Revenue Code of 1986, as amended (the "CODE"), shall in no event
exceed one dollar less than the amount that would trigger the application of the
excise tax imposed by Section 4999 of the Code on such payments for benefits.
7. Employee's Obligation to Avoid Conflicts of Interest.
----------------------------------------------------
7.1 In keeping with the Employee's duties to the Company, the Employee
agrees that he shall not knowingly become involved in a conflict of interest
with the Company, or upon discovery thereof, allow such a conflict to continue.
The Employee further agrees to disclose to the Company, promptly after
discovery, any facts or circumstances which might involve a conflict of interest
with the Company.
7.2 The Company and the Employee recognize that it is impossible to
provide an exhaustive list of actions or interests which constitute a "CONFLICT
OF INTEREST." Moreover, the Company and the Employee recognize that there are
many borderline situations. In some instances, full disclosure of facts by the
Employee to the Company is all that is necessary to enable the Company
8
<PAGE>
to protect its interests. In others, if no improper motivation appears to exist
and the Company's interests have not suffered, prompt elimination of the outside
interest will suffice. In still others, it may be necessary for the Company to
terminate the employment relationship. The Company and the Employee agree that
the Company's determination as to whether or not a conflict of interest exists
shall be conclusive. The Company reserves the right to take such action as, in
its judgment, will end the conflict of interest.
7.3 In this connection, it is agreed that any direct or indirect interest
in, connection with or benefit from any outside activities, particularly
commercial activities, which interest might in any way adversely affect the
Company or its Affiliates, involves a possible conflict of interest.
8. Employee's Confidentiality Obligation.
-------------------------------------
8.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this SECTION 8. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
8.2 For purposes of this Agreement, "Confidential Information" means
information, which is used in the business of the Company or its Affiliates and
(a) is proprietary to, about or created by the Company or its Affiliates, (b)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (c) is designated
as Confidential Information by the Company or its Affiliates, is known by the
Employee to be considered confidential by the Company or its Affiliates, or from
all the relevant circumstances should reasonably be assumed by the Employee to
be confidential and proprietary to the Company or its Affiliates, or (d) is not
generally known by non-Company personnel.
8.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be
provided to the Employee, the Employee agrees that it is reasonable and
necessary that the Employee make each of the following covenants:
(a) At any time during the Employment Period and thereafter, the
Employee shall not disclose Confidential Information to any person or
entity, either inside or outside of the Company, other than as necessary in
carrying out his duties and responsibilities as set forth in SECTION 2
hereof, without first obtaining the Company's prior written consent (unless
such disclosure is compelled pursuant to court orders or subpoena, and at
which time the Employee shall give notice of such proceedings to the
Company and provide the Company with an opportunity to resolve such
disclosure in a manner reasonably acceptable to the Company).
9
<PAGE>
(b) At any time during the Employment Period and thereafter, the
Employee shall not use, copy or transfer Confidential Information other
than as necessary in carrying out his duties and responsibilities as set
forth in SECTION 2 hereof, without first obtaining the Company's prior
written consent.
(c) On the Date of Termination, the Employee shall promptly deliver to
the Company (or its designee) all written materials, records and documents
made by the Employee or which came into his possession prior to or during
the Employment Period concerning the business or affairs of the Company or
its Affiliates, including, without limitation, all materials containing
Confidential Information.
9. Miscellaneous.
-------------
9.1 Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mail, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses:
If to the Company to:
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attn: President
Telephone No. (713) 947-6703
Fax No.: (713) 943-8443
If to the Employee to:
Richard E. Penick
608 South Kansas
Anahuac, Texas 77514
Telephone No. (409) 267-6190
Fax No.: (713) 943-8443
or to such other names, addresses, telephone and fax numbers as the Company or
the Employee, as the case may be, shall designate by notice to the other party
hereto in the manner specified in this SECTION 9.1.
10
<PAGE>
9.2 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall neither operate nor be construed as a waiver
of the breach of any other provision or of any subsequent breach by any party.
9.3 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, the Employee agrees that his rights and obligations
hereunder are personal to him and may not be assigned without the express
written consent of the Company.
9.4 Entire Agreement; No Oral Amendments. This Agreement constitutes the
------------------------------------
entire agreement between the Employee and the Company with respect to the
subject matter of this Agreement. This Agreement may not be modified in any
respect by any oral statement, representation or agreement made by any employee,
officer, or representative of the Company or by any written agreement unless
signed by an officer of the Company who is expressly authorized by the Company
to execute such document.
9.5 Enforceability. If any provision of this Agreement or application
--------------
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
9.6 Jurisdiction; Arbitration. The laws of the State of Texas shall
-------------------------
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. Any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration located in Houston, Texas administered by the
American Arbitration Association in accordance with its applicable arbitration
rules, and the judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof, which judgment shall be
binding upon the parties hereto.
9.7 Injunctive Relief. The Company and the Employee agree that a breach
-----------------
of any term of this Agreement by the Employee would cause irreparable damage to
the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
the Employee's duties or responsibilities hereunder.
9.8 Employee's Representation. Employee shall be, and he represents that
-------------------------
he is, free to enter into this Agreement and not under any contractual restraint
which would prohibit his satisfactorily performing his duties to the Company
hereunder.
9.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first written above.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Terri Garcia
-----------------
Name: Terri Garcia
---------------
Title Vice President
---------------
EMPLOYEE:
/s/ Richard E. Penick
----------------------
Richard E. Penick
12
<PAGE>
EXHIBIT 10.18
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("AGREEMENT") is made and entered into as of
July 8, 1998, among Dennis C. Bearden ("BEARDEN"), Century Airconditioning
Supply, Inc., a Texas corporation ("CENTURY AC"), Air Management Supply, Inc., a
Nebraska corporation ("AIR MANAGEMENT"), and Century Maintenance Supply, Inc., a
Delaware corporation (the "COMPANY").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger (the "MERGER
AGREEMENT") dated as of May 5, 1998, as amended, by and among the Company,
Century Acquisition Corporation, a Delaware corporation ("ACQUISITION CORP."),
and the shareholders of the Company ("SHAREHOLDERS"), Acquisition Corp. merged
with and into the Company, with the Company being the surviving corporation (the
"MERGER");
B. Bearden was Chief Executive Officer of the Company and the majority
and controlling shareholder of the Company prior to the Merger;
C. As a condition to the Merger, a portion of the Company's common stock
owned by Bearden and the other Shareholders was exchanged for cash and a change
of control occurred with respect to the Company as an unrelated third party (the
sole shareholder of Acquisition Corp.) became the Company's majority and
controlling shareholder;
D. The Company and Bearden have entered into an employment agreement
which outlines the terms of Bearden's post-Merger employment by the Company (as
executed and as subsequently amended, the "EMPLOYMENT AGREEMENT");
E. Bearden is the sole shareholder of Century AC. Century AC owns 75% of
the common stock of Air Management;
F. Century AC does business outside South East Texas under the name of
"CORE DISTRIBUTING" ("CORE").
