<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1999
REGISTRATION NO. 333-76397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE YANKEE CANDLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <S> <C>
MASSACHUSETTS 5947 04 259 1416
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
102 CHRISTIAN LANE
WHATELY, MASSACHUSETTS 01093
(413) 665-8306
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
ROBERT R. SPELLMAN
THE YANKEE CANDLE COMPANY, INC.
102 CHRISTIAN LANE
WHATELY, MASSACHUSETTS 01093
(413) 665-8306
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
LOIS HERZECA, ESQ. WINTHROP B. CONRAD, JR., ESQ.
FRIED, FRANK, HARRIS, SHRIVER & DAVIS POLK & WARDWELL
JACOBSON 450 LEXINGTON AVENUE
ONE NEW YORK PLAZA NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10004 (212) 450-4000
(212) 859-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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(c)
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate of
shares of common stock. The prospectuses for each of the U.S. offering and
the international offering will be identical with the exception of an alternate
front cover page for the international offering. This alternate page appears in
this registration statement immediately following the complete prospectus for
the U.S. offering.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE AND THE SELLING STOCKHOLDERS ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[LOGO]
THE YANKEE CANDLE COMPANY, INC.
COMMON STOCK
-----------------
THE YANKEE CANDLE COMPANY, INC. IS OFFERING SHARES AND THE SELLING
STOCKHOLDERS ARE OFFERING SHARES. FOR INFORMATION RELATING TO THE SELLING
STOCKHOLDERS, SEE "PRINCIPAL AND SELLING STOCKHOLDERS" ON PAGE 53. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
-------------------
WE PLAN TO SUBMIT AN APPLICATION TO LIST OUR COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "YCC."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS YANKEE CANDLE STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE....................... $ $ $ $
TOTAL........................... $ $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
OUR SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
, 1999
<PAGE>
[PICTURES OF PRODUCTS]
EDGAR ARTWORK DESCRIPTIONS
Outside Pull-Out of Prospectus:
Caption: A Sampling of Yankee Candle-Registered Trademark- Product Lines
Six pictures of a full line of Yankee Candle-Registered Trademark- products
featuring the Macintosh-Registered Trademark- fragrance.
Upper left hand corner:
Caption: Experience the Fragrance
- Picture showing jar candles, scented candles in decorative glass jars of
22 oz., 14.5 oz and 3.7 oz. sizes. The picture also includes a "peel and
sniff" scent label featuring Macintosh-Registered Trademark- apple
fragrance.
Upper right hand corner:
Caption: Samplers-Registered Trademark-
Picture showing an assortment of votive candles.
Middle right:
Caption: Wax Potpourri Tarts-Registered Trademark-
- Picture showing an assortment of scented wax without wicks that releases
its fragrance when melted and warmed in a potpourri pot.
Lower left hand corner:
Caption: Scented Pillars
- Picture showing three sizes of grooved scented pillars.
Lower center:
Caption Scented Tapers
- Picture showing three sizes of scented tapers.
Lower right hand corner:
Caption: Scented Tea Lights
- Picture showing an assortment of small, colored and scented candles in
clear cups.
Inside Pull-Out of Prospectus:
Caption: Yankee Candle-Registered Trademark- Retail Locations
Top:
Caption: Flagship Store, South Deerfield, Massachusetts
- View of our flagship retail store.
Middle left
- View of retail store.
Middle right:
- View of retail store.
Bottom
Caption: Yankee Candle-Registered Trademark- Vertical Display System for
Wholesale Dealers
- View of our 12-foot hutch.
Inside Front Cover of Prospectus:
Caption: Yankee Candle-Registered Trademark- Distribution Points
- Map of distribution points, indicating (1) wholesale sites, (2) current
retail sites and (3) signed/negotiated leases for new retail sites for
1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 1
Risk Factors..................................... 7
Use of Proceeds.................................. 11
Dividend Policy.................................. 11
Certain Information.............................. 12
Capitalization................................... 13
Dilution......................................... 14
Selected Financial and Other Data................ 15
Unaudited Pro Forma Consolidated Condensed
Financial Statements........................... 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
<CAPTION>
PAGE
-----
<S> <C>
Business of Yankee Candle........................ 33
Management....................................... 44
Principal and Selling Stockholders............... 53
Description of the Credit Agreement.............. 56
Description of Capital Stock..................... 57
Shares Eligible for Future Sale.................. 60
United States Federal Tax Considerations for
Non-United States Holders...................... 61
Underwriters..................................... 65
Legal Matters.................................... 68
Experts.......................................... 69
Where You Can Find More Information.............. 69
Index to Consolidated Financial
Statements..................................... F-1
</TABLE>
-------------------
The Yankee Candle Company, Inc. was incorporated in Massachusetts in 1976.
Our principal executive offices are located at 102 Christian Lane, Whately,
Massachusetts 01093 and our telephone number at that address is (413) 665-8306.
Our World Wide Web site address is www.yankeecandle.com. The information in the
website is not incorporated by reference.
-------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
-------------------
Until , 1999, all dealers that buy, sell or trade Yankee Candle's
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This delivery requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS THE MOST IMPORTANT FEATURES OF THIS OFFERING AND THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE
AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK
FACTORS."
WE ARE OFFERING SHARES OF OUR COMMON STOCK AND THE SELLING
STOCKHOLDERS ARE OFFERING SHARES OF OUR COMMON STOCK IN THIS OFFERING.
THIS IS OUR INITIAL PUBLIC OFFERING AND WE ANTICIPATE THAT THE PRICE OF OUR
COMMON STOCK SOLD TO THE PUBLIC WILL BE BETWEEN $ AND $ PER SHARE. WE WILL
RECEIVE FROM THIS OFFERING AN ESTIMATED $ OF NET PROCEEDS, AFTER DEDUCTING
UNDERWRITING DISCOUNTS AND COMMISSIONS AND EXPENSES INCURRED IN CONNECTION WITH
THIS OFFERING. THESE NET PROCEEDS WILL BE USED TO REPAY OUTSTANDING
INDEBTEDNESS. THE SELLING STOCKHOLDERS WILL RECEIVE IN THE AGGREGATE AN
ESTIMATED $ OF NET PROCEEDS, AFTER DEDUCTING UNDERWRITING DISCOUNTS AND
COMMISSIONS.
YANKEE CANDLE
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have a 30-year
history of offering our distinctive products and marketing them as affordable
luxuries and consumable gifts. Our current products are available in up to 150
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products,
marketed primarily under our trade names Housewarmer-Registered Trademark- and
Country Kitchen-Registered Trademark-, as well as a wide range of candle
accessories.
We sell our candles through our wholesale customers who have approximately
12,000 gift store locations nationwide and through our rapidly expanding retail
base of 73 company-owned and operated stores in 23 states as of May 25, 1999.
Our 90,000 square foot flagship store in South Deerfield, Massachusetts attracts
an estimated 2.5 million visitors a year. We also sell our products through our
direct mail catalogs, Internet website (www.yankeecandle.com), international
distributors and our distribution center located in the United Kingdom.
We have experienced 27% annual revenue growth over the last five years and,
in 1998, our sales reached $184.5 million. We believe our strong growth is based
on the high quality of our products, the efficiency of our manufacturing
operations and the strength of our retail and wholesale sales capabilities.
Michael Kittredge founded our business in 1969, when he was just seventeen
years old, by making his first candle in his family kitchen. He grew the
business steadily and, together with our dedicated management team, has built
Yankee Candle into a leader in the premium scented candle market. Most of our
current senior managers have been with us for 17 years. In April 1998, Yankee
Candle was recapitalized and two partnerships affiliated with Forstmann Little &
Co. and Yankee Candle management became the owners of a 90% equity interest.
Since the 1998 recapitalization, we have reinvested our capital to actively
pursue our wholesale and retail growth strategies. To facilitate this growth, we
have added several key employees, expanded our production capacity, upgraded our
warehouse management and information systems, and opened our distribution center
in the United Kingdom.
INDUSTRY OVERVIEW
We operate in the rapidly growing scented candle segment of the giftware
industry. Independent industry sources estimate that:
- the domestic giftware industry has grown on average 12% per year since the
early 1990's to reach $47 billion in 1997,
- the domestic market for candles has grown 10 to 15% per year since the
early 1990's to reach $2.1 billion in 1998, and
1
<PAGE>
- the scented candle segment, in which we compete, represents the fastest
growing part of the candle and home fragrancing industry.
The scented candle market is expected to continue to grow based on favorable
consumer trends including increased purchases for home decor and gifts and the
year-round usage of scented candles as an affordable luxury.
OUR COMPETITIVE STRENGTHS
WE HAVE A STRONG BRAND IDENTITY AS THE LEADING PREMIUM CANDLE COMPANY WITH A
LOYAL CUSTOMER BASE. Since 1993 we have consistently been ranked number one in
sales in the domestic candle category and in the top two for product re-orders
across all giftware categories by GiftBeat, a giftware industry newsletter. We
also had 74% of our retail customers rank us as better than other candle brands
according to Unity Marketing.
WE HAVE A WELL-ESTABLISHED, NATIONAL WHOLESALE CUSTOMER BASE. Our brand
name, the popularity and profitability of our merchandise and our successful
product display system have made us the top-selling product for many of our
wholesale customers, 65% of whom have been our customers for over five years.
WE HAVE A DEMONSTRATED ABILITY TO CARRY OUT OUR RETAIL EXPANSION. Our strong
wholesale presence and nationally recognized brand have enabled us to
successfully roll-out our retail stores. All but one of our retail stores have
been profitable beginning in their first year of operation. As of May 25, 1999,
we had 73 retail stores in 23 states. Since 1996 we have experienced 38% annual
growth in retail sales and comparable store growth of over 16%.
WE DESIGN, MANUFACTURE AND DISTRIBUTE OUR OWN PRODUCTS. This enables us to
ensure the highest quality products, prompt delivery to our wholesale customers
and retail stores and high margins, all of which give us a significant advantage
over our competitors.
OUR CHAIRMAN AND SENIOR MANAGEMENT HAVE A COMBINED 80 YEARS OF EXPERIENCE IN
THE CANDLE INDUSTRY AND OVER 90 YEARS OF EXPERIENCE IN THE RETAIL SECTOR. Three
of our top four executives have each been with Yankee Candle for 17 years and
many of our key managers in manufacturing, site selection and product
development have tenures of over 15 years with our company.
OUR GROWTH STRATEGY
WE PLAN TO RAPIDLY EXPAND OUR RETAIL STORE BASE. As of May 25, 1999, we have
opened 11 stores in 1999 and we plan to open approximately 29 additional stores
by the end of the year. We believe that the transferability of our retailing
format, our proven record of successfully opening new stores, our continuing
investment in training and management information systems and our focus on high
visibility retail locations in premium malls all contribute to our ability to
rapidly and successfully expand our retail stores.
WE PLAN TO CONTINUE TO GROW OUR SALES THROUGH OUR WHOLESALE DISTRIBUTION
CHANNEL. We are committed to continuing to grow our wholesale business, which
grew by over 22% annually over the last three years. We plan to add new
locations, increase the average order size and re-order frequency of our
existing customers and invest significant capital in new promotional programs,
improved telemarketing systems and enhanced customer service.
WE PLAN TO EXPAND OUR INTERNATIONAL SALES. We currently sell our products
through international distributors and, in June 1998, we established our own
European wholesale subsidiary in order to take advantage of the $1 billion
European candle market.
WE PLAN TO EXPAND OUR DIRECT MAIL CATALOG AND INTERNET OPERATIONS. We expect
our sales to grow through our direct mail catalog and Internet website as a
result of demographic and lifestyle changes in the consumer population.
2
<PAGE>
WE PLAN TO CONTINUE TO INTRODUCE NEW PRODUCTS. As a product and market
innovator in the premium scented candle segment of the giftware industry, we
maintain a strong in-house product design and development team and plan to
introduce 12 new fragrances and several new candle lines in 1999.
THE 1998 RECAPITALIZATION AND THE REORGANIZATION IN CONNECTION WITH THIS
OFFERING
In April 1998, we completed a recapitalization of Yankee Candle. As a result
of the 1998 recapitalization and a reorganization occurring in connection with
this offering, the Forstmann Little partnerships will own approximately 85% of
our common stock and directors, officers and employees of Yankee Candle,
including Michael Kittredge, will own the balance immediately prior to the
closing of this offering. After giving effect to this offering, the Forstmann
Little partnerships will own % of our common stock and the other existing
stockholders will own %.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
Yankee Candle................. shares
The selling stockholders...... shares
-------
Total....................... shares
-------
-------
Common stock to be outstanding
after the offering............ shares
Use of proceeds................. The net proceeds to Yankee Candle from the offering are
estimated to be approximately $ million. We will use the
net proceeds from the offering, together with proceeds of
$220 million from a new credit facility and available cash,
to redeem $320 million aggregate principal amount of Yankee
Candle's outstanding subordinated debentures.
Proposed NYSE symbol............ YCC
</TABLE>
-------------------
Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale of up to shares of common stock which
the underwriters have the option to purchase from the selling stockholders to
cover over-allotments.
The number of shares of our common stock that will be outstanding
immediately after the offering listed above includes shares of common
stock, or shares if the over-allotment option is exercised, which are
expected to be issued in connection with the offering upon exercise of
outstanding stock options and which shares will be sold in the offering. The
number does not include shares issuable upon the exercise of additional
outstanding stock options at April 3, 1999, with a weighted average exercise
price of $ .
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
Before the recapitalization on April 27, 1998, Yankee Candle was an S
Corporation for federal and state income tax purposes. As a result, our taxable
earnings were taxed directly to our then existing sole stockholder. Since the
1998 recapitalization, Yankee Candle has been a C Corporation subject to federal
and state income taxes.
The data set forth for the following items assumes that Yankee Candle was
subject to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods:
- pro forma provision (benefit) for income taxes,
- pro forma net income (loss), and
- pro forma earnings per share (basic and diluted).
Pro forma statement of operations data, as adjusted for the 1998
recapitalization, the refinancing of the subordinated debentures and the
offering, also gives effect to the 1998 recapitalization, the refinancing and
the offering as if they had occurred on January 1, 1998. The balance sheet data,
as adjusted for the refinancing and the offering, gives effect to the
refinancing and the offering as if they had occurred on December 31, 1998.
<TABLE>
<CAPTION>
THREE THIRTEEN
YEAR ENDED DECEMBER 31, MONTHS WEEKS
------------------------------- ENDED ENDED
1996 1997 1998 MARCH 31, 1998 APRIL 3, 1999
--------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ 112,199 $ 144,103 $ 184,477 $ 35,313 $ 46,590
Cost of goods sold.................................. 53,207 62,069 79,105 16,400 20,804
--------- --------- --------- ------- -------------
Gross profit........................................ 58,992 82,034 105,372 18,913 25,786
Selling expenses.................................... 23,244 26,935 30,546 7,480 8,509
General and administrative expenses................. 21,687 27,031 19,753 4,006 6,213
Bonus related to the 1998 recapitalization.......... -- -- 61,263 -- --
--------- --------- --------- ------- -------------
Income (loss) from operations....................... 14,061 28,068 (6,190) 7,427 11,064
Interest income..................................... (165) (151) (219) (48) (290)
Interest expense.................................... 1,913 2,154 16,268 369 5,768
Other (income) expense.............................. 221 334 737 (11) (44)
--------- --------- --------- ------- -------------
Income (loss) before provision for income taxes..... 12,092 25,731 (22,976) 7,117 5,630
Provision for income taxes.......................... 410 1,360 9,656 -- 2,252
--------- --------- --------- ------- -------------
Net income (loss)................................... $ 11,682 $ 24,371 $ (32,632) $ 7,117 $ 3,378
--------- --------- --------- ------- -------------
--------- --------- --------- ------- -------------
Historical basic earnings per share.................
Historical diluted earnings per share...............
Pro forma provision (benefit) for income taxes...... 4,830 10,686 (8,731) 2,704
Pro forma net income (loss)......................... $ 7,262 $ 15,045 $ (14,245) $ 4,413
--------- --------- --------- -------
--------- --------- --------- -------
Pro forma basic earnings per share..................
Pro forma diluted earnings per share................
Weighted average basic shares outstanding...........
Weighted average diluted shares outstanding.........
PRO FORMA STATEMENT OF OPERATIONS DATA, AS ADJUSTED
FOR THE 1998 RECAPITALIZATION, THE REFINANCING AND
THE OFFERING:
Net income.......................................... $ 23,326 $ 4,351
Interest expense.................................... 16,933 4,147
Basic earnings per common share.....................
Diluted earnings per common share...................
Weighted average basic shares outstanding...........
Weighted average diluted shares outstanding.........
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED DECEMBER 31, THREE MONTHS WEEKS
------------------------------- ENDED ENDED
1996 1997 1998 MARCH 31, 1998 APRIL 3, 1999
--------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OTHER DATA:
Number of retail stores (at period end)............ 34 47 62 49 67
Comparable store growth............................ 18.4% 16.4% 16.5% 15.2% 17.9%
Gross profit margin................................ 52.6% 56.9% 57.1% 53.6% 55.4%
Adjusted EBITDA margin(1)(2)(3).................... 24.5% 29.2% 32.1% 23.8% 26.7%
Depreciation and amortization...................... $ 3,094 $ 3,581 $ 4,662 $ 981 $ 1,305
Capital expenditures............................... 10,076 9,173 9,433 1,604 4,242
CASH FLOW DATA:
EBITDA(1).......................................... $ 16,934 $ 31,315 $ (2,865) $ 8,419 $ 12,209
Adjusted EBITDA(2)................................. 27,451 42,139 59,251 8,408 12,448
Net cash flows from operating activities........... 17,230 30,035 (11,578) 7,156 1,345
Net cash flows from investing activities........... (10,987) (9,961) (9,305) (1,265) (3,933)
Net cash flows from financing activities........... (9,112) (13,541) 43,917 (10,637) (271)
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 3,
1999
AS ADJUSTED FOR
AS OF DECEMBER 31, AS OF THE REFINANCING
------------------------------- APRIL 3, AND THE
1996 1997 1998 1999 OFFERING
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 844 $ 7,377 $ 30,411 $ 27,560 $ 14,560
Working capital (excluding cash and cash
equivalents)......................................... 1,817 (12,487) 493 4,079 6,237
Total assets........................................... 59,550 73,096 275,345 284,700 273,464
Total debt............................................. 12,045 25,264 320,000 320,000 220,000
Total stockholders' equity (deficit)................... 37,180 34,791 (68,591) (65,216) 23,548
- ------------------------------
<FN>
(1) EBITDA represents earnings before interest, income taxes, depreciation and amortization. For this purpose,
amortization does not include amortization of deferred financing costs of $600 in 1998 and $204 for the
thirteen weeks ended April 3, 1999, which amount is included in interest expense. EBITDA is presented because
it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA as presented may not be comparable to similarly titled
measures reported by other companies since not all companies necessarily calculate EBITDA in an identical
manner and therefore is not necessarily an accurate means of comparison between companies. EBITDA is not
intended to represent cash flows for the period or funds available for management's discretionary use nor has
it been represented as an alternative to operating income as an indicator of operating performance and should
not be considered in isolation or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
(2) Adjusted EBITDA reflects adjustments to eliminate (a) the bonus of $61,263 in 1998 related to the 1998
recapitalization, (b) other (income) expense, (c) non-cash stock based compensation, and (d) compensation and
benefits, net of current annual compensation and benefits of $338, paid to the former sole stockholder of the S
Corporation of $10,296 and $10,490 for 1996 and 1997, respectively. The comparable amounts for 1994 and 1995 of
$8,354 and $7,156 are not reflected above but are included in the adjusted EBITDA calculation in "Selected
Financial and Other Data." Adjusted EBITDA does not reflect adjustments to eliminate commissions paid through
March 1998 to independent manufacturer representatives, which were replaced by a direct sales force. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion.
(3) Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net sales.
</FN>
</TABLE>
6
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY OWNERSHIP
INTEREST IN YANKEE CANDLE. THE VALUE OF YOUR INVESTMENT MAY INCREASE OR
DECREASE. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO
INVEST IN SHARES OF OUR COMMON STOCK.
WE MAY NOT BE ABLE TO GROW OUR BUSINESS AS PLANNED.
We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our retail and wholesale operations both in the United
States and internationally. Our retail growth strategy depends in large part on
our ability to open new stores in both existing and new geographic markets.
Since we are planning to open more stores each year than we have in the past, we
may not be able to achieve our planned growth or sustain our financial
performance. Our ability to implement our growth strategy successfully will also
be dependent in part on factors beyond our control, including changes in
consumer preferences and in our competitive environment. Our ability to
anticipate changes in the candle and giftware industries, and identify industry
trends will be critical factors in our ability to remain competitive.
We expect that, as we grow, it will become more difficult to maintain our
growth rate. We cannot assure you that we will continue to grow at a rate
comparable to our historic growth rate or that our historic financial
performance will continue as we grow.
WE FACE SIGNIFICANT COMPETITION IN THE GIFTWARE INDUSTRY, WHICH COULD ADVERSELY
AFFECT OUR FUTURE FINANCIAL RESULTS.
We compete generally for the disposable income of consumers with other
producers in the $47 billion giftware industry. The giftware industry is highly
competitive with a large number of both large and small participants. Our
products compete with other scented and unscented candle products and with other
gifts within a comparable price range, like boxes of candy, flowers, wine, fine
soap and related merchandise. Our retail stores compete with franchised candle
store chains, specialty candle stores and gift and houseware retailers. Some of
our competitors are part of large, diversified companies which have greater
financial resources and a wider range of product offerings than we do. This
competitive environment could adversely affect our future financial results.
WE INCURRED INDEBTEDNESS IN CONNECTION WITH OUR 1998 RECAPITALIZATION, AND
SERVICING OUR INDEBTEDNESS COULD REDUCE FUNDS AVAILABLE TO GROW OUR BUSINESS.
We incurred approximately $330 million of indebtedness in connection with
the 1998 recapitalization, of which $200 million was used to repurchase common
stock from Michael Kittredge. After the application of the proceeds of this
offering, we will have long-term debt of $220 million on a pro forma basis as of
April 3, 1999. Although we believe that our cash flow from operations and our
available financing should be sufficient to meet our anticipated requirements
for growing our business and servicing our debt, our level of indebtedness could
reduce funds available to grow our business in the future.
OUR SUCCESS DEPENDS ON OUR SENIOR EXECUTIVE OFFICERS, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS.
Our success is substantially dependent upon the retention of our senior
executive officers. We do not have employment agreements with any of our senior
executive officers, except our Chief Financial Officer. If our senior executive
officers become unable or unwilling to participate in the business of Yankee
Candle, our future business and financial performance could be materially
affected.
BECAUSE WE ARE NOT A DIVERSIFIED COMPANY AND ARE DEPENDENT UPON ONE INDUSTRY, WE
HAVE LESS FLEXIBILITY IN REACTING TO UNFAVORABLE CONSUMER TRENDS, ADVERSE
ECONOMIC CONDITIONS OR BUSINESS CYCLES.
7
<PAGE>
THE LOSS OF OUR MANUFACTURING FACILITY WOULD DISRUPT OUR OPERATIONS.
We rely exclusively on our manufacturing facility in Whately, Massachusetts
to produce our candle products. Because most of our machinery is designed or
customized by us to manufacture our products and because we have strict quality
control standards for our products, the loss of our manufacturing facility, due
to natural disaster or otherwise, would materially affect our operations.
Although our manufacturing facility is adequately insured, we believe it would
take a minimum of nine months to replace the plant and machinery to a level
equivalent to their current level of production and quality control standards.
WE MAY EXPERIENCE A DECLINE IN OUR RETAIL COMPARABLE STORE SALES, WHICH COULD
CAUSE THE PRICE OF OUR COMMON STOCK TO DROP.
Our comparable store sales from our retail business have contributed
significantly to our overall sales growth. Our retail comparable store sales
could be adversely impacted by competition or our inability to execute our
business strategy. If our retail comparable store sales declined for any reason,
we could experience a loss in our revenues and income, which could lower the
price of our common stock.
SEASONAL AND QUARTERLY FLUCTUATIONS IN OUR BUSINESS COULD AFFECT THE MARKET FOR
OUR COMMON STOCK.
Our revenues and operating results vary from quarter to quarter. We have
historically realized higher revenues and operating income in our fourth
quarter, particularly in our retail business which is becoming a larger portion
of our sales. We believe that this has been due primarily to an increase in
giftware industry sales during the holiday season of the fourth quarter. As a
result of this seasonality, we believe that quarter to quarter comparisons of
our operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance. In addition, we may
also experience quarterly fluctuations in our revenues and income depending on
how many new retail stores we open in a particular quarter. These quarterly
fluctuations that we may report in the future may not match the expectations of
market analysts and investors. This could cause the trading price of our common
stock to fluctuate.
WE ARE CONTROLLED BY FORSTMANN LITTLE AND OUR MANAGEMENT, WHOSE INTERESTS MAY
CONFLICT WITH THOSE OF OTHER STOCKHOLDERS.
Following the offering, the Forstmann Little partnerships and our management
will together own approximately % of our outstanding common stock on a fully
diluted basis and will continue to control us. Accordingly, they will be able
to:
- elect our entire board of directors,
- control our management and policies, and
- determine, without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our stockholders
for approval, including mergers, consolidations and the sale of all or
substantially all of our assets.
They will also be able to prevent or cause a change in control of Yankee
Candle and will be able to amend our Articles of Organization and By-Laws at any
time. The interests of the Forstmann Little partnerships and our management also
may conflict with the interests of the other holders of common stock.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE A SIGNIFICANT PART OF YOUR INVESTMENT AS A RESULT.
Prior to this offering, there has been no public market for our common
stock. We plan to submit an application to list our common stock on the NYSE. We
do not know how the common stock will trade in the future. The initial public
offering price will be determined through negotiations among the
8
<PAGE>
underwriters, the selling stockholders and us. You may not be able to resell
your shares at or above the initial public offering price due to fluctuations in
the market price of our common stock. These fluctuations may result from a
number of factors, including:
- the perceived prospects of Yankee Candle,
- changes in our operating results,
- differences between our actual financial and operating results and those
expected by investors and research analysts,
- changes in research analysts' recommendations or projections, and
- changes in market conditions of the candle and giftware industries.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
EXISTING STOCKHOLDERS MAY SELL THEIR COMMON STOCK, WHICH COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of common stock into the public
market after this offering, or the perception that these sales could occur,
could materially and adversely affect our stock price. As of April 3, 1999 and
giving effect to the reorganization, there were shares of common stock
outstanding, excluding shares to be sold in this offering. After the offering,
persons who currently hold common stock will be entitled to register their
common stock under the Securities Act of 1933 at our expense. We have granted to
the Forstmann Little partnerships six demand rights to cause us to file a
registration statement under the Securities Act covering resales of the
shares of common stock to be held by them after this offering. These shares,
along with shares held by others who can participate in the registrations, will
represent % of our outstanding common stock following this offering. The
Forstmann Little partnerships have no present intent to exercise their demand
registration rights, although they retain the right to do so. These shares may
also be sold under Rule 144 of the Securities Act, depending on their holding
period and subject to significant restrictions in the case of shares held by
persons deemed to be affiliates of Yankee Candle.
PROVISIONS IN OUR CORPORATE DOCUMENTS AND MASSACHUSETTS LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF YANKEE CANDLE.
Our Articles of Organization and By-Laws may discourage, delay or prevent a
merger or acquisition involving Yankee Candle that our stockholders may consider
favorable, by:
- authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors,
- providing for a classified board of directors, with staggered three-year
terms, and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at meetings.
Massachusetts law may also discourage, delay or prevent someone from
acquiring or merging with us. For a description you should read "Description of
Capital Stock."
9
<PAGE>
YEAR 2000 FAILURES MAY ADVERSELY IMPACT OUR OPERATIONS.
Our business could be adversely affected by information technology issues
related to the Year 2000. The Year 2000 issue is a broad business issue, whose
impact extends beyond traditional computer hardware and software to possible
failure of our plant systems, as well as to third parties. If any of our systems
are not Year 2000 compliant or if our customers or suppliers fail to achieve
Year 2000 compliance, we may experience the following adverse consequences:
- our customers may be unable to place orders with us due either to our
system failures or to those of our customers,
- we may be unable to bill our customers and maintain adequate production
scheduling, inventory cost accounting and other elements of our business
that are dependent upon computer systems, and
- we may be unable to deliver our products on a timely basis.
The ability of third parties with whom we do business to address adequately
their Year 2000 issues is outside our control. For a description of our Year
2000 compliance efforts you should read "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE SUBSTANTIAL DILUTION IN THE NET
TANGIBLE BOOK VALUE PER SHARE OF THEIR INVESTMENT.
The initial public offering price per share will exceed our net tangible
book value per share. As a result of this offering, our pro forma net tangible
book value per share as of April 3, 1999 will increase to $ , resulting in
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares of common stock in this offering. You may incur additional
dilution if holders of options to purchase common stock, whether currently
outstanding or subsequently granted, exercise their options following the
offering.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH COULD DIFFER FROM
ACTUAL FUTURE RESULTS.
This prospectus includes forward-looking statements. Statements that are
predictive in nature, that depend upon or refer to future events or conditions
or that include the words "expects," "anticipates," "intends," "plans,"
"believes," "estimates," "thinks" and similar expressions are forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors, including the factors described above, that may cause our actual
results and performance to be materially different from any future results or
performance expressed or implied by these forward-looking statements. Although
we believe that these statements are based upon reasonable assumptions, we
cannot assure you that our goals will be achieved. These forward-looking
statements are made as of the date of this prospectus, and we assume no
obligation to update or revise them or provide reasons why actual results may
differ.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to Yankee Candle from the sale of the shares of
common stock offered, after deducting estimated expenses of $ and
underwriting discounts and commissions, are estimated to be approximately
$ million. We will use these net proceeds, together with $220 million of
bank borrowings under a new credit facility and available cash, to redeem $320
million aggregate principal amount of Yankee Candle's outstanding subordinated
debentures evidenced by its 6 3/4% Series A Debentures due May 31, 2009, 6 3/4%
Series B Debentures due May 31, 2010 and 6 3/4% Series C Debentures due May 31,
2011. After the application of the net proceeds of the offering and additional
bank borrowings, none of these subordinated debentures will remain outstanding.
The indebtedness under the subordinated debentures was incurred in
connection with the 1998 recapitalization. The sources and uses of funds in
connection with the 1998 recapitalization were as follows (in thousands):
<TABLE>
<S> <C>
Sources of funds from the 1998 recapitalization:
Proceeds to Yankee Candle from subordinated debentures........ $ 320,000
Proceeds from credit facility ($2,500 at closing)............. 10,145
---------
Total sources............................................. $ 330,145
---------
---------
Uses of funds:
Redemption of shares of common stock from Michael Kittredge... $ 200,019
Repayment of existing indebtedness to third parties........... 49,313
Special bonuses............................................... 61,263
Transaction fees and expenses................................. 19,550
---------
Total uses................................................ $ 330,145
---------
---------
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Management--Relationships and Transactions between Yankee
Candle and its Officers, Directors, 5% Beneficial Owners and their Family
Members."
Yankee Candle will not receive any proceeds from the sale of common stock in
the offering by the selling stockholders. In connection with the offering,
approximately 22 of our directors, officers and employees are expected to
exercise stock options to purchase, in the aggregate, approximately shares of
common stock from Yankee Candle for an aggregate exercise price of approximately
$ . All of those shares are expected to be sold by selling stockholders in
the offering.
DIVIDEND POLICY
Yankee Candle does not intend to pay any cash dividends in the foreseeable
future but instead intends to retain earnings, if any, for the future operation
and expansion of the business. Any determination to pay dividends in the future
will be at the discretion of the board of directors and will be dependent upon
results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors deemed relevant by the
board of directors. In addition, Yankee Candle's new credit agreement will limit
its ability to declare or pay cash dividends on the common stock. See
"Description of the Credit Agreement." Future indebtedness may also prohibit or
restrict Yankee Candle's ability to pay dividends and make distributions to
stockholders.
11
<PAGE>
CERTAIN INFORMATION
All information in this prospectus relating to the number of shares of our
common stock or options is based upon information as of April 3, 1999, as
adjusted to reflect a reorganization in connection with this offering as
described in "Description of Capital Stock." Unless otherwise specifically
stated, all information in this prospectus assumes the issuance and sale of
common stock in the offering at an assumed initial public offering price of
$ per share.
This prospectus includes statistical data regarding the candle and giftware
industries which was obtained from industry publications, including reports
generated by Unity Marketing, Kline & Company, Inc. and GiftBeat. These industry
organizations generally indicate that they have obtained information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of their information. While we believe these industry publications
to be reliable, we have not independently verified their data.
12
<PAGE>
CAPITALIZATION
The following table sets forth our pro forma debt and capitalization as of
April 3, 1999, and as adjusted to give effect to the refinancing and this
offering.
<TABLE>
<CAPTION>
AS ADJUSTED FOR
THE REFINANCING
ACTUAL AND THE OFFERING
----------- -------------------
<S> <C> <C>
(IN THOUSANDS)
Long-term debt:
6 3/4% subordinated debentures.......................................... $ 320,000 $ --
Term loan............................................................... -- 150,000
Revolving credit loan................................................... -- 70,000
----------- ----------
Total long-term debt.................................................. 320,000 220,000
Stockholders' equity (deficit):
Common stock, no par value, 1,000 shares authorized and issued, 500
shares outstanding, actual; shares issued and outstanding, pro
forma.................................................................
Additional paid-in capital.............................................. 128,413 220,413
Treasury stock.......................................................... (212,988) (212,988)
Retained earnings....................................................... 22,524 19,288
Capital subscription receivable......................................... (815) (815)
Unearned stock compensation............................................. (2,239) (2,239)
Accumulated other comprehensive income.................................. (111) (111)
----------- ----------
Total stockholders' equity (deficit).................................. (65,216) 23,548
----------- ----------
Total capitalization.................................................. $ 254,784 $ 243,548
----------- ----------
----------- ----------
</TABLE>
Our actual capitalization as of April 3, 1999 reflects the April 27, 1998
transaction in which we were recapitalized. Pursuant to this recapitalization,
we borrowed approximately $320 million under subordinated debentures, which were
used in addition to other funds, in order to:
- redeem a portion of our common stock held by our then sole stockholder for
approximately $200 million,
- pay transaction fees and expenses, including financing fees, of
approximately $19.6 million,
- repay existing indebtedness of $49.3 million, and
- pay bonuses of $61.3 million related to this transaction to certain of our
senior employees, primarily Mr. Parry, Mr. Harry Flood, Ms. Gail Flood,
Mr. Williams, Ms. Nancy Spanbauer and Ms. Ann Morissey.
The subordinated debentures are divided into three equal series, due on May
31, 2009, May 31, 2010 and May 31, 2011. The subordinated debentures provide for
an interest rate of 6 3/4% and provide for interest to be paid semi-annually.
We entered into a credit agreement with a consortium of banks at the time of
the 1998 recapitalization that provided for a $60 million revolving credit
facility. There were no borrowings under this facility at April 3, 1999.
13
<PAGE>
DILUTION
At April 3, 1999, we had a pro forma net tangible book deficit of $
million or $ per share of common stock. Pro forma net tangible book value per
share is determined by dividing our tangible net book value (total tangible
assets less total liabilities) by the total number of shares of common stock
outstanding. After giving effect to the sale of the shares of common stock
offered by us in this offering at an assumed initial public offering price of
$ per share, and after deducting estimated underwriting discounts and
commissions and offering expenses payable by us, our adjusted net tangible book
value would have been approximately $ , or $ per share of common
stock. This represents an immediate increase in net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share to
new investors purchasing shares of common stock in the offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book deficit per share
before the offering.............................. $
Increase in pro forma net tangible book value per
share attributable to new investors..............