G. In certain sub-markets and in respect of certain products or target
customers, Century AC and Air Management compete with the Company and the
Company competes with Century AC and Air Management; and
H. Bearden, Century AC, Air Management, and the Company have reached an
agreement regarding the circumstances in which such competition may be permitted
or will be prohibited.
NOW, THEREFORE, in consideration of the proceeds paid to Bearden and
Century AC for that portion of their respective shares of the Company's common
stock exchanged for cash under the
<PAGE>
terms of the Merger Agreement, and other good and valuable consideration, the
receipt and adequacy of such consideration being hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement,
"AFFILIATE" means generally in respect of any Person, any other Person,
that, directly or indirectly, controls, is controlled by, or is under
common control with, the person in question. The term "CONTROL" means the
possession, directly or indirectly, of the power, whether or not exercised,
(a) to vote fifty-one percent (51%) or more of the securities or other
interests having voting power for the election of directors or managers of
such Person or (b) to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities or
other equity interest, by contract or otherwise, and the terms "CONTROLLED"
and "COMMON CONTROL" shall have correlative meanings.
"APARTMENT" means a multi-family housing building, any owner or manager of
such building, or any cooperative, buying group, agent or representative of
owners of multi-family buildings.
"APPLIANCE PARTS" means parts, tools, and accessories used in the
installation, repair and maintenance of stoves, refrigerators, dishwashers,
window air units, and other appliances.
"CHANGE-IN-CONTROL" of the Company shall be deemed to have occurred if (a)
the Company merges or consolidates with any other corporation (other than a
wholly-owned direct or indirect subsidiary of the Company) and is not the
surviving corporation (or survives as a subsidiary of another corporation)
and, after such merger or consolidation, the Company's shareholders
immediately prior to such merger or consolidation do not own Voting Stock
representing a majority of the outstanding shares of Voting Stock of the
surviving corporation or do not otherwise have the right to elect a
majority of the board of directors of the surviving corporation, (b) the
Company sells, or agrees to sell, all or substantially all of its assets to
any other person or entity, (c) the Company is dissolved, (d) any third
person or entity (other than the Company's shareholders on the Effective
Date, a trustee or committee of any qualified employee benefit plan of the
Company) together with its Affiliates shall become (by tender offer or
otherwise), directly or indirectly, the Beneficial Owner of at least 30% of
the Voting Stock of the Company (unless at such time FS Equity Partners IV,
L.P. ("FSEP IV"), Bearden and the other members of Company's management
collectively are, directly or indirectly, the Beneficial Owner of a greater
percentage of the outstanding Voting Stock of the Company than such person
or entity) or (e) the individuals who constitute the Board of Directors of
the Company as of the Effective Date (the "INCUMBENT BOARD") shall cease
for any reason to constitute at least a majority of the Board of Directors;
PROVIDED THAT any person becoming a director whose election or nomination
for election was approved by a majority of the members of the Incumbent
Board shall be considered, for the purposes of this Agreement, a member of
the Incumbent Board.
"COMPANY" means Century Maintenance Supply, Inc., a Delaware corporation,
and its Affiliates and their respective successors and assigns.
2
<PAGE>
"COMPETING BUSINESS" means the business of selling or distributing
wholesale Maintenance Supplies by Direct Sales to any Restricted Buyer.
"DIRECT SALE" (a) means a sale of Maintenance Supplies to a Restricted
Buyer (i) which is billed or invoiced directly (or, if the seller has
arranged with the Restricted Buyer to make the sale through an
intermediary, indirectly) to such Restricted Buyer, or (ii) in respect of
which Maintenance Supplies are paid for by or on behalf of the Restricted
Buyer, and, in each case, "Direct Sale" includes, without limitation, a
sale arising out of the preparation, distribution and marketing of
catalogs, and (b) excludes sales of HVAC or Refrigeration Parts (and for
purposes of SECTION 2(A)(a)(2), Appliance Parts) to HVAC contractors.
"HOSPITAL" means any hospital, hospice or any other institution providing
health, medical, mental or surgical care and treatment.
"HOTEL" means any hotel, motel, pension, inn, lodge, hostel, boarding
house, shelter or any other institution which provides public or private
lodging and accommodations.
"HVAC" means heating units, ventilation systems, air conditioning units,
air ducts, compressors, compressor bearing units and other compressor
related parts, breakers and other related electrical parts, materials,
tools, and accessories as may be used to install or repair HVAC equipment.
"MAINTENANCE SUPPLIES" means materials and supplies (a) listed as the
product categories in the Company's 1997 catalog (including plumbing,
hardware, janitorial, electrical, lighting fixtures and bulbs, but
excluding HVAC and Refrigeration Parts, and for purposes of SECTION
2(A)(a)(2), Appliance Parts) or (b) which are generally used in the
maintenance, remodeling, repair, operation or "make ready" of a Restricted
Buyer (including floor tile, carpet and other floor covering products,
window treatments, blinds and drapes).
"MILITARY INSTALLATION" means any military fort, camp, base, facility,
construction or other realty or personalty controlled by the military or
used for military activities.
"NURSING HOME" means any nursing home, hospital, hospice or other private
hospital for the care of the aged, elderly or chronically ill.
"PERSON" means any individual, entity, partnership, or association.
"PRISON"means any prison, penitentiary, jail or other institution for the
physical confinement of persons by order of any governmental authority.
"REFRIGERATION PARTS" means parts, tools, and accessories used in the
installation, repair, and maintenance of commercial refrigeration units.
"RESTRICTED BUYER" means any Apartment, Hotel, Prison, Nursing Home,
Hospital, Military Installation or School and University, and any
distributor or agent thereof.
3
<PAGE>
"RESTRICTED TERRITORY" means the continental United States, Canada and
Mexico.
"SCHOOLS AND UNIVERSITIES" means any school, trade school, professional
school, college, university or other educational institution, including any
facilities or buildings (e.g., libraries) associated therewith.