---------
Pro forma net tangible book value per share after the
offering......................................................
---------
Dilution per share to new investors............................. $
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of April 3, 1999,
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by our existing stockholders and to be
paid by new investors in the offering at an assumed initial public offering
price of $ , and before deduction of estimated underwriting discounts and
commissions and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................. % $ % $
New investors.......................................... % %
---------- ----- ------------ -----
Total............................................ % $ %
---------- ----- ------------ -----
---------- ----- ------------ -----
- ------------------------
<FN>
(1) Does not reflect the sale of shares of common stock by the selling stockholders in the offering.
</FN>
</TABLE>
This table assumes the sale of shares of common stock by Yankee Candle
to some of the selling stockholders pursuant to existing option agreements for
an aggregate option exercise price of $ .
After giving effect to the reorganization but prior to the closing of this
offering, the total number of our stockholders will be 13.
Sales by the selling stockholders in the offering will reduce the number of
shares of common stock held by existing stockholders to or approximately
% of the total number of shares of common stock outstanding after the offering
and will increase the number of shares of common stock held by new investors to
or approximately % of the total number of shares of common stock
outstanding after the offering.
14
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
You should read the selected historical financial and other data below in
conjunction with the "Consolidated Financial Statements" and the "Unaudited Pro
Forma Consolidated Condensed Financial Statements" and the accompanying notes to
each. You should also read "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical financial data as of
December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and
1998 have been derived from the audited consolidated financial statements and
the accompanying notes included elsewhere in this prospectus. The historical
financial data as of December 31, 1994, 1995 and 1996 and for the years ended
December 31, 1995 and 1994 have been derived from audited financial statements
for the corresponding period, which are not contained in this prospectus. The
historical financial data as of April 3, 1999 and for the three months ended
March 31, 1998 and for the thirteen weeks ended April 3, 1999 have been derived
from the unaudited interim condensed consolidated financial statements and the
accompanying notes included elsewhere in this prospectus.
Before the recapitalization on April 27, 1998, Yankee Candle was an S
Corporation for federal and state income tax purposes. As a result, our taxable
earnings were taxed directly to our then existing sole stockholder. Since the
1998 recapitalization, Yankee Candle has been a C Corporation subject to federal
and state income taxes.
The data set forth for the following items assumes that Yankee Candle was
subject to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods:
- pro forma provision (benefit) for income taxes,
- pro forma net income (loss), and
- pro forma earnings per share (basic and diluted).
EBITDA, adjusted EBITDA and adjusted EBITDA margin are defined in footnotes
(1), (2) and (3) to "Summary Consolidated Financial and Other Data."
15
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN
YEAR ENDED DECEMBER 31, THREE MONTHS WEEKS
----------------------------------------------------- ENDED ENDED
1994 1995 1996 1997 1998 MARCH 31, 1998 APRIL 3, 1999
--------- --------- --------- --------- --------- --------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 69,848 $ 94,777 $ 112,199 $ 144,103 $ 184,477 $ 35,313 $ 46,590
Cost of goods sold................ 32,758 45,724 53,207 62,069 79,105 16,400 20,804
--------- --------- --------- --------- --------- ------- -------------
Gross profit...................... 37,090 49,053 58,992 82,034 105,372 18,913 25,786
Selling expenses.................. 14,227 19,789 23,244 26,935 30,546 7,480 8,509
General and administrative
expenses........................ 15,165 15,450 21,687 27,031 19,753 4,006 6,213
Bonus related to the 1998
recapitalization................ -- -- -- -- 61,263 -- --
--------- --------- --------- --------- --------- ------- -------------
Income (loss) from operations..... 7,698 13,814 14,061 28,068 (6,190) 7,427 11,064
Interest income................... (43) (49) (165) (151) (219) (48) (290)
Interest expense.................. 818 1,824 1,913 2,154 16,268 369 5,768
Other (income) expense............ (46) 1,168 221 334 737 (11) (44)
--------- --------- --------- --------- --------- ------- -------------
Income (loss) before provision for
income taxes.................... 6,969 10,871 12,092 25,731 (22,976) 7,117 5,630
Provision for income taxes........ 190 316 410 1,360 9,656 -- 2,252
--------- --------- --------- --------- --------- ------- -------------
Net income (loss)................. $ 6,779 $ 10,555 $ 11,682 $ 24,371 $ (32,632) $ 7,117 $ 3,378
--------- --------- --------- --------- --------- ------- -------------
--------- --------- --------- --------- --------- ------- -------------
Historical basic earnings per
share...........................
Historical diluted earnings per
share...........................
Pro forma provision (benefit) for
income taxes.................... 2,411 4,115 4,830 10,686 (8,731) 2,704
Pro forma net income (loss)....... $ 4,558 $ 6,756 $ 7,262 $ 15,045 $ (14,245) $ 4,413
--------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- -------
Pro forma basic earnings per
share...........................
Pro forma diluted earnings per
share...........................
Weighted average basic shares
outstanding.....................
Weighted average diluted shares
outstanding.....................
OTHER DATA:
Number of retail stores (at period
end)............................ 14 26 34 47 62 49 67
Gross profit margin............... 53.1% 51.8% 52.6% 56.9% 57.1% 53.6% 55.4%
Adjusted EBITDA margin............ 24.7% 24.4% 24.5% 29.2% 32.1% 23.8% 26.7%
Depreciation and amortization..... $ 1,195 $ 2,186 $ 3,094 $ 3,581 $ 4,662 $ 981 $ 1,305
Capital expenditures.............. 13,585 10,845 10,076 9,173 9,433 1,604 4,292
CASH FLOW DATA:
EBITDA............................ $ 8,939 $ 14,832 $ 16,934 $ 31,315 $ (2,865) $ 8,419 $ 12,209
Adjusted EBITDA................... 17,247 23,156 27,451 42,139 59,251 8,408 12,448
Net cash flows from operating
activities...................... 7,664 9,298 17,230 30,035 (11,578) 7,156 1,345
Net cash flows from investing
activities...................... (13,285) (11,214) (10,987) (9,961) (9,305) (1,265) (3,933)
Net cash flows from financing
activities...................... 2,985 3,944 (9,112) (13,541) 43,917 (10,637) (271)
BALANCE SHEET DATA (AS OF END OF
PERIOD):
Cash and cash equivalents......... $ 1,684 $ 3,713 $ 844 $ 7,377 $ 30,411 $ 27,560
Working capital (excluding cash
and cash equivalents)........... 3,247 4,977 1,817 (12,487) 493 4,079
Total assets...................... 38,932 56,397 59,550 73,096 275,345 284,700
Total debt........................ 11,441 18,018 12,045 25,264 320,000 320,000
Total stockholders' equity
(deficit)....................... 19,545 28,623 37,180 34,791 (68,591) (65,216)
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements have been derived by the application of pro forma adjustments to our
historical consolidated financial statements included elsewhere in this
prospectus. The unaudited pro forma consolidated condensed statement of
operations for the thirteen week period ended April 3, 1999 and the year ended
December 31, 1998 give effect to the 1998 recapitalization, the refinancing of
the subordinated debentures and the offering as if the transactions were
consummated on January 1, 1999 and January 1, 1998, respectively. The unaudited
pro forma consolidated condensed balance sheet as of April 3, 1999 gives effect
to the refinancing and the offering as if the transactions had occurred on April
3, 1999. The pro forma adjustments are described in the accompanying notes to
the unaudited pro forma consolidated condensed balance sheet and to the
unaudited pro forma consolidated condensed statement of operations.
The unaudited pro forma consolidated condensed financial statements should
not be considered indicative of actual results that would have been achieved had
the 1998 recapitalization, the refinancing and the offering been consummated on
the dates or for the period indicated and do not purport to indicate balance
sheet data or results of operations as of any future date or for any future
period. The unaudited pro forma consolidated condensed financial statements
should be read in conjunction with our historical consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE 1998
RECAPITALIZATION,
THE REFINANCING
ACTUAL AND THE OFFERING PRO FORMA
----------- ------------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 184,477 $ 184,477
Cost of sales...................................................... 79,105 79,105
----------- -----------
Gross profit..................................................... 105,372 105,372
Operating Expenses:
Selling expenses................................................. 30,546 30,546
General and administrative expenses.............................. 19,753 19,753
Bonus related to the recapitalization............................ 61,263 (61,263) (1) --
----------- ------- -----------
Income (loss) from operations...................................... (6,190) 55,073
Other (income) expense:
Interest income.................................................... (219) (219)
Interest expense................................................... 16,268 665(2) 16,933
Other expense...................................................... 737 737
----------- ------- -----------
Income (loss) before provision for income taxes.................... (22,976) 37,622
Pro forma provision (benefit) for income taxes..................... (8,731) 23,027(3) 14,296
----------- -----------
Pro forma net income (loss)........................................ $ (14,245) $ 23,326(4)
----------- -----------
----------- -----------
Pro forma basic earnings (loss) per common share................... $ $
Pro forma diluted earnings (loss) per common share................. $ $
Weighted average basic shares outstanding..........................
Weighted average diluted shares outstanding........................
</TABLE>
17
<PAGE>
The pro forma financial data shown above have been derived by the
application of pro forma adjustments to Yankee Candle's historical consolidated
statement of operations for the year ended December 31, 1998. Our pro forma
presentation reflects the 1998 recapitalization, the concurrent conversion of
Yankee Candle from an S Corporation to a C Corporation for federal income tax
purposes, the refinancing of the subordinated debentures and the offering. The
adjustments have been applied to derive the pro forma consolidated statement of
operations as if the transactions had occurred on January 1, 1998 and include
only those adjustments that were or are directly attributable to the
transactions and that are anticipated to have a continuing impact. Material
non-recurring charges that resulted directly from the 1998 recapitalization and
the refinancing have been excluded from the pro forma presentation.
<TABLE>
<S> <C> <C> <C>
<FN>
(1) To eliminate the bonus related to the 1998 recapitalizaton........................ $(61,263)
---------
---------
(2) To adjust interest expense to reflect the following:
(a) Interest expense on the 6 3/4% subordinated debentures; no such
interest expense has been included, giving effect to the repayment of
the 6 3/4% subordinated debentures with the proceeds from the
refinancing and the offering........................................... $ 0
(b) Interest expense on the $150,000 term loan and $70,000 revolving credit
loan under the new credit facility, as if the refinancing had occurred
on January 1, 1998, at an assumed weighted average interest rate of
6.6%................................................................... 14,520
(c) Interest expense on working capital borrowings......................... 569
(d) Amortization of deferred financing costs giving effect to the 1998
recapitalization and the refinancing as if they had occurred on January
1, 1998................................................................ 1,209
(e) Facility fee on the new credit facility................................ 271
---------
Pro forma interest expense............................................. 16,569
Historical interest expense (including interest on the 6 3/4%
subordinated debentures and amortization of deferred financing
costs)................................................................. (15,904)
---------
Total adjustment....................................................... $ 665
---------
---------
A 0.125% increase or decrease in the assumed weighted average interest
rate with respect to the new credit facility would change pro forma
interest expense by $275. Pro forma net income would change by $171.
(3) To adjust the pro forma provision for income taxes for the tax effect of the
above-noted pro forma adjustments, which aggregated $60,598, at the 38% effective
marginal income tax rate in effect for 1998....................................... $ 23,027
(4) Pro forma net income (loss) does not include an extraordinary loss of
approximately $3,416, representing a $5,510 non-cash charge less the associated
income tax benefit of $2,094, resulting from the write-off of deferred financing
costs related to the 6 3/4% subordinated debentures. This amount will be charged
to earnings in the quarter in which the 6 3/4% subordinated debentures are repaid.
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATING TO THE
REFINANCING AND THE
ACTUAL OFFERING PRO FORMA
----------- ------------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 46,590 $ 46,590
Cost of sales...................................................... 20,804 20,804
----------- -----------
Gross profit..................................................... 25,786 25,786
Operating Expenses:
Selling expenses................................................. 8,509 8,509
General and administrative expenses.............................. 6,213 6,213
Transaction related bonuses...................................... -- --
----------- -----------
Income (loss) from operations...................................... 11,064 11,064
Other (income) expense:
Interest income.................................................. (290) (290)
Interest expense................................................. 5,768 (1,621) (1) 4,147
Other expense, net............................................... (44) (44)
----------- ------- -----------
Income (loss) before provision for income taxes.................... 5,630 7,251
Provision for income taxes......................................... 2,252 648(2) 2,900
----------- -----------
Net income (loss)................................................ $ 3,378 $ 4,351
----------- -----------
----------- -----------
Basic earnings (loss) per common share.............................
Diluted earnings (loss) per common share...........................
Weighted average basic shares outstanding..........................
Weighted average diluted shares outstanding........................
</TABLE>
The pro forma financial data shown above have been derived by the
application of pro forma adjustments to our historical consolidated statement of
operations for the thirteen weeks ended April 3, 1999. Our pro forma
presentation reflects the refinancing of the subordinated debentures and the
offering. Such adjustments have been applied to derive the pro forma
consolidated statement of operations as if such transactions occurred on January
1, 1999 and include only those adjustments that were or are directly
attributable to the transactions and that are anticipated to have a continuing
impact. Material
19
<PAGE>
non-recurring charges which resulted directly from the refinancing have been
excluded from the pro forma presentation.
<TABLE>
<S> <C> <C> <C>
(1) To adjust interest expense to reflect the following:
(a) Interest expense on the 6 3/4% subordinated debentures; no such interest
expense has been included, giving effect to the repayment of the 6 3/4%
subordinated debentures with the proceeds from the refinancing and the
offering................................................................ $ --
(b) Interest expense on the $150,000 term loan and $70,000 revolving credit
loan under the new credit facility, as if the refinancing had occurred
on January 1, 1999, at an assumed weighted average interest rate of
6.6%.................................................................... 3,630
(c) Amortization of deferred financing costs giving effect to the
refinancing as if it had occurred on January 1, 1999.................... 302
(d) Facility fee on the new credit facility................................. 75
---------
Pro forma interest expense.............................................. 4,007
Historical interest expense............................................. (5,628)
---------
Total adjustment........................................................ $ (1,621)
---------
---------
A 0.125% increase or decrease in the assumed weighted average interest
rate with respect to the new credit facility would change pro forma
interest expense by $69. Pro forma net income would change by $27.
(2) To adjust the pro forma provision for income taxes for the tax effect of the above-
noted pro forma adjustment at the 40% effective marginal income tax rate in effect
for 1999........................................................................... $ 648
(3) Pro forma net income does not include an extraordinary loss of approximately
$3,236, representing a $5,394 non-cash charge less the associated income tax
benefit of $2,158, that results from the write-off of deferred financing costs
related to the 6 3/4% subordinated debentures. This amount will be charged to
earnings in the thirteen week period in which the 6 3/4% subordinated debentures
are repaid.
</TABLE>
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF APRIL 3, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
THE REFINANCING
AND THE
ACTUAL OFFERING PRO FORMA
-------- --------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 27,560 $(13,000)(1) $ 14,560
Accounts receivable...................................................... 10,299 10,299
Inventory................................................................ 19,688 19,688
Prepaid expenses and other current assets................................ 1,395 1,395
Deferred tax assets...................................................... 1,542 2,158(5) 3,700
-------- --------------- ---------
Total current assets................................................... 60,484 (10,842) 49,642
Property, plant and equipment (net)........................................ 51,413 51,413
Marketable securities...................................................... 618 618
Classic vehicles........................................................... 874 874
Deferred financing costs................................................... 6,362 (394)(2) 5,968
Deferred tax assets........................................................ 164,474 164,474
Other assets............................................................... 475 -- 475
-------- --------------- ---------
Total assets........................................................... $284,700 $(11,236) $273,464
-------- --------------- ---------
-------- --------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................................... $ 13,337 $ -- $ 13,337
Accrued interest......................................................... 7,398 7,398
Accrued payroll.......................................................... 4,259 4,259
Other accrued liabilities................................................ 3,851 3,851
-------- --------------- ---------
Total current liabilities.............................................. 28,845 28,845
Deferred compensation obligation........................................... 1,071 1,071
Subordinated debentures.................................................... 320,000 (320,000)(3) --
Term loan.................................................................. -- 150,000(3) 150,000
Revolving credit loan...................................................... -- 70,000(3) 70,000
-------- --------------- ---------
Total liabilities...................................................... 349,916 (100,000) 249,916
Stockholders' equity (deficit):
Common stock............................................................. -- -- --
Additional paid-in capital............................................... 128,413 92,000(4) 220,413
Treasury stock........................................................... (212,988) (212,988)
Retained earnings........................................................ 22,524 (3,236)(5) 19,288
Capital subscription receivable.......................................... (815) (815)
Unearned stock compensation.............................................. (2,239) -- (2,239)
Accumulated other comprehensive income................................... (111) (111)
-------- --------------- ---------
Total stockholders' equity (deficit)................................... (65,216) 88,764 23,548
-------- --------------- ---------
Total liabilities and stockholders' equity (deficit)................... $284,700 $(11,236) $273,464
-------- --------------- ---------
-------- --------------- ---------
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
The pro forma consolidated financial data shown above have been derived by the application of pro forma
adjustments to the Company's historical consolidated balance sheet as of April 3, 1999. Our pro forma presentation
reflects the refinancing of the subordinated debentures and the offering. The adjustments have been applied to the
pro forma consolidated financial statements as if the transactions had occurred on January 1, 1999 and include only
those adjustments that are directly attributable to the transactions.
(1) Sources and uses of cash from the offering are as follows:
</TABLE>
<TABLE>
<S> <C>
Sources of funds:
Proceeds to Yankee Candle from this offering.................... $ 100,000
New borrowings in connection with the refinancing:
Term loan..................................................... 150,000
Revolving credit loan......................................... 70,000
---------
Total sources............................................... $ 320,000
---------
---------
Uses of funds:
Repayment of subordinated debentures............................ $ 320,000
Deferred financing costs........................................ 5,000
Estimated offering fees and expenses............................ 8,000
---------
Total uses.................................................. 333,000
---------
---------
Net adjustment to cash...................................... $ (13,000)
---------
---------
</TABLE>
(2) To reflect the write-off of $5,394 deferred financing costs associated with
the repayment of the 6 3/4% subordinated debentures and to reflect deferred
financing costs of $5,000 related to the refinancing.