"SOUTH EAST TEXAS" means the area within a 125 mile radius from the
intersection of Louisiana Street and Rusk Street in Houston, Texas, but in
any event excluding (a) the area within a 75 mile radius of San Antonio,
Texas, and (b) the area within a 75 mile radius of Austin, Texas.
"VOTING STOCK" means all outstanding shares of capital stock of the Company
entitled to vote generally in an election of directors; PROVIDED THAT,
if the Company has shares of Voting Stock entitled to more or less
than one vote per share, each reference to a proportion of the issued
and outstanding shares of Voting Stock shall be deemed to refer to the
proportion of the aggregate votes entitled to be cast by the issued
and outstanding shares of Voting Stock.
2. COVENANTS NOT TO COMPETE.
(A) During the term of, and subject to the terms and conditions of,
this Agreement,
(a) Bearden, Century AC, and Air Management will not, and Bearden
as the sole shareholder of Century AC will not permit Century AC
(including when doing business as Core) or Air Management to
(i) directly or indirectly sell Maintenance Supplies in
South East Texas after the Maintenance Supplies in its inventory
on the date of this Agreement have been sold or otherwise
disposed of, and
(ii) except as provided in (a)(i) above, make any Direct
Sales to a Restricted Buyer in the Restricted Territory,
PROVIDED THAT, (1) with respect to Air Management, this restriction
shall only apply if at the time of such sale, a facility owned or
operated by the Company, and which sells Maintenance Supplies, is
located within a 75 mile radius of any such Restricted Buyer and (2)
with respect to sales by Century AC in South East Texas, the term
"MAINTENANCE SUPPLIES"shall not include Appliance Parts and Century AC
may sell Refrigeration Parts, HVAC, and Appliance Parts to any party,
including a Restricted Buyer, in South East Texas.
(b) the Company will not, directly or indirectly, sell HVAC in
South East Texas if such sale would cause the aggregate amount of HVAC
sales by the Company for the immediately preceding 12 months to exceed
12% of the Company's total sales in South East Texas during the same
period;
4
<PAGE>
(c) Bearden, Century AC (including when doing business as Core)
or Air Management, and their respective Affiliates will not, directly
or indirectly, (i) induce any customers of the Company to patronize
any Competing Business, (ii) canvass, solicit or accept any Competing
Business from any customer of the Company unless directed to do so by
the Company; or (iii) attempt to influence any employee of the
Company to terminate his or her employment or to hire any such
employee, whether or not so induced or influenced, within (a) if the
Company terminates such employee for any reason, two months after such
employee's employment with the Company has terminated, or (b) in any
other case four months after such employee's employment with the
Company has terminated;
(d) without the consent of the Company, neither Bearden nor
Century AC (including when doing business as Core) or Air Management
nor any of their respective Affiliates will disclose to any Person in
a Competing Business any of the customer lists, trade secrets,
confidential information, financial and accounting information,
pricing, advertising, expansion, operating or marketing plans,
methods, systems or other procedures used or owned by the Company;
PROVIDED, and notwithstanding the foregoing, that neither Bearden nor
Century AC (including when doing business as Core) nor Air Management
nor their respective Affiliates shall be prohibited from disclosing
information that is in the public domain or generally known in the
industry or subsequently enters the public domain or becomes generally
known in the industry through no fault of Bearden, Century AC
(including when doing business as Core) or Air Management, or their
respective Affiliates, or for which disclosure is required pursuant to
any applicable law, rule, regulation or order of a court of competent
jurisdiction (provided, that in such instance such party shall give
notice of such proceedings to the Company and provide the Company with
an opportunity to resolve such disclosure in a manner reasonably
acceptable to the Company).
(e) Other than with respect to Bearden's ownership interest in
the Company and Century AC, or as specifically permitted by this
Agreement, none of Bearden, Century AC (including when doing business
as Core) or Air Management (either directly or indirectly or through
an affiliate formed or acquired after the date of this Agreement) will
(i) engage in, (ii) own or control any interest in (except as a
passive investor of less than 5% of the capital stock or publicly-
traded notes or debentures of a publicly-held company); (iii) act as a
director, officer, manager, employee, trustee, agent, consultant,
partner or joint venture of; (iv) lend credit or money for the purpose
of establishing or operating; (v) or allow such persons' or entities'
name or reputation to be used by, any firm, corporation, partnership,
trust or business enterprise (other than the Company) directly or
indirectly engaged in a Competing Business within the Restricted
Territory.
(B) Bearden hereby covenants and agrees that, upon a Change in Control
of the Company, he will amend this Agreement (or enter into another
non-competition agreement on substantially the same terms as this
Agreement) such that the term of Bearden's covenant not to compete
will expire upon the later to occur of (a) the
5
<PAGE>
stated term of this Agreement, and (b) five years after the effective
date of such Change in Control.
3. TERM/CONSIDERATION. This Agreement shall commence on the date hereof
and shall continue until the earlier of the tenth anniversary of this Agreement
or the last day of the fifth year after the Employment Agreement expires or
terminates. Bearden, Air Management, Century AC, and the Company each
acknowledges that good and valuable consideration has been given for their
respective agreements and covenants set out in this Agreement, the receipt and
sufficiency of such consideration is acknowledged and accepted by Bearden, Air
Management, Century AC (including when doing business as Core), and the Company,
respectively. Notwithstanding anything in this Agreement to the contrary, if
Employee is terminated for "Cause" (as defined in the Employment Agreement) this
Agreement shall continue in effect until the tenth anniversary of such
termination.
4. EQUITABLE AND OTHER REMEDIES. If either party breaches or indicates
an intention to breach any term or provision of this Agreement, the other party
may be entitled to the right of both temporary and permanent injunctive relief.
The right of either party to such relief shall not be construed to prevent such
party from pursuing, either consecutively or concurrently, any and all other
legal or equitable remedies available to it for such breach or threatened
breach, specifically including, without limitation, the recovery of monetary
damages.
5. ENFORCEABILITY. If any court determines that any provision of this
Agreement, or any part thereof, is invalid or unenforceable, the remainder of
this Agreement shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. Except as otherwise provided herein, if
any court determines that any provision of this Agreement, or any part thereof,
is unenforceable because of the duration or geographic scope of such provision,
the parties agree that such court shall have the power to reduce the duration or
geographic scope of such provision, as the case may be, and the parties agree to
request the court to exercise such power to enforce this Agreement to the
greatest extent permitted under applicable law, and, in its amended form, such
provision shall then be enforceable and shall be enforced.
6. PARTIES IN INTEREST. This Agreement and all of its terms, covenants
and conditions shall inure to the benefit of and shall be binding upon the
undersigned parties and their respective successors and assigns (including
without limitation any purchaser of the capital stock or substantially all of
the assets of Century AC, Core or Air Management). However, each party
acknowledges that his or its covenants hereunder are personal in nature, and,
therefore, are not transferable.
7. PAYMENT OF LEGAL EXPENSES. In the event any litigation or other
proceeding is initiated by either party to enforce the terms and provisions
hereof, upon a final determination in any such litigation or proceeding, the
non-prevailing party agrees to pay all reasonable expenses, including reasonable
attorney's fees and expenses of the prevailing party.
8. NECESSITY AND REASONABLENESS. Bearden, Century AC, Air Management,
and the Company each acknowledges, agrees and represents that as a material
inducement for the other to enter into this Agreement and the Merger Agreement:
6
<PAGE>
(a) the covenants and agreements of each party in this Agreement are
necessary and essential to the protection of the business which each party will
conduct;
(b) each party will suffer great loss and irreparable harm if any other
party which is restricted by this Agreement violates any material provision of
this Agreement;
(c) the temporal and other restrictions contained in this Agreement are in
all respects reasonable and necessary to protect the business goodwill, trade
secrets, and other business interests of each party with respect to their
respective businesses;
(d) the enforcement of this Agreement will not work an undue or unfair
hardship on either party or otherwise be oppressive to such party, it being
specifically acknowledged and agreed by each party that such has other business
interests and opportunities which will provide such party adequate means of
support if this Agreement is enforced;
(e) the enforcement of this Agreement will neither deprive the public of
needed goods or services nor otherwise be injurious to the public; and
(f) good independent and valuable consideration exists for the agreement of
each party to be bound by this Agreement.
9. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be governed, construed and enforced in accordance with the
laws of the State of Texas.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
11. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of this
Agreement.
12. AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified and supplemented only by written agreement of the
Company and the other party against whom enforcement of such amendment is
sought.
13. NOTICES. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days
7
<PAGE>
after deposits in the United States Mail, as registered or certified mail, with
proper postage prepaid and addressed to the party or parties to be notified, at
the following addresses:
Dennis C. Bearden
1215 Meadowlark Lane
Sugarland, Texas 77478
Telephone No. (281) 242-9581
Fax No. (713) 943-8443
Century Maintenance Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attn: President
Telephone No. (713) 947-6703
Fax No. (713 ) 943-8443
with a copy to:
Freeman Spogli & Co.
11100 Santa Monica Blvd.
Suite 1900
Los Angeles, California 90025
Attn: J. Frederick Simmons
Telephone No. (310) 444-1822
Fax No. (310 ) 444-1870
Air Management Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attn: Richard E. Penick
Telephone No. (713) 947-6703
Fax No. (713 ) 943-8443
Century Airconditioning Supply, Inc.
9100 Winkler
Houston, Texas 77017
Attn: Richard E. Penick
Telephone No. (713) 947-6703
Fax No. (713 ) 943-8443
or to such other names, addresses, telephone and fax numbers as Bearden, Century
AC, Air Management, or the Company as the case may be, shall designate by notice
to the other party hereto in the manner specified in this Section 13.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ Richard E. Penick
----------------------------------------------
Name: Richard E. Penick
--------------------------------------------
Title: Vice President
-------------------------------------------
CENTURY AIRCONDITIONING SUPPLY, INC.
By: /s/ Richard E. Penick
----------------------------------------------
Name: Richard E. Penick
--------------------------------------------
Title: Vice President
-------------------------------------------
AIR MANAGEMENT SUPPLY, INC.
By: /s/ Richard E. Penick
----------------------------------------------
Name: Richard E. Penick
--------------------------------------------
Title: Vice President
-------------------------------------------
/s/ Dennis C. Bearden
--------------------------------------------------
Dennis C. Bearden
9
<PAGE>
Exhibit 12.1 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
PRO FORMA (1)
---------------------------
SIX MONTHS YEAR ENDED SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30,
1993 1994 1995 1996 1997 1997 1998 1997 1998
---------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $2,046 $2,973 $4,869 $ 9,425 $10,150 $ 530 $10,683 $ 3,438 $ 6,771
Interest 263 461 790 865 1,147 323 719 9,263 4,631
Interest portion of
rental expense 106 197 262 361 511 222 350 599 350
---------------------------------------- --------------- ------------ ------------
Earnings $2,415 $3,631 $5,921 $10,651 $11,808 $1,075 $11,752 $13,300 $11,752
Interest 263 461 790 865 1,147 323 719 9,263 4,631
Interest portion of
rental expense 106 197 262 361 511 222 350 599 350
---------------------------------------- --------------- ------------ ------------
Fixed charges $ 369 $ 658 $1,052 $ 1,226 $ 1,658 $ 545 $ 1,069 $ 9,862 $ 4,981
Preferred stock dividends(2) 9,512 4,610
Fixed charges plus ------------ ------------
preferred stock dividends $19,374 $ 9,591
------------ ------------
Ratio of Earnings to
Fixed Charges 6.5 5.5 5.6 8.7 7.1 2.0 11.0 1.3 2.4
---------------------------------------- --------------- ------------ ------------
Ratio of Earnings to
Fixed Charges and
Preferred Stock Dividends 0.7 1.2
------------ ------------
</TABLE>
(1) Pro forma information for 1997 reflects the acquisition of Nationwide as if
it occurred at the beginning of the period presented and for 1997 and 1998
the Recapitalization as if it occurred at the beginning of the period
presented.
(2) Preferred stock dividends are grossed up by the effective tax rate to
determine pre-tax requirements for the dividends.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CENTURY MAINTENANCE SUPPLY, INC.