(3) To reflect the repayment of the 6 3/4% subordinated debentures with the
proceeds of the refinancing and the offering.
(4) To reflect the proceeds of the offering of $92,000, net of estimated
expenses of $8,000.
(5) To reflect the extraordinary loss of approximately $3,236, representing a
$5,394 non-cash charge less the associated tax benefit of $2,158, that
results from the write-off of deferred financing costs related to the
repayment of the 6 3/4% subordinated debentures.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have experienced
strong sales growth with net sales increasing to $184.5 million in 1998 from
$69.8 million in 1994, a compound annual growth rate of over 27%. The following
discussion provides further information regarding our two primary distribution
channels, performance measures and quarterly operating results.
THE WHOLESALE CHANNEL
Our wholesale distribution strategy targets small, independent,
credit-worthy gift store retailers. We distribute our products through our
extensive wholesale customer base which has approximately 12,000 gift store
locations throughout the United States. Our wholesale base is broad with no
individual buying group accounting for more than 2% of our sales. Accordingly,
there is little likelihood of a concentration of credit risk with any individual
account.
In 1997, we began our transition from a sales force of independent
manufacturer representatives to an in-house direct sales force. We completed
this process in early 1998. We believe that the conversion to an in-house sales
force has strengthened our competitive position by allowing us to communicate
directly with our customers and better serve them through enhanced inventory
management, order accuracy, response time, marketing and display programs. It
has also enabled us to reduce costs.
From 1996 to 1998, sales from our wholesale division grew from $69.3 million
to $103.3 million, a compound annual growth rate of 22%.
RETAIL STORES
Our retail stores are an important and fast growing distribution channel and
represent an increasing percentage of our total sales. We have increased our
retail locations over the past three years from 26 stores on January 1, 1996 to
62 stores on December 31, 1998, and believe that we have significant future
expansion opportunities. Prior to 1998, our store base was concentrated
primarily in the northeastern United States, and during 1998 we successfully
opened stores in eight states: Arizona, Colorado, Georgia, Florida, Kansas,
Michigan, Virginia and Texas. As of May 25, 1999, 50 of our stores were located
in malls and 23 were in non-mall locations in a total of 23 states.
Our stores, excluding the South Deerfield store, averaged 1,643 square feet
as of December 31, 1998. In 1998, our retail stores that were open for the full
year achieved average sales per square foot of over $650 and sales per selling
square foot were approximately 25% higher. Moreover, our retail stores generated
comparable store sales growth of 18.4% in 1996, 16.4% in 1997 and 16.5% in 1998.
From 1996 to 1998, sales from our retail division, which includes our retail
store, catalog and Internet operations, grew from $42.9 million to $81.2
million, a compound annual growth rate of 38%.
PERFORMANCE MEASURES
We measure the performance of our retail and wholesale segments through an
operating margin calculation, which specifically identifies not only gross
profit on the sales of products through the two channels but also costs and
expenses specifically identifiable to a given segment. Accordingly, the cost of
our in-house direct sales force, and, in the past, the cost of independent
manufacturer representatives, devoted to our wholesale channel are included in
the calculation of this channel's operating margin. In addition, the cost of
employees dedicated to retail site selection, store management, employee
training and many other retail specific activities are allocated to the retail
division.
23
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We have experienced, and may experience in the future, fluctuations in our
quarterly operating results. There are numerous factors that can contribute to
these fluctuations; however, the principal factors are seasonality and new store
openings.
SEASONALITY. We have historically realized higher revenues and operating
income in our fourth quarter, particularly in our retail business which is
becoming a larger portion of our sales. We believe that this has been due
primarily to an increase in giftware industry sales during the holiday season of
the fourth quarter. The table below shows a breakdown of our 1996, 1997 and 1998
sales by quarter. We anticipate our sales will continue to be seasonal in
nature.
<TABLE>
<CAPTION>
SALES BREAKDOWN BY QUARTER
------------------------------------------
Q1 Q2 Q3 Q4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996............................. 19.2% 17.1% 24.0% 39.7%
1997............................. 18.3% 17.5% 23.9% 40.3%
1998............................. 19.1% 15.7% 23.6% 41.6%
</TABLE>
NEW STORE OPENINGS. The timing of our new store openings may also have an
impact on our quarterly results. First, we incur certain one-time expenses
related to opening each new store. These expenses, which consist primarily of
salaries, supplies and marketing costs, average approximately $15,000 per store
and are expensed as incurred. Second, most store expenses vary proportionately
with sales, but there is a fixed cost component. This typically results in lower
store profitability when a new store opens because new stores generally have
lower sales than mature stores. Due to both of these factors, during periods
when new store openings as a percentage of the base are higher, operating profit
may decline in dollars and/or as a percentage of sales. As the store base
matures, the fixed cost component of selling expenses is spread over an
increased level of sales, resulting in a decrease in selling and other expenses
as a percentage of sales.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 3, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
NET SALES. Net sales increased 32.0% to $46.6 million for the thirteen
weeks ended April 3, 1999 from $35.3 million for the three months ended March
31, 1998. This growth was achieved by increasing the number of our retail stores
from 49 at March 31, 1998 to 67 at April 3, 1999, and increasing sales in
existing retail stores and to wholesale customers.
Wholesale sales increased 24.9% to $29.6 million for the thirteen weeks
ended April 3, 1999 from $23.7 million for the three months ended March 31,
1998. This growth was achieved primarily by increasing sales to existing
customers, adding new wholesale accounts and initiating sales through our new
European distribution center. We believe that wholesale sales growth has been
and will continue to be positively impacted by our increased promotional
spending, the addition of new wholesale locations and the transition from
independent manufacturer representatives to an in-house direct sales force.
Retail sales increased 46.6% to $17.0 million for the thirteen weeks ended
April 3, 1999 from $11.6 million for the three months ended March 31, 1998. This
growth was achieved through the addition of 18 new stores, and increased sales
in existing stores. Comparable store sales increased 17.9% over the first
quarter in 1998. There were 48 stores included in our comparable store base at
the end of the thirteen weeks ended April 3, 1999, and one of these stores was
included for less than the full period.
GROSS PROFIT. Gross profit increased 36.5% to $25.8 million for the
thirteen weeks ended April 3, 1999 from $18.9 million for the three months ended
March 31, 1998. This increase was primarily attributable to the increase in
sales. As a percentage of sales, gross profit increased to 55.4% for the
thirteen weeks ended April 3, 1999 from 53.5% for the three months ended March
31, 1998. We began to make significant
24
<PAGE>
investments in our manufacturing operations in 1998 and anticipate the favorable
benefits in 1999 and future years.
SELLING EXPENSES. Selling expenses increased 13.3% to $8.5 million for the
thirteen weeks ended April 3, 1999 from $7.5 million for the three months ended
March 31, 1998. These expenses are related to both our wholesale and retail
operations and consist of payroll, advertising, occupancy and other operating
costs. Excluding the commission paid to independent manufacturer
representatives, selling expenses increased 57.4% to $8.5 million for the
thirteen weeks ended April 3, 1999 from $5.4 million for the three months ended
March 31, 1998. As a percentage of sales, selling expenses excluding commissions
paid to independent manufacturer representatives were 18.2% for the thirteen
weeks ended April 3, 1999 and 15.3% for the three months ended March 31, 1998.
The increase in selling expense in dollars and as a percentage of sales was
primarily related to investment in wholesale promotional programs, costs
associated with our new European distribution center and the continued growth in
the number of retail stores we operated from 49 as of March 31, 1998 to 67 as of
April 3, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which consist primarily of personnel-related costs incurred in the
administration of support functions, increased 55.0% to $6.2 million for the
thirteen weeks ended April 3, 1999 from $4.0 million for the three months ended
March 31, 1998. As a percentage of sales, general and administrative expenses
increased to 13.3% for the thirteen weeks ended April 3, 1999 from 11.3% for the
three months ended March 31, 1998. This increase was primarily caused by
investments in building our organizational infrastructure and $0.6 million of
consulting expenses.
INCOME (LOSS) FROM OPERATIONS. Income from continuing operations increased
50.0% to $11.1 million for the thirteen weeks ended April 3, 1999 from $7.4
million for the three months ended March 31, 1998. This increase was primarily
due to higher sales and the elimination of commissions paid to independent
manufacturer representatives.
OPERATING MARGINS. Operating margins for our wholesale operations were
$12.8 million or 43.2% of wholesale sales for the thirteen weeks ended April 3,
1999 compared to $8.4 million or 35.4% of wholesale sales for the three months
ended March 31, 1998. The wholesale operating margin increase was primarily
attributable to higher sales and to the elimination of commissions paid to
independent manufacturer representatives. Operating margins for retail
operations were $2.8 million or 16.5% of retail sales for the thirteen weeks
ended April 3, 1999 compared to $1.5 million or 12.9% of sales for the three
months ended March 31, 1998. The retail operating margin increase was primarily
attributable to higher sales and lower selling expenses as a percentage of
sales.
NET OTHER INCOME (EXPENSE). Net other expense was $5.4 million for the
thirteen weeks ended April 3, 1999 compared to $0.3 million for the three months
ended March 31, 1998. The primary component of the expense was interest expense
which was $5.8 million for the thirteen weeks ended April 3, 1999 and $0.4
million for the three months ended March 31, 1998. In connection with the
recapitalization, we borrowed in 1998 $320.0 million which resulted in
significantly higher interest expense in 1999.
INCOME TAXES. The income tax provision for the thirteen weeks ended April
3, 1999 was $2.3 million. For the three months ended March 31, 1998, we were an
S corporation and were only required to pay taxes at the state level. We did not
record an income tax provision for the three months ended March 31, 1998 because
we knew we would report a pre-tax loss as an S corporation on a year to date
basis through the 1998 recapitalization date. This pre-tax loss was caused
principally by the bonus charge described under "Bonus related to 1998
recapitalization."
NET INCOME. Net income for the thirteen weeks ended April 3, 1999 was $3.4
million as compared to $7.1 million for the three months ended March 31, 1998.
If the net income for the three months ended March 31, 1998 were restated to
reflect pro forma income taxes, net income would have been $4.4 million.
25
<PAGE>
Stronger sales and operating margins in the thirteen weeks ended April 3, 1999
were offset by substantial increases in comparative amounts of interest expense.
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET SALES. Net sales increased 28.0% to $184.5 million in 1998 from $144.1
million in 1997. This growth was achieved by increasing the number of our retail
stores, from 47 to 62, and increasing sales in existing retail stores and to
wholesale customers.
Wholesale sales increased 21.7% to $103.3 million in 1998 from $84.9 million
in 1997. This growth was achieved primarily by increasing sales to existing
customers. We believe that wholesale sales growth has been and will continue to
be positively impacted by our increased promotional spending, the addition of
new wholesale locations and the transition from independent manufacturer
representatives to an in-house direct sales force.
Retail sales increased 37.2% to $81.2 million in 1998 from $59.2 million in
1997. This growth was achieved through the addition of 15 new stores, and
increased sales in existing stores. Comparable store sales increased 16.5% over
the corresponding period in 1997. There were 47 stores included in our
comparable store base at the end of 1998, and 13 of these stores were included
for less than a full year.
GROSS PROFIT. Gross profit increased 28.5% to $105.4 million in 1998 from
$82.0 million in 1997. This increase was almost entirely attributable to the
increase in sales. As a percentage of sales, gross profit was relatively
consistent from year to year, increasing slightly to 57.1% in 1998 from 56.9% in
1997. We began to make significant investments in our manufacturing operations
in 1998 and anticipate favorable benefits from these investments in 1999 and
future years.
SELLING EXPENSES. Selling expenses increased 13.4% to $30.5 million in 1998
from $26.9 million in 1997. These expenses are related to both our wholesale and
retail operations and consist of payroll, advertising, occupancy and other
operating costs. Excluding the commission paid to independent manufacturer
representatives, selling expenses increased 44.7% to $28.5 million in 1998 from
$19.7 million in 1997 to support our direct sales efforts on the wholesale side
of our business as well as our new retail stores. As a percentage of sales,
selling expenses, excluding commissions paid to independent manufacturer
representatives, were 15.4% in 1998 and 13.7% in 1997. The increase in selling
expense in dollars and as a percentage of sales was primarily related to
investment in our in-house direct wholesale sales force and to the continued
growth in the number of our retail stores, which increased from 47 in 1997 to 62
in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which consist primarily of personnel-related costs incurred in support
functions, decreased 26.7% to $19.8 million in 1998 from $27.0 million in 1997.
The decrease is entirely attributable to a decrease in compensation paid to the
former sole stockholder. Excluding this compensation, general and administrative
expenses increased 22.2% to $19.8 million, or 10.7% of sales, in 1998 from $16.2
million, or 11.2% of sales, in 1997. This increase was primarily caused by
post-recapitalization consulting expenses of $1.8 million related to our systems
and growth strategy, and to investments in building our organizational
infrastructure. We also had non-cash compensation expenses of $116,000 in 1998
related to certain share and option awards and expect to have non-cash
compensation expenses of $1.1 million and $677,000 in 1999 and 2000,
respectively.
BONUS RELATED TO 1998 RECAPITALIZATION. Bonus payments are reflected as a
separate cost within operating expenses and totaled $61.3 million. These
payments were made to selected members of management and were wholly related to
the 1998 recapitalization and are non-recurring in nature.
INCOME (LOSS) FROM OPERATIONS. Due to the non-recurring bonus charge, we
incurred a loss from operations of $6.2 million for 1998. This compares to
income from operations of $28.1 million in 1997. Excluding the non-recurring
bonus charge, we would have reported operating income of $55.1 million in 1998.
26
<PAGE>
OPERATING MARGINS. Operating margins for our wholesale operations were
$45.1 million or 43.7% of wholesale sales in 1998 compared to $31.2 million or
36.7% of wholesale sales in 1997. The wholesale operating margin increase was
primarily attributable to the expense savings realized from the transition from
independent manufacturer representatives to an in-house direct sales force.
Operating margins for retail operations were $23.3 million or 28.7% of retail
sales in 1998 compared to $18.1 million or 30.6% of retail sales in 1997. The
retail operating margin decrease was primarily attributable to the lower
operating margin contribution rate of our 15 new stores during their early
maturation period.
NET OTHER INCOME (EXPENSE). Net other expense was $16.8 million in 1998
compared to $2.3 million in 1997. The primary component of this expense was
interest expense which was $16.3 million in 1998 and $2.2 million in 1997. In
connection with the 1998 recapitalization, we borrowed $320.0 million, which
resulted in significantly higher interest expense in 1998.
INCOME TAXES. The income tax provision for 1998 was $9.7 million despite
our pre-tax loss. This contrasts to a provision of $1.4 million on significant
financial statement profits in 1997. We were an S corporation until the 1998
recapitalization and were only required to pay taxes at the state level. All
other income taxes were paid directly by our sole stockholder. In 1998, we
reported a pre-tax loss because of the bonus charge described above under
"--Bonus related to 1998 recapitalization." Our sole stockholder received the
benefit of that deduction. Starting in May 1998 we were taxed as a regular
corporation. The tax provision of $9.7 million applies to pre-tax income from
the date of the 1998 recapitalization to the end of the year.
NET INCOME. The net loss for 1998 was $32.6 million, which included the
$61.3 million non-recurring bonus charge for which no tax benefit could be
realized. Excluding this charge, net income for 1998 would have been $28.7
million. If the 1997 net income of $24.4 million were restated to reflect pro
forma income tax, net income for 1997 would have been $15.0 million.
DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
NET SALES. Net sales increased 28.4% to $144.1 million in 1997 from $112.2
million in 1996. This growth was achieved by increasing the number of retail
stores, from 34 to 47, increasing sales in existing retail stores and to
wholesale customers and an increase in prices of approximately 2%.
Wholesale sales increased 22.5% to $84.9 million in 1997 from $69.3 million
in 1996. This growth was achieved primarily through increased sales to existing
customers. We believe that wholesale sales growth was positively impacted by a
rebound from severe weather problems in the midwestern and southern United
States in 1996 which restrained dealer retail volume in 1996, increased
marketing activities in 1997 and the decision to discontinue the services of
independent manufacturer representatives, which stimulated commission-based
sales at the end of 1997.
Retail sales increased 38.0% to $59.2 million in 1997 from $42.9 million in
1996. This growth was achieved through the addition of 13 new stores and
increased sales in existing stores. Comparable store sales increased 16.4% over
the corresponding period in 1996. There were 34 stores included in our
comparable store base at the end of 1997, and eight of these stores were
included for less than a full year.
GROSS PROFIT. Gross profit increased 39.0% to $82.0 million, or 56.9% of
sales, in 1997 from $59.0 million or 52.6% of sales in 1996. The increase in
gross profit dollars was primarily due to the increase in sales. The increase in
gross profit margin was primarily due to the increase in retail sales as a
percentage of total sales, improved manufacturing efficiency compared to 1996
and the previously mentioned increase in prices. Retail sales achieve a higher
gross profit than wholesale sales, so an increase in retail sales as a
percentage of total sales increased the gross profit dollars and margin.
SELLING EXPENSES. Selling expenses increased 15.9% to $26.9 million in 1997
from $23.2 million in 1996. These expenses are related to both our wholesale and
retail operations and consist of payroll,
27
<PAGE>
advertising, occupancy and other operating costs. These expenses also included
commissions paid to independent manufacturer representatives. We commenced the
transition from independent manufacturer representatives to an in-house direct
sales force in 1997. Excluding the commissions paid to independent manufacturer
representatives, selling expenses increased 36.8% to $19.7 million in 1997 from
$14.4 million in 1996. As a percentage of sales, selling expenses excluding
commissions paid to independent manufacturer representatives were 13.7% in 1997
and 12.8% in 1996. The increase in selling expense in dollars and as a
percentage of sales was primarily related to continued growth in the number of
retail stores we operated from 34 in 1996 to 47 in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which consist primarily of personnel-related costs incurred in support
functions, increased 24.4% to $27.0 million in 1997 from $21.7 million in 1996.