(1) Name and jurisdiction of incorporation or organization of each subsidiary
of Century Maintenance Supply, Inc. and the names under which the
subsidiaries do business, if different:
Century Air Supply, Inc. Texas
Century Air Services, Inc. Texas
Century Maintenance Supply, Inc. Texas
Century Maintenance Supply (AZ) Inc. Texas
Century Maintenance Supply (CO) Inc. Texas
Century Maintenance Supply - DAL, Inc. Texas
Century Maintenance Supply (FL) Inc. Texas
Century Maintenance Supply (GA), Inc. Texas
Century Maintenance Supply - KS, Inc. Texas
Century Maintenance Supply (MD) Inc. Texas
Century Maintenance Supply - MO, Inc. Texas
Century Maintenance Supply (NC) Inc. Texas
Century Maintenance Supply (N CA) Inc. Texas
Century Maintenance Supply (NV) Inc. Texas
Century Maintenance Supply - S. Cal., Inc. Texas
Century Maintenance Supply - TN, Inc. Texas
Century Maintenance Supply (TX), Inc. Delaware
Century Maintenance Supply (WA) Inc. Texas
Fairview Wholesale Supply, Inc. Illinois
Nationwide Apartment Supply, Inc.
d.b.a. Century Maintenance Supply, Inc. Delaware
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 31, 1998 with respect to the consolidated
financial statements of Century Maintenance Supply, Inc., and dated August 25,
1997 with respect to the combined financial statements of Nationwide Apartment
Supply, Inc. and Fairview Wholesale Supply, Inc. (collectively, "Nationwide") in
the Registration Statement (Form S-4) and related Prospectus of Century
Maintenance Supply, Inc.
/s/ Ernst & Young LLP
Houston, Texas
August 31, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
__________________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
__________________________
CENTURY MAINTENANCE SUPPLY, INC.
(Exact name of OBLIGOR as specified in its charter)
Delaware 76-0542935
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
9100 Winkler Drive 77017
Houston, Texas (Zip code)
(Address of principal executive offices)
__________________________
13-1/4% Subordinated Exchange Debentures Due 2010
(Title of the indenture securities)
- -------------------------------------------------------------------------------
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C. New York
State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of New
York Banking Department to transact business as a Trust Company,
is incorporated by reference to Exhibit T-1.1 to Form T-1 filed
on September 15, 1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form
T-1 filed on September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of August 25, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 26th day
of August 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ James E. Logan
----------------------------
James E. Logan
Vice President
JEL/pg(rv:kk)
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
---------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
TOTAL ASSETS $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
TOTAL LIABILITIES $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
TOTAL STOCKHOLDER'S EQUITY 174,583
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,304
<SECURITIES> 0
<RECEIVABLES> 25,614
<ALLOWANCES> 1,017
<INVENTORY> 29,796
<CURRENT-ASSETS> 2,174
<PP&E> 5,455
<DEPRECIATION> 2,820
<TOTAL-ASSETS> 69,512
<CURRENT-LIABILITIES> 30,863
<BONDS> 6,712
0
0
<COMMON> 10
<OTHER-SE> 31,596
<TOTAL-LIABILITY-AND-EQUITY> 69,512
<SALES> 0
<TOTAL-REVENUES> 94,182
<CGS> 68,598
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 719
<INCOME-PRETAX> 10,684
<INCOME-TAX> 4,146
<INCOME-CONTINUING> 6,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,538
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
- ------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________
__, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
- ------------------------------------------------------------------------------
CENTURY MAINTENANCE SUPPLY, INC.
LETTER OF TRANSMITTAL
13 1/4% SENIOR EXCHANGEABLE PIK PREFERRED STOCK DUE 2010
<TABLE>
<CAPTION>
To: U.S. Trust Company of New York, The Exchange Agent
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the one
listed above will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the
Prospectus dated August __, 1998, (the "Prospectus") of Century Maintenance
Supply, Inc. (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer (the "Exchange
Offer") to exchange 11 1/2% Series C Senior Exchangeable PIK Preferred Stock due
2010 (the "Exchange Preferred Stock") which has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for its outstanding 13
1/4% Series A Senior Exchangeable PIK Preferred Stock (the "Preferred Stock"),
of which 280,000 shares are outstanding. Other capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Preferred Stock
(i) if certificates representing the Preferred Stock are to be physically
delivered herewith; or (ii) if tender of Preferred Stock is to be made by book-
entry transfer to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer--Procedures for Tendering" by any financial institution that is a
participant in DTC and whose name appears on a security position listing as the
owner of Preferred Stock; or (iii) if tender of Preferred Stock is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer-- Guaranteed Delivery Procedures." Delivery of
documents to DTC does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
(i) in whose name Preferred Stock is registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder; or (ii) whose Preferred Stock is held of record by DTC who
desires to deliver such Preferred Stock by book-entry transfer at DTC. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Preferred Stock must complete this
letter in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
DESCRIPTION OF 13 1/4% SERIES A SENIOR EXCHANGEABLE PIK PREFERRED STOCK
("PREFERRED STOCK"):
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF NUMBER OF SHARES NUMBER OF SHARES TENDERED*
REGISTERED HOLDER(S) REPRESENTED BY CERTIFICATE(S)
(PLEASE FILL IN, IF BLANK)
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------------------------
* Unless indicated in the column labeled "Number of Shares Tendered," any tendering Holder of Preferred Stock will be
deemed to have tendered the entire number of shares represented by the column labeled "Number of Shares Represented by
Certificate(s)."
If the space provided above is inadequate, list the number of shares on a separate signed schedule and affix the list
to this Letter of Transmittal.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE EXCHANGE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Preferred To be completed ONLY if certificates for shares of
Stock not tendered or not accepted for exchange, or Preferred Stock not tendered or not accepted for
Exchange Preferred Stock issued in exchange for exchange, or shares of Exchange Preferred Stock
Preferred Stock accepted for exchange, are to be issued in exchange for Preferred Stock accepted for
issued in the name of someone other than the exchange, are to be sent to someone other than the
undersigned, or if the shares of Preferred Stock undersigned, or to the undersigned at an address
tendered by book-entry transfer that are not accepted other than that shown above.
for exchange are to be credited to an account
maintained by DTC.
MAIL TO:
ISSUE CERTIFICATE(S) TO:
Name_____________________________________
Name_____________________________________ (Please Print)
(Please Print)
Address___________________________________
Address___________________________________
__________________________________________
__________________________________________ (Include Zip Code)
(Include Zip Code) __________________________________________
__________________________________________ (Tax Identification or Social Security No.)
(Tax Identification or Social Security No.)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
[_] CHECK HERE IF TENDERED PREFERRED STOCK IS BEING DELIVERED BY DTC TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution:______________________________________________________________________________________________
DTC Book-Entry Account No. ______________________________________________________________________________________________
Transaction Code No. ______________________________________________________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER.
Name: ______________________________________________________________________________________________
Address: ______________________________________________________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND ANY OF THE PREFERRED STOCK YOU ARE
TENDERING WAS ACQUIRED DIRECTLY FROM THE COMPANY.
Number of Shares of Tendered Preferred Stock Acquired from the
Company: ______________________
</TABLE>
2
<PAGE>
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the shares of Preferred Stock indicated above.
Subject to and effective upon the acceptance for exchange of the shares of
Preferred Stock tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Preferred Stock tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
its agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Preferred Stock
with full power of substitution to (i) deliver certificates for such Preferred
Stock to the Company, or transfer ownership of such Preferred Stock on the
account books maintained by DTC, and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company; and (ii)
present such Preferred Stock for transfer on the books of the Company and
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Preferred Stock, all in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Preferred Stock
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company.
THE UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY EXCHANGE PREFERRED STOCK
ACQUIRED IN EXCHANGE FOR PREFERRED STOCK TENDERED HEREBY WILL HAVE BEEN ACQUIRED
IN THE ORDINARY COURSE OF BUSINESS OF THE HOLDER RECEIVING SUCH EXCHANGE
PREFERRED STOCK, WHETHER OR NOT THE UNDERSIGNED, THAT NEITHER THE HOLDER NOR ANY
SUCH OTHER PERSON HAS AN ARRANGEMENT WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE PREFERRED STOCK AND THAT NEITHER THE HOLDER NOR
ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE
SECURITIES ACT, OF THE COMPANY OR ANY OF ITS SUBSIDIARIES. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of Exchange Preferred Stock.
If the undersigned is a broker-dealer that will receive Exchange Preferred
Stock, it represents that, except to the extent indicated at the bottom of the
preceding page, the Preferred Stock to be exchanged for Exchange Preferred Stock
was acquired as a result of market-making activities or other trading activities
and not acquired directly from the Company, and it acknowledges that it will
deliver a prospectus in connection with any resale of such Exchange Preferred
Stock; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. IF THE UNDERSIGNED IS A BROKER-DEALER, IT
ACKNOWLEDGES THAT IT MAY NOT USE THE PROSPECTUS IN CONNECTION WITH RESALES OF
EXCHANGE PREFERRED STOCK RECEIVED IN EXCHANGE FOR PREFERRED STOCK THAT WAS
ACQUIRED DIRECTLY FROM THE COMPANY. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the assignment, transfer and purchase
of the Preferred Stock tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Preferred Stock when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
If any tendered Preferred Stock is not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted
Preferred Stock will be returned (except as noted below with respect to tenders
through DTC), without expense, to the undersigned at the address shown below or
at a different address as may be indicated herein under "Special Payment
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Preferred Stock pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the Exchange Preferred Stock issued in
exchange for the Preferred Stock accepted for exchange and return any Preferred
Stock not tendered or not exchanged, in the name(s) of the undersigned (or in
either such event in the case of Preferred Stock tendered by DTC, by credit to
the undersigned's account at DTC). Similarly, unless otherwise indicated under
"Special Delivery Instructions," please send the certificates representing the
Exchange Preferred Stock issued in exchange for the Preferred Stock accepted for
exchange and any certificates for Preferred Stock not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s), unless, in either event, tender is
being made through DTC. In the event that both "Special Payment Instructions"
and
3
<PAGE>
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Preferred Stock issued in exchange for the Preferred
Stock accepted for exchange and return any Preferred Stock not tendered or not
exchanged in the name(s) of, and send said certificates to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Payment Instructions" and "Special Delivery
Instructions" to transfer any Preferred Stock from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the
Preferred Stock so tendered.
Holders of Preferred Stock who wish to tender their Preferred Stock and (i)
whose Preferred Stock is not immediately available, or (ii) who cannot deliver
their Preferred Stock, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent, or cannot complete the procedure for
book-entry transfer, prior to the Expiration Date, may tender their Preferred
Stock according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of the Letter of
Transmittal printed below.
PLEASE SIGN HERE WHETHER OR NOT
PREFERRED STOCK IS BEING PHYSICALLY TENDERED HEREBY
X
- --------------------------------------- -------------------------------
Date
X
- --------------------------------------- -------------------------------
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number:__________________________________________
The above lines must be signed by the registered holder(s) of
Preferred Stock as their name(s) appear(s) on the Preferred Stock or, if the
Preferred Stock is tendered by a participant in DTC, as such participant's name
appears on a security position listing as the owner of the Preferred Stock, or
by person(s) authorized to become registered holder(s) by a properly completed
bond power from the registered holder(s), a copy of which must be transmitted
with this Letter of Transmittal. If Preferred Stock to which this Letter of
Transmittal relates is held of record by two or more joint holders, then all
such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 regarding the completion of
this Letter of Transmittal printed below.
Names(s):
---------------------------------------------------------
---------------------------------------------------------
(Please Print)
Capacity:
---------------------------------------------------------
Address:
---------------------------------------------------------
---------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 4)
---------------------------------------------------------
(Authorized Signature)
---------------------------------------------------------
(Name of Firm)
Dated:________________________, 1998
4
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PREFERRED STOCK. The
tendered Preferred Stock (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Preferred Stock delivered
electronically), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The method of delivery of the tendered Preferred Stock, this
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the Holder and, except as otherwise provided below,
the delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that the Holder use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Preferred Stock
should be sent to the Company.
Holders who wish to tender their Preferred Stock and (i) whose Preferred
Stock is not immediately available; or (ii) who cannot deliver their Preferred
Stock, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to 5:00 P.M., New York City time, on the Expiration Date must tender their
Preferred Stock according to the guaranteed delivery procedures set forth in the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States or an institution
which falls within the definition of "Eligible Guarantor Institution" contained
in Regulation 17Ad-15 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, which is a member of one
of the following recognized signature guarantee programs: (A) the Securities
Transfer Agents Medallion Program (STAMP), (B) the New York Stock Exchange
Medallion Signature Program (MSP) or (C) the Stock Exchange Medallion Program
(SEMP) (each, an "Eligible Institution"); (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Preferred Stock and the principal amount of Preferred Stock
tendered, stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration Date,
this Letter of Transmittal (or facsimile hereof) together with the
certificate(s) representing the Preferred Stock (or a confirmation of electronic
delivery of book-entry delivery into the Exchange Agent's account at DTC) and
any other required documents will be deposited by the Eligible Institution with
the Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered
Preferred Stock in proper form for transfer (or a confirmation of electronic
delivery of book-entry delivery into the Exchange Agent's account at DTC), must
be received by the Exchange Agent within three New York Stock Exchange trading
days after the Expiration Date, all as provided in the Prospectus under the
caption "Exchange Offer - Guaranteed Delivery Procedures." Any Holder of
Preferred Stock who wishes to tender his or her Preferred Stock pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their
Preferred Stock according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Preferred Stock and withdrawal of tendered
Preferred Stock 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 Preferred Stock not properly tendered or any
Preferred Stock the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects or irregularities or conditions of tender as to the Exchange
Offer and/or particular Preferred Stock. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in this
Letter of Transmittal) shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Preferred
Stock 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
Preferred Stock, nor shall any of them incur any liability for failure to give
such notification. Tenders of Preferred Stock will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any
Preferred Stock received by the Exchange
5
<PAGE>
Agent that is not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Preferred Stock, unless otherwise provided in
this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. TENDER BY HOLDER. Only a Holder of Preferred Stock may tender such
Preferred Stock in the Exchange Offer. Any beneficial holder of Preferred Stock
who is not the registered holder and who wishes to tender should arrange with
the registered holder to execute and deliver this Letter of Transmittal on his
or her behalf or must, prior to completing and executing this Letter of
Transmittal and delivering his or her Preferred Stock, either make appropriate
arrangements to register ownership of the Preferred Stock in such Holder's name
or obtain a properly completed bond power from the registered holder.