Excluding compensation paid to the former sole stockholder, general and
administrative expenses would have increased to 11.2% of sales in 1997 from 9.9%
of sales in 1996 as we continued to invest in our support infrastructure.
OPERATING MARGINS. Operating margins for our wholesale operations were
$31.2 million or 36.7% of wholesale sales in 1997 compared to $18.5 million or
26.7% of wholesale sales in 1996. The wholesale operating margin increase was
achieved due to the previously discussed increase in sales, improvement in gross
margin rate and spreading of selling expenses over a larger sales base.
Operating margins for retail operations were $18.1 million or 30.6% of retail
sales in 1997 compared to $13.2 million or 30.7% of retail sales in 1996.
NET OTHER INCOME (EXPENSE). Net other expense was $2.3 million in 1997
compared to $2.0 million in 1996. The primary component of the expense was
interest expense, which was $2.2 million in 1997 and $1.9 million in 1996.
INCOME TAX. The income tax provision for 1997 was $1.4 million compared to
a tax provision of $410,000 in 1996. Both of these amounts constitute less than
5% of pre-tax income in each year. We were an S corporation in both 1997 and
1996. Therefore, we were only taxable at the state level and there were no
federal income taxes that we had to recognize.
NET INCOME. Net income increased 108.5% to $24.4 million in 1997 from $11.7
million in 1996. This increase was due to a significant increase in revenue
combined with improved gross margin and lower selling expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have consistently generated positive cash flow from operations, excluding
the $61.3 million non-recurring bonus charge in 1998. This positive cash flow
has been sufficient, in the past, to allow us to grow our business. In 1996,
1997 and the first four months of 1998, Yankee Candle was an S Corporation. Any
excess cash was distributed to the sole stockholder either in the form of
compensation or S Corporation distributions. Those outflows totaled
approximately $13.8 million in 1996, $37.6 million in 1997 and $17.5 million in
1998, with the 1998 outflows occurring in the first four months. We believe
that, in the future, the absence of those distributions will facilitate our
expansion plans as we plan to invest our free cash flow in the business.
Cash flow from operations totaled $17.2 million, $30.0 million and $(11.6)
million in the years ended December 31, 1996, 1997 and 1998, respectively, and
$7.2 million and $1.3 million for the three months ended March 31, 1998 and
thirteen weeks ended April 3, 1999, respectively. We believe that the liquidity
provided by our operating cash flow can be better understood by reference to
Yankee Candle's adjusted EBITDA. Adjusted EBITDA reflects the elimination of
various items, unrelated to our fundamental operating cash flow, from EBITDA.
These items include the one-time special bonus paid at the time of the 1998
recapitalization and the significant amounts of compensation and benefits, net
of current annual
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<PAGE>
compensation and benefits, paid to the sole stockholder in years and periods
prior to the 1998 recapitalization. It also eliminates non-cash stock based
compensation and other income/expense items, which generally include gains or
losses from sales of fixed assets and other discretionary non-operating cash
flow items. Adjusted EBITDA totaled $27.5 million, $42.1 million and $59.3
million in the years ended December 31, 1996, 1997 and 1998, respectively, and
$8.4 million and $12.4 million for the three months ended March 31, 1998 and
thirteen weeks ended April 3, 1999, respectively.
The 1998 recapitalization resulted in a step up in basis of our assets for
tax purposes of approximately $462.0 million. This step up will reduce our
future taxes by approximately $175.7 million. On an annual basis, this results
in tax savings of approximately $11.7 million per year for the next 15 years
assuming sufficient income to realize the full benefit of this deduction.
Our capital expenditures in 1998 were $9.4 million and for the thirteen
weeks ended April 3, 1999 totalled $4.2 million. In 1998, the funds were spent
primarily to open 15 new retail stores, and invest in information systems and
new manufacturing equipment to increase our production volume and the efficiency
of our shipping operations. Our expenditures for the thirteen weeks ended April
3, 1999 related to the opening of five new retail stores and additional
expenditures related to enhancing our manufacturing and distribution operations.
The average capital expenditure for each new retail store was approximately
$250,000. Total capital expenditures in 1996 and 1997 were relatively consistent
with 1998 at $10.1 million and $9.2 million, respectively. There were 13 store
openings in 1997 and eight store openings in 1996.
We anticipate that capital expenditures in 1999 will total approximately
$22.0 million. These funds will primarily be spent to open 40 new retail stores,
open a new distribution center in the western region of the United States, to
better support our wholesale customers and expanding retail store base and to
invest in new manufacturing equipment and information systems.
In connection with the 1998 recapitalization, we borrowed $320.0 million by
issuing 6 3/4% subordinated debentures and entered into an agreement to borrow
under a $60.0 million revolving credit facility. These borrowings were used
primarily to redeem our stock and pay one-time bonuses in connection with the
1998 recapitalization. Interest payments under the subordinated debentures were
the primary reason for our increased interest expenses. At December 31, 1998 and
at April 3, 1999, there were no borrowings under the revolving credit facility.
We plan to refinance all of our existing debt with the proceeds of this
offering and approximately $220.0 million of borrowings under a new $300.0
million credit facility expected to be entered into prior to the consummation of
this offering. We will have an extraordinary loss of approximately $3.2 million,
representing a $5.4 million non-cash charge less the associated income tax
benefit of $2.2 million, that results from the write-off of deferred financing
costs related to the repayment of our 6 3/4% subordinated debentures. This
amount will be charged to earnings in the quarter in which the debt is repaid.
See "Description of the Credit Agreement."
We believe that cash flow from operations and funds available under our new
credit facility will be sufficient for our working capital needs, planned
capital expenditures and debt service obligations for at least the next twelve
months.
IMPACT OF INFLATION
We do not believe inflation has a significant impact on our operations. The
prices of our products have not varied based on the movement of the consumer
price index. The majority of our material and labor costs are not materially
affected by inflation.
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<PAGE>
FUTURE ACCOUNTING PRONOUNCEMENTS
We are required to adopt the provision of Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
beginning January 1, 2000. This accounting standard requires us to identify
derivative financial statements according to a complex definition and account
for these instruments at fair value. We are beginning to assess the impact of
this accounting standard on our financial statements, but, at this time, we do
not expect it to have a material impact on our financial statements.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations.
We have established a project team to coordinate and address Year 2000
issues. This team is focusing its efforts on three areas:
- information systems software and hardware,
- facilities and distribution equipment, and
- third-party relationships.
We have implemented a systematic program to identify the areas where we
believe we are exposed to Year 2000 issues. Key information systems that have
been identified as critical to our operations include:
- inventory systems, including tracking inventory through the manufacturing
process and facilitating the picking of orders;
- order entry and accounts receivable systems, which allow us to enter
orders from our customers, bill our customers and track amounts owing from
them;
- Masterpiece application systems, which control our general ledger,
purchasing and accounts payable activities;
- a catalog system, which allows us to conduct catalog operations;
- a payroll system; and
- network systems, including our internal network and office suite of
products.
Our program with regard to information systems consists of three phases:
- an assessment phase which takes inventory of all major information and
non-information systems;
- a remediation phase which fixes Year 2000 issues identified in the
assessment phase; and
- a testing phase which tests the systems on a stand-alone and integrated
basis and, where applicable, completes final remediation.
30
<PAGE>
<TABLE>
<CAPTION>
ANTICIPATED/ACTUAL
ASSESSMENT REMEDIATION ANTICIPATED
SYSTEM COMMENTS COMPLETION DATE COMPLETION TESTING COMPLETION
- ------------------------ -------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Inventory systems New programs; written with May 1999 May 1999 September 1999
four digits or purchased
and certified by vendors
as Year 2000 compliant
Order entry and accounts
receivable Combination of new January 1999 January 1999 September 1999
programs and legacy
programs
Masterpiece applications Certified by vendor as January 1999 January 1999 August 1999
Year 2000 compliant
Catalog system In-house application January 1999 January 1999 September 1999
written in four digits
Payroll system Payroll services provided September 1998 April 1999 April 1999
by third party service
bureau that has
certified Year 2000
compliance
Network Certified by vendor as April 1999 October 1999 October 1999
Year 2000 compliant or
patches to be provided
</TABLE>
Certifications have been requested and received from all software and
hardware vendors that are integral to the above-described systems.
Year 2000 exposures have been anticipated by our information systems
department over the last five years. Over that time period, virtually all of our
internally developed systems described above have been rewritten. In addition,
new hardware has been purchased. These changes are part of our on-going program
to improve our information systems. Our information systems budget has therefore
not had a separate Year 2000 component. Rather, Year 2000 remediation has been a
part of our improvement strategy. Therefore, we have not had to defer any
information technology projects due to our Year 2000 efforts. Only in the latter
part of fiscal 1998 has a separate budget line item been identified for our Year
2000 efforts. Our identified expenditures with regard to this effort have been
less than $10,000 for the last two quarters. We anticipate incurring an
additional $150,000 in costs through year end to complete our remediation and
testing efforts. These specific costs are being expensed as incurred.
The non-information systems, which may be affected by the Year 2000 issue,
include our equipment control systems including large tank monitors and candle
making machinery as well as internal building systems. We plan to test our
facilities and manufacturing and distribution equipment during our annual
shutdown in June 1999.
We have approximately 60 vendors that are integral to our business. It is
our intention to circulate letters to these vendors and to others by the end of
June 1999, requesting that they confirm their Year 2000 compliance status.
Because we have so little concentration of sales with any one customer, there
are very few customers to whom we intend to circulate a letter.
We have not experienced any Year 2000 related problems to date; therefore,
we have not lost any revenues.
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<PAGE>
We believe that a worst case Year 2000 scenario for us would involve a
complete failure in the basic infrastructure of the United States. In
particular, should shipping services such as UPS, RPS and common carriers fail,
we would be unable to obtain raw materials to produce our products and would be
unable to ship our products to customers and retail locations. Similarly, if
utility providers failed to provide electricity and other basic services, we
would be unable to produce or sell our products.
Based on our assessment efforts to date and barring the worst case scenario
described above, we do not believe that the Year 2000 issue will have a material
adverse effect on our financial condition or results of operations. We believe
that we will have the ability to process transactions, whether they involve
paying our employees, procuring material from vendors or invoicing our
customers, using our existing data processing systems. We believe that our
manufacturing processes are not subject to substantial Year 2000 risk because,
if a piece of equipment fails because of a date dependency, alternative product
routing within our plant can be made.
Our ability to obtain raw materials is dependent on third parties. While we
do have primary vendors for our raw materials we believe that the materials
being provided are readily available from other vendors. Therefore, should a
specific vendor fail because of a Year 2000 compliance issue, the materials
being delivered by this vendor can be readily replaced. Our substantial network
of wholesale accounts and our growing number of retail locations have led us to
conclude that exposures in our ultimate sales channels are not material.
For the above reasons, no contingency plan has been developed. In the event
final testing of our information systems applications prove difficult, our
internal non-information systems fail in their June 1999 testing, or responses
from key vendors indicate significant non-compliance exposures, we will
reconsider developing a contingency plan. This plan may include increasing
production near the year end to provide additional inventory to counteract any
plant or third party-related disruptions.
Our assessment of our Year 2000 compliance is based on numerous assumptions
about future events, including third party Year 2000 compliance plans and other
factors. However, we cannot guarantee that this assessment is correct and actual
results could differ materially from those anticipated.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates. We bear this
risk in two specific ways. First, we have debt outstanding. At the end of 1998,
we had $320.0 million of debt in the form of three series of 6 3/4% subordinated
debentures. Because this borrowing had a fixed interest rate, neither our
statement of operations nor our cash flows had exposures to changes in interest
rates. Our revolving credit facility, which had average borrowings of $7.6
million during 1998 and was zero at the end of the year had a variable interest
rate, which exposed our statement of operations and cash flows to changes in
interest rates. It is our intention, through this offering and through the
proceeds of a new $300.0 million bank facility, to repay the subordinated
debentures. Because the new facility will carry a variable interest rate pegged
to market indices, our statement of operations and our cash flows will be
exposed to changes in interest rates. This facility is intended to fund
operating needs if necessary.
The second component of interest rate risk involves the short-term
investment of excess cash. This risk impacts fair values, earnings and cash
flows. Excess cash is primarily invested in overnight repurchase agreements
backed by U.S. Government securities. These are considered to be cash
equivalents and are shown that way on our balance sheet. Our average balance in
such securities was approximately $4.5 million over the past year. Earnings from
these cash equivalents totaled $173,000 for the year ended December 31, 1998.
We buy a variety of raw materials for inclusion in our products. The only
raw material that we consider to be of a commodity nature is wax. Wax is a
petroleum-based product. However, its market price has not historically
fluctuated with the movement of oil prices. Rather, over the past five years wax
prices have moved with inflation.
At this point in time, our operations outside of the United States are
immaterial. Accordingly, we are not exposed to substantial risks arising from
foreign currency exchange rates.
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<PAGE>
BUSINESS OF YANKEE CANDLE
We are the leading designer, manufacturer, wholesaler and retailer of
premium scented candles in the growing giftware industry. We have a 30-year
history of offering our distinctive products and marketing them as affordable
luxuries and consumable gifts. Our current products are available in up to 150
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products,
marketed primarily under our trade names Housewarmer-Registered Trademark- and
Country Kitchen-Registered Trademark-, as well as a wide range of candle
accessories.
We sell our candles through our wholesale customers who have approximately
12,000 gift store locations nationwide and through our rapidly expanding retail
base of 73 company-owned and operated stores in 23 states as of May 25, 1999.
Our 90,000 square foot flagship store in South Deerfield, Massachusetts offers a
unique retail and entertainment experience and is a major tourist destination,
attracting an estimated 2.5 million visitors a year. We also sell our products
through our direct mail catalogs, Internet website at www.yankeecandle.com,
international distributors and our distribution center located in the United
Kingdom.
We have experienced 27% annual revenue growth over the last five years and,
in 1998, our sales reached $184.5 million. We believe our strong growth is based
on the high quality of our products, the efficiency of our manufacturing
operations and the strength of our retail and wholesale sales capabilities.
Michael Kittredge founded our business in 1969 when he was just seventeen
years old, by making his first candle in his family kitchen. He grew the
business steadily and, together with our dedicated management team, has built
Yankee Candle into a leader in the premium scented candle market. Most of our
current senior managers have been with us for 17 years. In April 1998, Yankee
Candle was recapitalized and the Forstmann Little partnerships and Yankee Candle
management became the owners of a 90% equity interest. Since the 1998
recapitalization, we have reinvested our capital to actively pursue our
wholesale and retail growth strategies. To facilitate our growth, we have added
several key employees, expanded our production capacity, upgraded our warehouse
management and information systems, and opened our distribution center in the
United Kingdom.
INDUSTRY OVERVIEW
We operate in the rapidly growing scented candle segment of the giftware
industry. Unity Marketing, an independent market research firm specializing in
the giftware industry, estimates that the domestic giftware industry has grown
on average 12% per year since the early 1990's to reach $47 billion in 1997.
Unity Marketing also estimates that the domestic market for candles has grown 10
to 15% per year since the early 1990's to reach $2.1 billion in 1998. The
scented candle segment, in which we compete, represents the fastest growing part
of the candle and home fragrancing industry. Based on a report by Kline &
Company, an international consulting firm, the retail market for scented candles
in 1997 was estimated to be $1.5 billion.
The scented candle market is expected to continue to grow based on the
following positive industry factors:
- Favorable consumer trends, including the aging of baby boomers and
increased spending on home decor. Consumers are drawn to candles because
they create a relaxing home environment.
- Consumers are increasingly buying candles as an attractive gift item.
According to Unity Marketing, 77% of candle customers bought candles as
gifts in 1998.
- Consumers are increasingly burning candles year round because of their
affordable prices and broad range of scents and styles.
We believe consumers are becoming increasingly sophisticated about the
quality and fragrance of candles they purchase. According to Unity Marketing,
the prime consumer market for candles are women
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<PAGE>
between the ages of 25 and 54 with annual household incomes of over $25,000. We
believe that 85% of our candle consumers are women and that men represent a
growing and undeveloped consumer market segment.
OUR COMPETITIVE STRENGTHS
WE HAVE A STRONG BRAND IDENTITY AS THE LEADING PREMIUM CANDLE COMPANY WITH A
LOYAL CUSTOMER BASE.
We have long been recognized as the leading brand in the premium scented
candle market. We have been ranked number one in sales since 1993 in the
domestic candle category by GiftBeat, a giftware industry newsletter. We have
also been consistently ranked in the top two for product re-orders across all
giftware categories during the same period by GiftBeat. Our Country
Kitchen-Registered Trademark- and Housewarmer-Registered Trademark- lines were
introduced in 1974 and 1987, respectively, and contributed to making Yankee
Candle the leading brand in the premium scented candle market. Our high quality
products use premium fragrance oils and highly-refined paraffin wax, and create
long-lasting enjoyment and strong customer loyalty. We reinforce our brand
identity with our decorative product packaging and labeling, realistic
fragrances, clearly recognizable display cases and frequent trade advertising.
We believe that we have high consumer satisfaction, with 74% of our retail
customers ranking Yankee Candle as better than other candle brands, according to
a recent Unity Marketing study. Our customers also spend more on candles, with
over 60% of our customers purchasing more than $50 of candles in 1998 while only
18% of national customers spent that amount on candles. We believe that the
Yankee Candle brand name will continue to serve as a strong platform for
launching new product lines and product extensions.
WE HAVE A WELL-ESTABLISHED, NATIONAL WHOLESALE CUSTOMER BASE.