3. PARTIAL TENDERS. If less than the entire number of shares on any
certificate representing Preferred Stock is tendered, the tendering Holder
should fill in the number of shares tendered in the third column of the box
entitled "Description of 13 1/4% Series A Senior Exchangeable PIK Preferred
Stock due 2010 (the "Preferred Stock") above. The number of shares of
Preferred Stock delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire number of shares on any
certificate representing Preferred Stock is not tendered, then Preferred Stock
not tendered and a certificate or certificates representing Exchange Preferred
Stock issued in exchange for any Preferred Stock accepted will be sent to the
Holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter of Transmittal, promptly after the
Preferred Stock are accepted for exchange.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Preferred Stock tendered hereby, the
signature must correspond with the name(s) as written on the face of the
Preferred Stock or, if the Preferred Stock is tendered by a participant in DTC,
as such participant's name appears on a security position listing as the owner
of the Preferred Stock, without alteration, enlargement or any change
whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Preferred Stock tendered and the certificate or
certificates for Exchange Preferred Stock issued in exchange therefor are to be
issued (or any untendered principal amount of Preferred Stock is to be reissued)
to the registered Holder, the said Holder need not and should not endorse any
tendered Preferred Stock, nor provide a separate bond power. In any other case,
such Holder must either properly endorse the Preferred Stock tendered or
transmit a properly completed separate bond power with this Letter of
Transmittal, with the signatures on the endorsement or bond power guaranteed by
an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Preferred Stock listed, such
Preferred Stock must be endorsed or accompanied by appropriate bond powers
signed as the name of the registered Holder or Holders appears on the Preferred
Stock.
If this Letter of Transmittal (or facsimile hereof) or any Preferred Stock
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact or officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Preferred Stock or signatures on bond powers required by
this Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the registered Holder(s) of the Preferred
Stock tendered herewith and such Holder(s) have not completed the box set forth
herein entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions;" or (ii) such Preferred Stock are tendered for the
account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Preferred Stock or substitute certificates for shares of Preferred Stock not
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal (or
in the case of tender of Preferred Stock through DTC, if different from DTC).
6
<PAGE>
In the case of issuance in a different name, the taxpayer identification or
social security number of the person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder whose offered Preferred Stock is accepted for exchange must provide the
Company (as payor) with his, her or its correct Taxpayer Identification Number
("TIN"), which, in the case of an exchanging Holder who is an individual, is his
or her social security number. If the Company is not provided with the correct
TIN or an adequate basis for exemption, such Holder may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
delivery to such Holder of Exchange Preferred Stock may be subject to backup
withholding in an amount equal to 31% of the gross proceeds resulting from the
Exchange Offer. If withholding results in an overpayment of taxes, a refund may
be obtained from the IRS by the Holder. Exempt Holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. See instructions to the
enclosed Form W-9.
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Form W-9 enclosed herewith, certifying that
the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i)
the Holder is exempt from backup withholding; (ii) the Holder has not been
notified by the IRS that he, she or it is subject to backup withholding as a
result of a failure to report all interest or dividends; or (iii) the IRS has
notified the Holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such Holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may
be obtained from the Exchange Agent. If the Preferred Stock are in more than
one name or are not in the name of the actual owner, consult the Form W-9 for
information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Preferred Stock pursuant to the Exchange Offer.
If, however, certificates representing Exchange Preferred Stock or Preferred
Stock 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 Preferred Stock tendered hereby, or if
tendered Preferred Stock are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Preferred Stock pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or on any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Preferred Stock listed in this Letter
of Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any Preferred Stock tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED PREFERRED STOCK. Any tendering
Holder whose Preferred Stock has been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
7
<PAGE>
(DO NOT WRITE IN SPACE BELOW)
-----------------------------------------------------------------
CERTIFICATE SHARES OF SHARES OF
SURRENDERED PREFERRED STOCK PREFERRED STOCK
TENDERED ACCEPTED
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Delivery Prepared by_____________ Checked By____________ Date______________
8
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Name (If joint names, see attached guidelines)
- -----------------------------------------------------------------------------------------------------------------------------
Business name (Sole proprietors, see attached guidelines)
- -----------------------------------------------------------------------------------------------------------------------------
Please check appropriate box: [_] Individual/Sole Proprietor [_] Corporation [_] Partnership [_] Other
- -----------------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.)
- -----------------------------------------------------------------------------------------------------------------------------
City, state, and ZIP code
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- TAXPAYER IDENTIFICATION PART II -- FOR PAYEES
NO. EXEMPT FROM BACKUP
FORM W-9 WITHHOLDING
Department of the Treasury Enter your taxpayer (SEE ENCLOSED
Internal Revenue Service identification number in the GUIDELINES)
appropriate box. For most
individuals, this is your social ------------------------
Payer's Request for Taxpayer security number. If you do not Social Security Number
Identification Number (TIN) have a number, see How to
Obtain a "TIN" in the enclosed
Guidelines.
Note: If the account is more ------------------------
than one name, see the chart in Employer Identification
enclosed Guidelines to Number
determine what number to give.
- -----------------------------------------------------------------------------------------------------------------------------
PART III -- CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Certification Instructions. -- You must cross out item (2) above if you have been notified by the IRS that you are subject
to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2).