We distribute Yankee Candle products through our extensive wholesale
customer base which has approximately 12,000 gift store locations nationwide and
provides us with a strong presence throughout the United States. As a result of
our brand name, the popularity and profitability of our merchandise and our
successful product display system, we are the top selling product for many of
our wholesale accounts. Our wholesale customers are extremely loyal, with over
65% of them having been customers for over five years. Our wholesale base is
also broad, with no individual wholesale buying group accounting for more than
2% of our total sales. We market our wholesale products through our own direct
sales force which enhances our customer communication and enables us to better
serve our customers through superior order accuracy and response times.
WE HAVE A DEMONSTRATED ABILITY TO CARRY OUT OUR RETAIL EXPANSION.
Our strong wholesale presence and nationally recognized brand have enabled
us to successfully roll-out our own retail stores. As of May 25, 1999, we had 73
retail stores located in 23 states. We have experienced 38% annual growth in
retail sales since 1996 and, in 1998, our retail division generated over $80
million in sales. As shown below, our stores have enjoyed strong comparable
store growth of over 16% for the last three years.
<TABLE>
<CAPTION>
COMPARABLE STORE GROWTH
- -------------------------------
1996 1997 1998
- --------- --------- ---------
<S> <C> <C>
18.4% 16.4% 16.5%
</TABLE>
Our retail stores are primarily located in high-end malls and, to a lesser
extent, strip centers and tourist destinations and are designed with a
distinctive and consistent "Yankee Candle" appearance. In 1998, our retail
stores achieved average sales per square foot of over $650. All but one of our
retail stores have been profitable beginning in their first year of operation.
To support our retail stores, we have made significant investments in
infrastructure, training and information systems. As a result of these
investments,
34
<PAGE>
we opened nine stores from September 30 to December 31, 1998. This is a store
opening rate comparable to our plan to open approximately 40 new stores in 1999.
WE DESIGN, MANUFACTURE AND DISTRIBUTE OUR OWN PRODUCTS.
We design, develop and manufacture our candle products and control their
distribution. This enables us to ensure the highest quality products, prompt
delivery to our wholesale customers and retail stores and high margins. In
addition, our retail network allows us to control our brand image and
positioning and conduct extensive product testing. By first testing our products
at our retail stores, we can ensure that only our best-selling products are
distributed nationwide to our wholesale customers. We believe that our ability
to manufacture and distribute our own products provides us with a significant
advantage over our competitors.
OUR SENIOR MANAGEMENT TEAM HAS SIGNIFICANT EXPERIENCE IN THE CANDLE
INDUSTRY.
Our chairman and senior management have a combined 80 years of experience in
the candle industry and over 90 years of experience in the retail sector. Our
President and Chief Executive Officer, as well as our Senior Vice President of
Retail Operations and Senior Vice President of Wholesale Operations, have each
been with Yankee Candle for 17 years. During this time, our senior management
has established a record of strong and consistent growth in sales and operating
profit. In addition to our senior management team, our key managers in
manufacturing, site selection and product development have significant
experience in the candle industry, many with tenures of over 15 years with
Yankee Candle. We believe that the strong commitment of all our employees will
allow us to continue to execute our strategy and grow our business.
OUR GROWTH STRATEGY
WE PLAN TO RAPIDLY EXPAND OUR RETAIL STORE BASE.
We believe that we have substantial opportunities for growth by expanding
our retail store base. As of May 25, 1999, we have already opened 11 new stores
and we plan to open approximately 29 additional stores by the end of the year,
which we expect will increase our retail presence to approximately 30 states. We
believe that we have a highly successful retail store format that reinforces our
brand awareness, generates strong sales per square foot and can be readily
transferred to new markets. Our distinctive store design is flexible and can be
reconfigured to accommodate a variety of location types. Once we take possession
of the premises, it generally takes 60 days to open a store. In opening new
stores, we will continue to target high visibility retail locations in premium
malls with strong demographics and high sales per square foot. We believe that
the transferability of our retailing format, our record of successfully opening
new stores and our continuing investment in training, management information
systems, distribution centers and other operating support infrastructure,
provide us with a strong foundation for rapid expansion. We plan to have 85% of
our 40 new 1999 stores open by the end of the third quarter, and we expect the
balance to open by the end of November 1999.
WE PLAN TO CONTINUE TO GROW OUR SALES THROUGH OUR WHOLESALE DISTRIBUTION
CHANNEL.
Our nationwide wholesale base of independent gift store retailers represents
a large and stable source of sales growth. Over the last three years, our
wholesale business grew by over 22% annually and, in 1998, accounted for
approximately 56% of our total sales. We are committed to continuing to grow our
wholesale business and are investing significant capital in new promotional
programs, improved telemarketing systems and enhanced customer service. We
expect to grow our wholesale sales by adding new locations, while increasing the
average order size and re-order frequency of our existing customers. We are
targeting new and underdeveloped domestic markets, particularly in the south and
west. We also believe that our existing wholesale customers are favorably
impacted by our retail expansion. By further
35
<PAGE>
increasing our brand awareness, our retail stores expand our markets and
increase overall sales of our products in both our wholesale and retail
divisions.
WE PLAN TO EXPAND OUR INTERNATIONAL SALES.
We are predominately a U.S. business but have long-term international
expansion opportunities. We currently sell our products through international
distributors. In addition, we established our own European wholesale subsidiary
in June 1998 and began product shipments in January 1999. The European candle
market is currently a $1 billion industry and presents an important opportunity
for our long-term growth.
WE PLAN TO EXPAND OUR DIRECT MAIL CATALOG AND INTERNET OPERATIONS.
We market our products through our direct mail catalogs and our Internet
website at www.yankeecandle.com. In 1998, our direct mail business, which is a
part of our retail division, grew by over 60% and generated over $2 million of
sales. Our website, which was introduced in 1996 and was upgraded for retail
transactions in 1997, began generating revenues in late 1997. We continually
upgrade our website and catalog offerings in order to provide existing and new
customers with convenient purchase options. We expect both of these businesses
to continue to grow over the next several years as a result of demographic and
lifestyle changes in the consumer population, including the aging of the baby
boomers, decreased shopping time and the need for shopping convenience.
WE PLAN TO CONTINUE TO INTRODUCE NEW PRODUCTS.
Yankee Candle has a long history as a product and market innovator in the
premium scented candle segment of the giftware industry. We have a strong
in-house product design and development team and plan to continue to invest in
new products and packaging. We are able to successfully launch new product lines
by first testing products at our retail stores. In 1999, we plan to introduce 12
new fragrances, six of which were introduced in January. In addition to new
fragrances, we recently introduced in our retail stores a FINE FRAGRANCES candle
line with frosted-glass packaging, and an aromatherapy candle line. Both of
these products are designed to appeal to existing customers and to attract new
customers. We will continue to use our strong brand name and our significant
manufacturing and distribution capabilities to successfully introduce new
products.
PRODUCTS
We develop and introduce new products and fragrances throughout the year. We
currently offer over 1,000 SKU's of Yankee Candle manufactured products. Most of
our products are marketed under the trade names
Housewarmer-Registered Trademark- and Country Kitchen-Registered Trademark- and
include the following product styles:
- Jar Candles--scented candles in decorative glass jars; available in 22
oz., 14.5 oz. and 3.7 oz. sizes.
- Samplers-Registered Trademark---votive candles for sampling different
fragrances.
- Scented Tapers--the oldest candle style, dipped more than 30 times.
- Scented Ionic-Registered Trademark-Pillars (grooved).
- Standard Pillars (smooth)--both scented and unscented.
- Wax Potpourri Tarts-Registered Trademark---scented wax without wicks that
releases its fragrance when melted and warmed in a potpourri pot.
- Scented Tea Lights--small, colored and scented candles in clear cups made
for home fragrancing.
- Tart-Registered Trademark-Warmers--white unscented candles in aluminum
cups made for potpourri pots.
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<PAGE>
- Kindle Candles-Registered Trademark---unscented wax in a paper cup for use
in a fireplace or campfire as a firestarter.
These candle products are available in a wide range of fragrances and
colors. We currently maintain approximately 150 fragrances in our retail stores,
with our 53 best-selling fragrances available nationwide to our wholesale
customers. In addition to distinctive fragrances, we promote our brand through
consistent product packaging and labeling. The Yankee Candle name is typically
embossed on the top of our glass containers and is clearly displayed on every
product label. We also package our products in attractive gift baskets and
holders for sale in our retail stores. We offer glassware accessories and other
candle-related accessories at our retail stores in a variety of sizes and
shapes.
We seek to maintain a moderate price of under $20.00 for almost all of our
products in order to reinforce our customers' perception of our products as
highly affordable. As a result, our retail prices range from $0.89 for Wax
Potpourri Tarts-Registered Trademark- to $19.50 for 22 oz. jar candles. Since
1995, we have only increased our prices, on average, by 2.1% per year. We had no
price increase in 1998 and implemented a 2.3% price increase in January 1999.
RETAIL STORES
Our retail stores are an important and fast growing distribution channel and
represent an increasing percentage of our overall sales. From 1996 to 1998,
sales from our retail division, which includes our retail stores, catalog and
Internet operations, have grown at a compound annual rate of 38% from $42.9
million in 1996 to $81.2 million in 1998 and increased from 38% to 44% of our
total sales. Moreover, Yankee Candle retail stores generated comparable store
growth of 18.4% in 1996, 16.4% in 1997 and 16.5% in 1998. In 1998, our retail
stores achieved average sales per square foot of over $650.
As of May 25, 1999, we had 73 retail stores in 23 states and expect to open
approximately 29 stores during the rest of 1999. By the end of 1999, we expect
to have a retail presence in approximately 30 states. Yankee Candle has
established a strong retail presence in the northeast and is rapidly expanding
nationwide. In opening new stores we target new retail locations in highly
visible areas in premium malls and, to a lesser extent, strip centers and
tourist destinations. Of our 73 retail stores, 50 are located in malls and 23
are located in non-malls. Since we opened our flagship retail store in 1983, we
have closed only one location, which was profitable when closed. All but one of
our retail stores have been profitable in their first year of operation.
We design each of our retail stores with a warm, home-like atmosphere to
attract customers and provide a convenient shopping experience. Each store has
candle displays sorted by color, fragrance type and product category. Our store
design uses rich wood and other traditional elements to convey a high quality
image that complements our product and company identity. The display fixtures
hold sufficient inventory to support fast turning sales at peak season. The
target size of our retail stores is 1,500 to 2,000 square feet, with an average
size of approximately 1,650 square feet. Our retail stores typically offer
Yankee Candle products in 150 fragrances, including our 53 most popular
fragrances. A typical retail store has 1,000 SKU's of candles and 350 SKU's of
candle accessories.
Superior customer service and a knowledgeable employee base are key elements
of our retail strategy. We emphasize formal employee training, particularly with
respect to product quality, candle manufacturing and the heritage of Yankee
Candle. We also have a well-developed, 14-day training program for managers and
assistant managers and an 8-hour training program for sales associates. Our high
customer service standards are an integral part of our ongoing success. Each
store is responsible for implementing and maintaining these customer service
standards.
YANKEE CANDLE'S FLAGSHIP STORE
Our flagship store is the world's largest candle and Christmas store with
over 90,000 square feet of retail and entertainment space. This store promotes
Yankee Candle's image and culture and is an
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important testing ground for our new product introductions. The store carries
over 24,000 SKU's of gift items supplied by over 750 vendors, and generates
approximately 65% of its revenues from the sale of Yankee Candle products.
Located in South Deerfield, Massachusetts, this store is a major tourist
destination, attracting an estimated 2.5 million visitors annually. The store
provides visitors with a total shopping and entertainment experience and
includes the Yankee Candlemaking Museum, the Yankee Candle Car Museum and a
240-seat restaurant.
DIRECT MAIL CATALOG AND INTERNET
As part of our retail division, we market our products through our direct
mail catalogs and Internet website. We expect both businesses to grow over the
next several years as a result of demographic and lifestyle changes in the
consumer population, including the aging of baby boomers, decreased shopping
time and a need for shopping convenience. In 1998, our direct mail business grew
by over 60% and generated over $2 million of sales. Our direct mail catalog
features all wholesale products and promotes the Deerfield flagship store as a
destination. We typically send out five to six catalogs per year. We believe
there are significant opportunities to grow the catalog business by adding
additional products and accessories, increasing our telephone hours and
expanding our mailing list. Our catalog is currently only sent to our existing
customers. We have the potential to rent or purchase lists from third parties.
We introduced our website in 1996 and upgraded it for retail transactions in
1997. The website, www.yankeecandle.com, offers browsers the opportunity to
preview the Deerfield store, learn more about Yankee Candle's history and
purchase on-line the same range of products available to our wholesale accounts.
The website began generating revenues in late 1997 and is expected to grow as we
continue to invest in website design and navigation features and explore banner
advertising and cross marketing opportunities with e-commerce and giftware
Internet service providers.
WHOLESALE DISTRIBUTION
Our wholesale strategy focuses on a nationwide base of small, independent
and credit-worthy gift store retailers. The wholesale business is a critical
part of our growth strategy and lays the foundation for the successful expansion
of our retail business by establishing a national brand. From 1996 to 1998,
sales from our wholesale accounts have grown at a compound annual rate of 22%
from $69.3 million in 1996 to $103.3 million in 1998, and changed from 62% to
56% of our total sales. Our wholesale customers currently have approximately
12,000 gift store locations nationwide and are located in all 50 states. In
1998, the northeast region accounted for 30% of domestic wholesale revenues, the
midwest 35%, the south 21% and the west 14%. As a result of our strong brand
name, the popularity and profitability of our products and our emphasis on
customer service, our wholesale customers are extremely loyal with over 65% of
them having been customers for over five years. No individual wholesale buying
group accounts for more than 2% of our total sales and almost 90% of our
wholesale accounts are located in non-mall locations. We are targeting future
wholesale locations in new and underdeveloped markets, particularly in the
southern and western United States.
We have developed a successful approach to wholesale distribution which has
established Yankee Candle as the top selling brand for many of our wholesale
customers. We actively seek to increase the average size and frequency of
wholesale orders through our innovative product display system, promotional
programs, new products and telemarketing initiatives. We promote a "Shop Within
A Shop" display system to our wholesale customers which presents our products
vertically by fragrance and horizontally by color in a distinctive wood hutch.
Yankee Candle recommends that dealers invest in an 8- to 12-foot display system
which holds $5,300 to $8,000 of Yankee Candle products at suggested retail
prices. This display system maximizes sales and profitability by providing
strong visual impact, shopping and restocking ease, and optimum space
efficiency. We have also implemented a number of promotional programs to
increase the square footage dedicated to Yankee Candle products as well as the
breadth of Yankee Candle products offered by our wholesale customers. For
example, we promote a FRAGRANCE OF THE MONTH program,
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<PAGE>
with featured fragrance suggestions for each month. This program encourages
dealers to increase their re-order schedule to 12 times per year and implement a
customer promotion that has already proven successful in our retail stores. The
promotion encourages consumers to try different fragrances and return to the
stores more frequently in order to buy the FRAGRANCE OF THE MONTH. In addition
to specific promotions, we advise our wholesale customers on an ongoing basis
regarding product knowledge, display suggestions, promotional ideas and
geographical consumer preferences.
We have a selective dealer approval process, designed to create consistent
nationwide standards for all Yankee Candle dealers. As a result of our high
credit standards for dealers, we had bad debt expense of only 0.18% of wholesale
sales in 1998.
We use a dedicated in-house direct sales force to service our wholesale
accounts. In 1998, we eliminated our network of independent manufacturer
representatives and completed a major shift to a direct sales force. This has
enabled Yankee Candle to gain greater control over the sales process, to provide
customers with better and more accurate information, faster order turn-around
and improved customer service, and to create more consistent merchandising
nationwide and reduce costs.
INTERNATIONAL OPERATIONS
We intend to expand internationally. We currently sell products through
international distributors and our distribution center in the United Kingdom. In
June 1998, we established Yankee Candle Europe, our European subsidiary, and
hired the former managing director of one of the largest United Kingdom candle
manufacturers to lead our international expansion program. In addition, we
opened a new 27,000 square foot distribution center in Bristol, England and
product shipments began in January 1999. We currently sell our products directly
to stores in the United Kingdom and sell through distributors in Austria,
Benelux, Denmark, Germany, Norway, Sweden and Switzerland.
NEW PRODUCT DEVELOPMENT
We have a long history as a product and market innovator in the premium
candle segment of the giftware industry. We have a strong in-house product
design and development team comprised of artists, fragrance specialists,
designers, packagers and buyers who work collaboratively to design new products
that are attractive to customers and can be manufactured cost-effectively. New
products are typically developed in less than a year. In January 1999, we
introduced six new fragrances: Berry Bramble-TM-, Mountain Lake-TM-, Storm
Watch-TM-, Vineyard-TM-, Lemon Lime and Hydrangea. We plan to introduce six
additional new fragrances during the remainder of 1999. In addition, we recently
introduced a FINE FRAGRANCES candle line with frosted-glass packaging, and an
aromatherapy candle line. Other new product ideas include new product sizes, new
packaging and variations of existing fragrances.
PRODUCT MANUFACTURING
Approximately 90% of our sales are generated by products we manufacture at
our 294,000 square foot facility in Massachusetts. As a manufacturer, we are
able to closely monitor the quality of our products and control our production
costs. We believe this is an important competitive advantage as it enables us to
ensure high quality products and maintain affordable pricing.
Our products are manufactured using filled, molded, extruded, compressed or
dipped manufacturing methods. The majority of our products are filled products
which are produced by pouring colored, scented liquid wax into a glass container
with a wick. Pillars are made by extrusion, in which wax is pressed around a
wick through a die. Tapers are produced through a dipping process and
Tarts-Registered Trademark- and Samplers-Registered Trademark- are made by
compression.
Yankee Candle uses high quality fragrances, premium-grade, highly refined
paraffin waxes, and superior wicks and dyes to create premium products. Our
manufacturing processes are designed to ensure
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<PAGE>
the highest quality and quantity of candle fragrance, wick quality and
placement, color, fill level, shelf life and burn rate. We are continuously
engaged in efforts to maximize our quality and minimize our costs by using
efficient production and distribution methods and technological advancements.
SUPPLIERS
We maintain strong, established relationships with our principal fragrance
and petroleum-based wax suppliers. We believe we use the highest-quality
suppliers in our industry and maintain back-up suppliers who are able to provide
services and materials of similar quality. We have been in the business of
manufacturing premium scented candles for many years and are therefore
knowledgeable about the different levels of quality of raw materials used in
manufacturing candles. We have developed, jointly with our suppliers, several
proprietary fragrances, which are exclusive to Yankee Candle. Raw materials used
in the manufacturing process, including wax, glassware, hutches and packaging
materials are readily available from multiple sources at comparable prices. In
1998, no single supplier represented 10% or more of our total supply purchases,
except for ARC International which provided us with glassware and represented
14% of our total supply purchases.
ORDER PROCESSING AND DISTRIBUTION
We currently have two warehouse and distribution facilities located within a
four mile radius in Deerfield and Whately, Massachusetts, and one warehouse and
distribution center in Bristol, England for products shipped to Europe. We
intend to open another facility in the fall of 1999 in Salt Lake City, Utah for
the warehousing and distribution of products to our retail stores and wholesale
accounts located in the western United States. This facility is expected to be
100,000 square feet in size.
We utilize computer systems to maintain efficient order processing from the
time a product enters the system through shipping and ultimate payment
collection from customers. We implemented uniform computer and communication
software systems allowing for on-line information access between our
headquarters and retail stores. We upgraded our information systems in 1998 to
further improve order processing and enhance inventory management and accuracy.
As part of these upgrades, we adopted a software package that allows us to
forecast demand for our products and efficiently plan our production schedules.
We also implemented a pick-to-light system which allows Yankee Candle employees
at our warehouse to receive information directly from the order collection
center and quickly identify, by way of blinking lights, the products and
quantity necessary for a particular order. To accurately track shipments and
provide better service to customers, we also use handheld optical scanners and
bar coded labels. We believe this software for the processing and shipment of
orders from the warehouse greatly improves our overall customer service through
enhanced order accuracy and reduced turnaround time.
The products sold by Yankee Candle in the United States are generally
shipped by United Parcel Service, Roadway Package Systems or other freight
carriers. We also lease a fleet of four trucks primarily used to ship products
to select company-owned retail stores. Our products are usually shipped to our
retail stores twice a week during the off-season and up to five times a week
during the holiday season. In 1998, our order lead time to our wholesale
customers, from order placement to shipment of goods, was typically three
business days during the first three calendar quarters and less than five
business days during the fourth quarter. During the first three quarters of
1998, we shipped 99.5% of all orders requested complete and over 92% complete in
the fourth quarter. We believe that our timely and accurate distribution is an
important differentiating factor for our customers. This belief is based on
numerous conversations between our management and sales force, on the one hand,
and our wholesalers and customers, on the other hand.
INTELLECTUAL PROPERTY
Yankee Candle has obtained 31 U.S. trademark registrations, including Yankee
Candle-Registered Trademark-, Country Kitchen-Registered Trademark-,
Housewarmer-Registered Trademark-, Samplers-Registered Trademark-, Wax Potpourri
Tarts-Registered Trademark- and Kindle Candles-Registered Trademark-, and has
pending 10
40
<PAGE>
trademark applications with respect to its products. Trademark registrations
allow us to use those trademarks on an exclusive basis in connection with our
products. If we continue to use our trademarks, and make all required filings
and payments, these trademarks can continue in perpetuity. We also register many
of our trademarks in foreign countries.
We believe that our trademarks are valuable assets and we intend to maintain
and renew our trademarks and their registrations and to vigorously defend them
against trademark infringement.
COMPETITION
We compete generally for the disposable income of consumers with other
producers in the giftware industry. The giftware industry is highly competitive
with a large number of both large and small participants. Yankee Candle products
compete with other scented and unscented candle products and with other gifts
within a comparable price range, like boxes of candy, flowers, wine, fine soap
and related merchandise. Yankee Candle's competitors distribute their products
through independent gift retailers, department stores, mass market stores and
mail order houses.
The candle market overall is highly fragmented. According to Unity
Marketing, 72% of all candle companies have less than $10 million in sales.
Premium market candle manufacturers include Colonial Candles, owned by Blyth
Industries, Inc., A.I. Root and Village Candle. The most important factors
affecting sales of candles are scent, price, burn quality, packaging, color and
shape.
Yankee Candle's retail store competitors include the franchised candle
chains Wicks n' Sticks and Candleman, although these two chains are also our
wholesale customers. Our other retail competition includes specialty candle
stores, as well as gift and houseware retailers.
We believe we are the leading premium scented candle company in the United
States and the only major candle company with a strong combination of
manufacturing, wholesale and retail operations. The principal bases of
competition for candles and other comparably priced giftware include brand
loyalty, quality, perceived value, design, product display, consumer appeal,
service and price. We believe our competitive position is enhanced by a variety
of factors, including our national premium brand image, high quality reputation
among consumers and retailers, distinctive retail stores, extensive wholesale
distribution base, knowledgeable employees, effective display and product
presentation, affordable pricing, our low cost, highly automated manufacturing
operations and strong and growing presence in both wholesale and retail
segments. Some of our competitors are part of large, diversified companies
having greater financial resources and a wider range of product offerings than
Yankee Candle.
EMPLOYEES
At May 15, 1999, we employed approximately 1,300 full-time employees and 500
part-time employees. All of these employees are non-union, and we believe that
our labor relations are good. We also use between 200 and 250 seasonal workers
hired through temporary employment agencies.
LEGAL PROCEEDINGS
We are involved from time to time in ordinary routine legal proceedings
relating to our business. We believe that none of these legal proceedings will
have a material adverse impact on our results of operations, cash flow or
financial condition.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, local and foreign laws and
regulations governing the generation, storage, use, emission, discharge,
transportation and disposal of hazardous materials and the health and safety of
our employees. In addition, we are subject to environmental laws which may
require investigation and cleanup of any contamination at facilities we own or
operate or at third party waste
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disposal sites we use. These laws could impose liability even if we did not know
of, or were not responsible for, the contamination.
We have in the past and will in the future incur costs to comply with
environmental laws. We are not, however, currently aware of any costs or
liabilities relating to environmental matters, including any claims or actions
under environmental laws or obligations to perform any cleanups at any of our
facilities or any third party waste disposal sites, that are expected to have a
material adverse effect on our operations, cash flow or financial condition. It
is possible, however, that material environmental costs or liabilities may arise
in the future.
FACILITIES
Yankee Candle owns facilities totaling 537,600 square feet, located on 82
acres, within a four mile radius in Deerfield and Whately, Massachusetts, as
described in the table below:
<TABLE>
<CAPTION>
TYPE OF FACILITY LOCATION SIZE
- -------------------------------------------------------------------- -------------------------- ----------------
<S> <C> <C>
Manufacturing, wholesale distribution and offices Whately, Mass. 294,000 sq. ft.
Flagship retail store, car museum and restaurant South Deerfield, Mass. 90,000 sq. ft.
Retail warehouse and distribution center South Deerfield, Mass. 60,000 sq. ft.
Retail support South Deerfield, Mass 48,000 sq. ft.
Marketing and design building Whately, Mass. 16,000 sq. ft.
Employee health and fitness center South Deerfield, Mass. 12,000 sq. ft.
Retail offices South Deerfield, Mass. 11,000 sq. ft.
Wholesale telemarketing South Deerfield, Mass. 6,600 sq. ft.
</TABLE>
In addition, we have a 27,000 square foot leased distribution facility in
Bristol, England and plan to open a new 100,000 square foot leased distribution
facility in Salt Lake City, Utah in September 1999. We currently estimate that
we will spend approximately $1.5 million in connection with the opening of the
Salt Lake City facility.
We believe that these facilities are suitable and adequate and have
sufficient capacity to meet our current needs.
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Other than the Deerfield flagship store and three smaller retail locations,
we lease our other retail stores. Initial store leases for mall locations range
from eight to ten years. For non-mall locations, most leases are five years,
with a five-year renewal option. Our retail stores are located in the following
states and cities:
ARIZONA
- -Glendale
CALIFORNIA
- -Montclair
- -Riverside
- -Santa Ana
COLORADO
- -Denver
- -Littleton
CONNECTICUT
- -Avon
- -Danbury
- -Farmington
- -Manchester
- -Orange
- -Waterbury
- -Waterford
FLORIDA
- -Jacksonville
- -Orange Park
- -Orlando
- -Tampa
GEORGIA
- -Alpharetta
KANSAS
- -Overland Park
MAINE
- -Freeport
- -Kittery
MARYLAND
- -Annapolis Harbour Center
- -Baltimore
- -Gaithersburg
- -Towson
MASSACHUSETTS
- -Boston
- -Cambridge
- -Deerfield
- -Holyoke
- -Hyannis
- -Lenox
- -Lynnfield
- -Natick
- -North Attleboro
- -Pembroke
- -Shrewsbury
- -Stockbridge
- -Sturbridge
- -Taunton
MICHIGAN
- -Dearborn
- -Novi
NEVADA
- -Las Vegas
NEW HAMPSHIRE
- -Manchester
- -Nashua
- -North Conway
NEW JERSEY
- -Freehold
- -Paramus
- -Woodbridge
NEW YORK
- -Albany
- -Buffalo
- -Middletown
- -Poughkeepsie
- -Rochester
- -Saratoga
- -Staten Island
- -Syracuse
- -Westbury
- -West Nyack
OHIO
- -Beavercreek
- -Columbus
- -Dublin
PENNSYLVANIA
- -King of Prussia
- -Philadelphia (Chestnut Hill)
RHODE ISLAND
- -Cranston
- -Newport
SOUTH CAROLINA
- -Columbia
- -Myrtle Beach
TEXAS
- -Austin
VERMONT
- -Burlington
- -Manchester Center
VIRGINIA
- -Norfolk
- -Richmond
WASHINGTON
- -Seattle
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth information regarding the executive officers and
directors of Yankee Candle as of June 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael J. Kittredge................................. 47 Chairman of the Board and Director (Class II)
Michael D. Parry..................................... 47 President, Chief Executive Officer and Director
(Class III)
Robert R. Spellman................................... 51 Senior Vice President of Finance and Chief Financial
Officer
Gail M. Flood........................................ 40 Senior Vice President of Retail Operations
Stephen T. Williams.................................. 48 Senior Vice President of Wholesale Operations
Theodore J. Forstmann................................ 59 Director (Class I)
Nicholas C. Forstmann................................ 52 Director (Class II)
Sandra J. Horbach.................................... 38 Director (Class III)
Steven B. Klinsky.................................... 43 Director (Class I)
Michael S. Ovitz..................................... 52 Director (Class I)
Ronald L. Sargent.................................... 43 Director (Class II)
Emily Woods.......................................... 38 Director (Class III)
</TABLE>
MICHAEL J. KITTREDGE is the Chairman of the Board. Mr. Kittredge is the
founder of Yankee Candle. He served as a Director until April 1998. Mr.
Kittredge was appointed a Director of Yankee Candle Holdings in July 1998 and
reappointed a Director of Yankee Candle in April 1999. He has been honored
several times by the United States Small Business Administration (S.B.A.), once
in 1985 as the winner of the "Entrepreneurial Success Award," and again in 1986
as the "Businessman of the Year" for Massachusetts and the New England region.
In 1996, Mr. Kittredge received USA Today's and Ernst & Young's Retail
Entrepreneur of the Year Award.
MICHAEL D. PARRY is a Director, the President and Chief Executive Officer.
Mr. Parry joined Yankee Candle in 1982 as General Manager, and was appointed
Vice President in January 1989 and President in July 1996. Mr. Parry has served
as a Director of Yankee Candle since May 1998 and a Director of Yankee Candle
Holdings since July 1998. He was promoted to his current position of Chief
Executive Officer in November 1998. Since 1989, he has been in charge of all of
our operations including general oversight of wholesale and retail activities
and manufacturing and distribution.
ROBERT R. SPELLMAN is the Senior Vice President of Finance and Chief
Financial Officer. Prior to joining Yankee Candle in November 1998, Mr. Spellman
was Senior Vice President of Finance of Staples, Inc. from 1988 through 1994,
and Chief Financial Officer of Star Markets Company, Inc. from 1994 through
1998.
GAIL M. FLOOD is the Senior Vice President of Retail Operations. Ms. Flood
joined Yankee Candle in 1982 as Retail Store Manager. Since 1988, she has been
in charge of our retail operations. She was appointed Vice President of Retail
Operations in July 1996, and promoted to her current position in November 1998.
STEPHEN T. WILLIAMS is the Senior Vice President of Wholesale Operations.
Mr. Williams joined Yankee Candle in 1982, and held a number of different
positions in a variety of areas including Production, Packaging and Shipping
prior to being appointed National Sales Manager in 1987. In July 1996, Mr.
Williams was made Vice President of Wholesale Operations, and was promoted to
Senior Vice President in November 1998. Since 1987, he has been in charge of our
wholesale operations.
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<PAGE>
THEODORE J. FORSTMANN has served as a Director of Yankee Candle Holdings
since July 1998 and a Director of Yankee Candle since April 1999. Mr. Forstmann
has been a general partner of FLC XXIX Partnership, L.P., the general partner of
Forstmann Little & Co., since he co-founded Forstmann Little & Co. in 1978. He
is Chairman of the Board and Chief Executive Officer of Gulfstream Aerospace
Corporation. Theodore J. Forstmann and Nicholas C. Forstmann are brothers.
NICHOLAS C. FORSTMANN has been a Director of Yankee Candle Holdings since
July 1998 and a Director of Yankee Candle since April 1999. He has been a
general partner of FLC XXIX Partnership, L.P. since he co-founded Forstmann
Little & Co. in 1978. He is also a director of Gulfstream Aerospace Corporation.
SANDRA J. HORBACH has been a Director of Yankee Candle Holdings since March
1998 and a Director of Yankee Candle since May 1998. She has been a general
partner of FLC XXIX Partnership, L.P. since 1993. She is also a director of
Gulfstream Aerospace Corporation.
STEVEN B. KLINSKY has been a Director of Yankee Candle Holdings since July
1998 and a Director of Yankee Candle since April 1999. He has been a general
partner of FLC XXIX Partnership, L.P. since December 1986.
MICHAEL S. OVITZ has been a Director of Yankee Candle Holdings since
November 1998 and a Director of Yankee Candle since April 1999. He is an
independent businessman and investor, and has been active in this capacity since
December 1996. In August 1998, Mr. Ovitz co-founded Artists Management Group, a
management/production/multi-media company. From October 1995 to December 1996,
Mr. Ovitz was President of The Walt Disney Company. From 1975 to 1995, Mr. Ovitz
served as chairman of Creative Artists Agency, which he co-founded. Mr. Ovitz is
also a director of Livent, Inc. and Gulfstream Aerospace Corporation.
RONALD L. SARGENT has been a Director of Yankee Candle since May 20, 1999.
Mr. Sargent has served as President and Chief Operating Officer of Staples, Inc.
since November 1998. Prior to that time, he served in various capacities since
joining Staples, Inc. in March 1989, including President--North American
Operations from October 1997 to November 1998, President--Staples Contract &
Commercial from June 1994 to October 1997, and Vice President--Staples Direct
and Executive Vice President--Contract & Commercial from September 1991 until
June 1994.
EMILY WOODS has been a Director of Yankee Candle Holdings since July 1998
and a Director of Yankee Candle since April 1999. She is the Chairman of J. Crew
Group, Inc., which she co-founded in 1983. She is also a director of Beringer
Wine Estates.
THE BOARD OF DIRECTORS
Yankee Candle's By-Laws provide for a classified board of directors
consisting of three classes. Each class will consist, as nearly as possible, of
one-third of the total number of directors constituting the entire board. The
term of the initial Class I directors will terminate on the date of the 2000
annual meeting of stockholders; the term of the initial Class II directors will
terminate on the date of the 2001 annual meeting of stockholders; and the term
of the initial Class III directors will terminate on the date of the 2002 annual
meeting of stockholders. Beginning in 2000, at each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting will be elected for a three-year term and until their respective
successors are elected and qualified. A director may only be removed with cause
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock entitled to vote in the election of directors. The Forstmann
Little partnerships have a contractual right to elect two directors until they
no longer own any shares of Yankee Candle common stock.
Directors who are neither executive officers of Yankee Candle nor general
partners in the Forstmann Little partnerships have been granted options to
purchase common stock in connection with their election to the board of Yankee
Candle Holdings or Yankee Candle. Directors do not receive any fees for serving
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on Yankee Candle's board, but are reimbursed for their out-of-pocket expenses
arising from attendance at meetings of the board and committees. See "--Outside
Director Stock Options."
The board has three committees: Executive, Compensation and Audit. The
Executive Committee consists of Michael D. Parry, Theodore J. Forstmann and
Sandra J. Horbach. The Compensation Committee consists of Theodore J. Forstmann,
Sandra J. Horbach and Nicholas C. Forstmann. The Audit Committee consists of
Steven B. Klinsky, Ronald L. Sargent and Emily Woods.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of Yankee Candle's Board of
Directors are Theodore J. Forstmann, Nicholas C. Forstmann and Sandra J.
Horbach, each of whom has served on the Committee since April 1999. Yankee
Candle did not have a Compensation Committee, or committee performing comparable
functions, in 1998. Since the 1998 recapitalization, all 1998 compensation
decisions for Yankee Candle executive officers were made by the Compensation
Committee of Yankee Candle Holdings Corp., consisting of Theodore J. Forstmann
and Sandra J. Horbach. Each of Theodore J. Forstmann, Nicholas C. Forstmann and
Sandra J. Horbach are general partners in partnerships affiliated with the
Forstmann Little partnerships. See "--Relationships and Transactions between
Yankee Candle and its Officers, Directors, 5% Beneficial Owners and their Family
Members" for a description of certain transactions between the Forstmann Little
partnerships and Yankee Candle in connection with the 1998 recapitalization.