- -----------------------------------------------------------------------------------------------------------------------------
SIGNATURE DATE , 1998
--------------------------------------------------------------------- -------------------------------
</TABLE>
<PAGE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by IRS that you are subject to backup withholding because
you failed to report all your interest and dividends on your tax return (for
interest and dividend accounts only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for interest and dividend accounts opened after
1983 only), or
(5) You fail to certify your TIN. This applies only to interest, dividend,
broker or barter exchange accounts opened after 1983, or broker accounts
considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or (2)
above applies.
Certain Payees and payments are exempt from backup withholding and information
reporting. See payees and Payments Exempt From Backup Withholding, below, and
Exempt Payees and Payments under Specific Instructions below if you are an
exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13), and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
11. A corporation.
12. An organization exempt from tax under section 501(a), or an individual
retirement plan (IRA), or a custodial account under 403(b)(7).
13. The United States or any of its agencies or instrumentalities.
14. A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
15. A foreign government or any of its political subdivisions, agencies or
instrumentalities.
16. An international organization or any of its agencies or
instrumentalities.
17. A foreign central bank of issue.
18. A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
19. A futures commission merchant registered with the Commodity Futures
Trading Commission.
20. A real estate investment trust.
21. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
22. A common trust fund operated by a bank under section 584(a).
23. A financial institution.
24. A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Securities,
Inc., Nominee List.
25. A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
Payments of interest generally not subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and the regulations under such sections.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your TIN to a requester, you
are subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal laws, the requester may be subject to civil and criminal penalties.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, generally provide the name shown on your
social security cared. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name and both the last name shown on
your social security card and your new last name.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS THAT WERE CONSIDERED ACTIVE DURING 1983. -- You are not required
to sign the certification; however, you may do so. You are required to provide
your correct TIN.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS THAT WERE CONSIDERED INACTIVE DURING 1983. -- You must sign
the certification or backup withholding will apply. If you are subject to
backup withholding and you are merely providing your correct TIN to the
requester, you must cross out item (2) in the certification before signing the
form.
(3) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requestor's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(4) EXEMPT PAYEES AND PAYMENTS -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a completed FORM W-8, Certificate of
Foreign Status.
(5) TIN "APPLIED FOR." -- Follow the instructions under How To Obtain a TIN, on
page 1, sign and date this form.
SIGNATURE.-- For a joint account, only the person whose TIN is shown in Part I
should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct
taxpayer identification number (TIN) to persons who must file information
returns with IRS to report interest, dividends, and certain other income paid to
you, mortgage interest you paid, the acquisition or abandonment of secured
property, or contributions you made to an individual retirement arrangement
(IRA). IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 20% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
- -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to give
the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals (1)
3. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner (1)
a legal or valid trust under State
law
5. Sole proprietorship account The owner (3)
6. Sole Proprietorship The owner (3)
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: EMPLOYER
IDENTIFICATION
NUMBER OF --
- --------------------------------------------------------------------------
<S> <C>
7. A valid trust, estate, or pension The legal entity (5)
trust
8. Corporate account The corporation
9. Association, club, religious, The organization
charitable, educational or other tax-
exempt organization account
10. Partnership account held in the The partnership
name of the business
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
- --------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(5) List first and circle the name of the valid trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title)
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
13 1/4% SENIOR EXCHANGEABLE PIK PREFERRED STOCK DUE 2010
OF
CENTURY MAINTENANCE SUPPLY, INC.
This form, or one substantially equivalent hereto, must be used to accept
the Exchange Offer of Century Maintenance Supply, Inc. (the "Company") made
pursuant to the Prospectus dated August __, 1998 (the "Prospectus"), if
certificates for the 13 1/4% Series A Senior Exchangeable PIK Preferred Stock
due 2010 (the "Preferred Stock") of the Company are not immediately available or
if the Preferred Stock, the Letter of Transmittal or any other documents
required thereby cannot be delivered to the Exchange Agent or the procedure for
book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time,
on the Expiration Date (as defined in the Prospectus). Such form may be
delivered by hand or transmitted by facsimile transmission, overnight courier or
mail to the Exchange Agent. Capitalized terms used but not defined herein have
the meaning given to them in the Prospectus.
TO: U.S. TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway Attention: Customer Service
New York, New York 10006
Attention: Lower Level Confirm by telephone:
Corporate Trust Window (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Preferred Stock is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Century Maintenance Supply, Inc., a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged,_____________________________________ of Preferred Stock pursuant
(number of shares of Preferred Stock)
to the guaranteed delivery procedures set forth in Instruction 1 of the Letter
of Transmittal.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Number of Shares Name(s) of Record Holder(s)
- --------------------------------- ----------------------------------------
- --------------------------------- ----------------------------------------
PLEASE PRINT OR TYPE
Address ________________________________
----------------------------------------
ZIP CODE
Area Code and Tel. No. _________________
Signature(s) ___________________________
----------------------------------------
Dated: _________________________________
If Preferred Stock will be delivered by
book-entry transfer at The Depository
Trust Company ("DTC"), Depository
Account No: ____________________________
This Notice of Guaranteed Delivery must be signed by the registered
Holder(s) of Preferred Stock exactly as its (their) name(s) appear on
certificates for Preferred Stock or on a security position listing as the owner
of Preferred Stock, or by person(s) authorized to become registered Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must provide the following information.
Please print name(s) and address(es)
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address(es):
----------------------------------------------------------------
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or a
commercial bank or trust company having an office or correspondent in the United
States or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby (a) represents that the above named person(s) "own(s)" the Preferred
Stock tendered hereby within the meaning of Rule 10b-4 under the Exchange Act,
(b) represents that such tender of Preferred Stock complies with Rule 10b-4 and
(c) guarantees that delivery to the Exchange Agent of certificates for the
Preferred Stock tendered hereby, in proper form for transfer (or confirmation of
the book-entry transfer of such Preferred Stock into the Exchange Agent's
Account at DTC, pursuant to the procedures for book-entry transfer set forth in
the Prospectus), with delivery of a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature and any other required documents, will be received by the Exchange
Agent at one of its addresses set forth above within three New York Stock
Exchange trading days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND PREFERRED STOCK TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD
SET FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm
--------------------------- --------------------------------
AUTHORIZED SIGNATURE
Address
-------------------------------- Name
ZIP CODE ---------------------------
PLEASE PRINT OR TYPE
Title
--------------------------
Area Code and Tel. No.
-----------------
Date
---------------------------
Dated: ______________, 1998
NOTE: DO NOT SEND PREFERRED STOCK WITH THIS FORM; PREFERRED STOCK SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT IT IS RECEIVED BY THE
EXCHANGE AGENT WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER
THE EXPIRATION DATE.
3