None of the members of the Yankee Candle Holdings or the Yankee Candle
Compensation Committees have been officers or employees of Yankee Candle or its
subsidiaries.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the year ended December 31, 1998 paid by us for services to each person who
served as our Chief Executive Officer during 1998 and our three other most
highly paid executive officers who were serving as executive officers at
December 31, 1998.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
OTHER ANNUAL ALL OTHER
BASE SALARY BONUS COMPENSATION(4) COMPENSATION
----------- ---------- ---------------- -------------
<S> <C> <C> <C> <C>
Michael J. Kittredge
Chairman of the Board................................ $ 342,000 $ -- $ -- $21,016(5)
Michael D. Parry
President and Chief Executive Officer................ 216,539 76,502 -- (6)
Robert R. Spellman(2)
Senior Vice President of Finance and Chief Financial
Officer.............................................. 30,962(3) 11,500(3) -- 575,173(7)
Gail M. Flood
Senior Vice President of Retail Operations........... 149,616 58,628 -- (6)
Stephen T. Williams
Senior Vice President of Wholesale Operations........ 139,616 55,000 -- (6)
</TABLE>
- ------------------------
(1) Yankee Candle does not have any executive officers other than those named in
the summary compensation table. Mr. Kittredge served as Yankee Candle's
Chief Executive Officer until November 1998.
(2) Mr. Spellman became an employee of Yankee Candle in November 1998.
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(3) Reflects the portion of Mr. Spellman's annual base salary and annual bonus
that he actually earned in 1998.
(4) Unless otherwise indicated, the aggregate amount of perquisites and other
personal benefits was less than $50,000 or 10% of the total of annual salary
and bonus reported for that named executive officer.
(5) Includes premiums of $1,016 paid for life insurance, and a matching
contribution of $20,000 under the Yankee Candle Company Executive Deferred
Compensation Plan.
(6) Includes a matching contribution of $20,000 under the Yankee Candle Company
Executive Deferred Compensation Plan for each of Messrs. Parry and Williams
and Ms. Flood, and a special bonus of $9,433,962 paid in connection with the
1998 recapitalization for each of Messrs. Parry and Williams and Ms. Flood,
and premiums paid for life insurance in the amounts of $582, $313 and $132
for Messrs. Parry and Williams and Ms. Flood, respectively.
(7) Includes premiums of $173 paid for life insurance, a one-time signing bonus
of $500,000 and a one-time payment of $75,000 paid in connection with a
bonus forfeited by Mr. Spellman upon separation of his prior employment.
OPTION GRANTS
None of the executive officers named in the summary compensation table have
options to purchase common stock, but each owns shares of common stock. See
"Principal and Selling Stockholders."
EMPLOYMENT AGREEMENT
On October 22, 1998, we entered into an employment agreement with Robert R.
Spellman. The following are the key terms of his employment agreement:
- employment as Senior Vice President and Chief Financial Officer,
- base salary of $230,000 per year,
- eligibility to receive a target bonus equal to 35% of base salary under
the executive bonus plan,
- right to purchase shares of common stock, and
- a one-time signing bonus of $500,000. If Mr. Spellman leaves voluntarily
or is terminated for cause prior to May 9, 2000, he must repay this
signing bonus.
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YANKEE CANDLE HOLDINGS STOCK OPTION PLAN
The Yankee Candle Holdings Corp. Employee Stock Option Plan provides for the
granting of options to purchase shares of Class A common stock of Yankee Candle
Holdings to any employee of Yankee Candle Holdings or its subsidiaries. These
options are not intended to qualify as incentive stock options. The plan is
currently administered by the Compensation Committee of the board of directors
of Yankee Candle Holdings, which committee sets the terms and conditions of the
options. Options vest over a five year period. Options to purchase a total of
1,670 shares of Class A common stock were granted during the period from April
27, 1998 to April 3, 1999 at an exercise price of $1,038.46 per share. All of
these options were granted at fair value, except for options to purchase 320
shares which were granted in 1999 at less than fair value.
In connection with the liquidation of Yankee Candle Holdings prior to the
closing of the offering, the options to acquire Yankee Candle Holdings common
stock will become options to acquire Yankee Candle common stock on the same
terms as the existing options, other than changes to the exercise price and the
number of shares subject to options to preserve the economics of the existing
options. The options will be governed by The Yankee Candle Company, Inc.
Employee Stock Option Plan, which will be administered by the Compensation
Committee of the board of Yankee Candle. The plan authorizes the issuance of
shares of common stock with adjustments in the case of changes in
capitalization affecting the options. Assuming the conversion of all outstanding
Yankee Candle Holdings options into Yankee Candle options, options to purchase
shares of common stock would have been granted to date under the plan. The
description below assumes that the liquidation has occurred and that the options
are exercisable for Yankee Candle common stock. See "Description of Capital
Stock."
STOCK OPTION AGREEMENTS. Options are granted pursuant to stock option
agreements. One-fifth of the options generally vest and become exercisable on
each of the first, second, third, fourth and fifth anniversaries of the grant
date. Unvested options expire on the date of the optionee's termination of
employment and vested options expire after the termination of employment as
described below.
Each option expires on the earliest of:
- the tenth anniversary of the date of grant,
- if the optionee's employment is terminated for any reason, including death
or disability of the optionee, the 60(th) day following the delivery of a
notice to the optionee by Yankee Candle, during which 60-day period the
optionee may exercise the vested portion of the option, and
- the exercise in full of the option.
These options are generally exercisable only by an optionee during the
optionee's lifetime and are not transferable.
The stock option agreements provide that Yankee Candle will notify the
optionee prior to a total sale or a partial sale. A total sale includes:
(1) the merger or consolidation of Yankee Candle into another corporation,
other than a merger or consolidation in which Yankee Candle is the
surviving corporation and which does not result in a capital
reorganization, reclassification or other change in the then outstanding
common stock,
(2) the liquidation of Yankee Candle,
(3) the sale to a third party of all or substantially all of Yankee Candle's
assets, or
(4) the sale to a third party of common stock, other than through one or
more public offerings;
but only if, in the case of the events described in (1), (2) and (4), the
Forstmann Little partnerships cease to own shares of the voting stock of the
business.
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A partial sale means a sale by the Forstmann Little partnerships of all or a
portion of their shares of common stock, including through a public offering, to
a third party, other than a total sale. This offering constitutes a partial
sale.
The optionee may exercise options only for purposes of participating in the
partial sale, whether or not the options were otherwise exercisable, with
respect to the excess, if any, of:
- the number of shares with respect to which the optionee would be entitled
to participate in the partial sale under the stockholder's agreement
described below, over
- the number of shares previously issued upon exercise of the options and
not previously disposed of in a partial sale.
Upon receipt of a notice of a total sale, the optionee may exercise all or
part of the options, whether or not the options were otherwise exercisable.
In connection with a total sale, Yankee Candle may redeem the unexercised
portion of the options in lieu of permitting the optionee to exercise the
options. Any unexercised portion of an option will terminate upon the completion
of a total sale, unless Yankee Candle provides for its continuation.
In the event a total sale or partial sale is not completed, any option
exercised in connection with the sale will be exercisable only to the extent it
would have been exercisable if notice of the sale had not been given. The stock
option agreements provide that, if the Forstmann Little partnerships sell shares
of common stock in a bona fide arm's-length transaction, at the election of
Yankee Candle, an optionee may be required to
- proportionately exercise the optionee's options and to sell all of the
shares of common stock purchased under the exercise in the same
transaction and on the same terms as the shares sold by the Forstmann
Little partnerships, or, if unwilling to do so,
- forfeit the portion of the option required to be exercised.
The optionee has no independent right to require Yankee Candle to register
the shares of common stock underlying the options under the Securities Act.
The stock option agreements permit Yankee Candle to terminate all of an
optionee's options if the optionee engages in prohibited or competitive
activities.
The number and class of shares underlying, and the terms of, outstanding
options may be adjusted in the event of a merger, consolidation, stock split or
stock dividend.
STOCKHOLDER'S AGREEMENT. Upon exercise of an option under the plan, an
optionee is required to enter into a stockholder's agreement with Yankee Candle
in the form then in effect. The stockholder's agreement provides that,
generally, the shares issued upon exercise of the options may not be sold,
assigned or otherwise transferred. The description below summarizes the terms of
the form of the stockholder's agreement currently in effect.
If one or more partial sales result in the Forstmann Little partnerships
owning, in the aggregate, less than 20% of the then outstanding voting stock of
Yankee Candle, the stockholder is entitled to transfer his or her shares of
common stock free of the restrictions and rights contained in the stockholder's
agreement.
The stockholder's agreement provides that the stockholder may participate
proportionately in any sale by the Forstmann Little partnerships of all or a
portion of their shares of common stock to any person who is not a partner or
affiliate. In addition, the stockholder shall be entitled to, and may be
required to, participate proportionately in a public offering of shares of
common stock by the Forstmann Little partnerships, by selling the same
percentage of the stockholder's shares that the Forstmann Little partnerships
are selling of their shares. The sale of shares of common stock in this
transaction must be for the same price and otherwise on the same terms and
conditions as the sale by the Forstmann Little
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<PAGE>
partnerships. If the Forstmann Little partnerships sell or exchange all or a
portion of their common stock in a bona fide arm's-length transaction, the
Forstmann Little partnerships may require the stockholder to sell a
proportionate amount of his or her shares for the same price and on the same
terms and conditions as the sale of common stock by the Forstmann Little
partnerships and, if stockholder approval of the transaction is required, to
vote his or her shares in favor of the sale or exchange.
OUTSIDE DIRECTOR STOCK OPTIONS
Two directors, Mr. Michael Ovitz and Ms. Emily Woods, have options to
purchase shares of Class A common stock of Yankee Candle Holdings which were
granted pursuant to individual stock option agreements. The date of these
director option agreements and the date of grant, for Mr. Ovitz was November 30,
1998 and for Ms. Woods was June 26, 1998. Upon the liquidation of Yankee Candle
Holdings prior to the closing of this offering, these director options will
become options to acquire shares of Yankee Candle common stock on the same terms
as the existing options, other than the exercise price and number of shares
subject to option which will be adjusted to preserve the economics of the
existing options. Each of the director optionees will have options to purchase
shares of common stock at $ per share. These options are not intended
to qualify as incentive stock options and were not issued pursuant to the plan.
One-third of the options generally becomes exercisable on each of the first,
second and third anniversaries of the date of the grant. Each option expires on
the earliest of:
- the tenth anniversary of the date of grant,
- 30 days after the date the director optionee ceases to serve as a director
of Yankee Candle, and
- the exercise in full of the option.
The director optionees may not sell or otherwise transfer their options.
The director option agreements provide that Yankee Candle will notify the
director optionees prior to a total sale or a partial sale. Upon receipt of a
notice of a partial sale, a director optionee may exercise his or her options
only for purposes of participating in the partial sale, whether or not the
options were otherwise exercisable, with respect to the excess, if any, of:
- the number of shares with respect to which the director optionee would be
entitled to participate in the partial sale under the director
stockholder's agreements described below, over
- the number of shares previously issued upon exercise of the options and
not previously disposed of in a partial sale.
Upon receipt of a notice of a total sale, a director optionee may exercise
all or part of the options, whether or not the options were otherwise
exercisable.
In connection with a total sale, Yankee Candle may redeem the unexercised
portion of the director optionee's options. Any unexercised portion of a
director optionee's options will terminate upon the completion of a total sale,
unless Yankee Candle provides for continuation of the options.
In the event a total sale or partial sale is not completed, any option which
a director optionee had exercised in connection with the sale will be
exercisable after the sale only to the extent it would have been exercisable if
notice of the sale had not been given. This offering constitutes a partial sale.
The director option agreements provide that, if the Forstmann Little
partnerships sell shares of common stock in a bona fide arm's-length
transaction, at the election of Yankee Candle, a director optionee may be
required to:
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- proportionately exercise the director optionee's options and to sell all
of the shares of common stock purchased under the exercise in the same
transaction and on the same terms as the shares sold by the Forstmann
Little partnerships, or, if unwilling to do so,
- forfeit the portion of the option required to be exercised.
The director optionees have no independent right to require Yankee Candle to
register the shares of common stock underlying the options under the Securities
Act.
The number and class of shares underlying, and the terms of, outstanding
options may be adjusted in the event of a merger, consolidation, stock split or
stock dividend.
In addition, on , 1999, Mr. Sargent was granted an option to
purchase shares of Class A common stock of Yankee Candle Holdings under an
individual option agreement. Upon the liquidation of Yankee Candle Holdings,
these options will become options to purchase shares of common stock at the
initial public offering price per share. Mr. Sargent's options are immediately
exercisable.
DIRECTOR STOCKHOLDER'S AGREEMENTS. Upon exercise of a director option, a
director optionee is required to enter into a director stockholder's agreement
with Yankee Candle in the form then in effect. The form of director
stockholder's agreement currently in effect is substantially the same as the
form of employee stockholder's agreement currently in effect.
STOCK AGREEMENTS
In connection with the recapitalization, 12 members of Yankee Candle
management were awarded the right to purchase, and actually purchased, stock of
Yankee Candle Holdings on April 27, 1998. In October 1998 an additional member
of management was awarded the right to purchase, and agreed to purchase, stock
of Yankee Candle Holdings. He purchased these shares in February 1999. These
members of management entered into stock agreements relating to these shares of
common stock of Yankee Candle Holdings. See "--Relationships and Transactions
between Yankee Candle and its Officers, Directors, 5% Beneficial Owners and
their Family Members."
After the liquidation of Yankee Candle Holdings prior to the closing of this
offering, the restrictions of the stock agreements will apply to the
stockholder's ownership of Yankee Candle common stock and, in connection with
the receipt of the Yankee Candle common stock, the stockholders will enter into
new stock agreements covering the Yankee Candle common stock with the same terms
as the original agreement except for adjustments that are necessary to preserve
the economics of the original stock agreements. The description below assumes
that the new stock agreements have been executed.
The stock agreements contain transfer provisions substantially similar to
those in the form of stockholder's agreement that the employee optionees and
director optionees must execute upon exercise of options under the plan.
Upon termination of employment, Yankee Candle has a right, at its option, to
purchase all of the unvested shares of common stock held by a stockholder. The
stock vests at a rate of 20% per year, beginning after one year. The
stockholders have no independent right to require Yankee Candle to register
their shares of common stock under the Securities Act.
THE YANKEE CANDLE 1999 STOCK OPTION AND AWARD PLAN
The board of directors of Yankee Candle adopted the 1999 Stock Option and
Award Plan in April 1999, and the stockholders approved it in June 1999. The
stock plan provides for the grant of incentive stock options intended to qualify
under Section 422 of the IRS Code and stock options which do not so qualify,
stock appreciation rights, restricted stock, performance units and performance
shares, phantom stock awards and share awards. Yankee Candle's and its
subsidiaries' eligible directors, officers, employees, including future
employees who have received written offers of employment, and consultants are
eligible to
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receive grants under the stock plan. The stock plan is designed to comply with
the requirements for "performance-based compensation" under Section 162(m) of
the IRS Code, and the conditions for exemption from the short-swing profit
recovery rules under Rule 16b-3 under the Exchange Act.
The stock plan is administered by a committee that consists of at least two
nonemployee outside board members. The Compensation Committee of the board
currently serves as the committee. Generally, the committee has the right to
grant options and other awards to eligible individuals and to determine the
terms and conditions of options and awards, including the vesting schedule and
exercise price of options and awards. The stock plan authorizes the issuance of
5% of the outstanding shares of common stock determined on a fully diluted basis
as of , 1999, with adjustment in the case of changes in capitalization
affecting the options. For the purpose of determining the number of outstanding
shares, all shares issuable under the plan are deemed outstanding.
The stock plan provides that the term of any option may not exceed ten
years, except in the case of the death of an optionee in which event the option
may be exercised for up to one year following the date of death even if it
extends beyond ten years from the date of grant. If a participant's employment,
or service as a director, is terminated following a change in control, any
options or stock appreciation rights become immediately and fully vested at that
time and will remain outstanding until the earlier of the six-month anniversary
of termination and the expiration of the option term.
THE YANKEE CANDLE 1999 EMPLOYEE STOCK PURCHASE PLAN
We adopted the 1999 Employee Stock Purchase Plan in June 1999. The stock
purchase plan provides our employees with the opportunity to purchase shares of
our common stock on the date of this offering at the initial public offering
price as part of our directed share program. After this offering, the plan
allows our employees to purchase additional shares of our common stock on the
NYSE at the then current market price. Employees who elect to participate in the
program will pay for these subsequent purchases with funds that we will withhold
from their paychecks.
RELATIONSHIPS AND TRANSACTIONS BETWEEN YANKEE CANDLE AND ITS OFFICERS,
DIRECTORS, 5% BENEFICIAL OWNERS AND THEIR FAMILY MEMBERS
On April 27 1998, Yankee Candle recapitalized. Pursuant to the 1998
recapitalization, Yankee Candle redeemed approximately 500 shares of Yankee
Candle common stock owned by Michael Kittredge for an aggregate redemption price
of approximately $200.0 million. Mr. Kittredge also sold approximately 450
shares of Yankee Candle common stock to Yankee Candle Holdings Corp., a
corporation newly formed by the Forstmann Little partnerships and a group of
executives of Yankee Candle, for approximately $180.0 million. The 1998
recapitalization and related transactions were consummated pursuant to a
recapitalization agreement, dated as of March 25, 1998, between Forstmann Little
& Co. Subordinated Debt and Equity Management Buyout Partnership-VI, L.P., which
is one of the Forstmann Little partnerships, Yankee Candle Holdings, Yankee
Candle and Michael Kittredge. At the same time and as part of the 1998
recapitalization, Chandler's Restaurant, Inc., a subsidiary of Yankee Candle,
acquired the assets of the restaurant business located at Yankee Candle's South
Deerfield flagship retail location from Mr. Kittredge.
Immediately after the 1998 recapitalization, Yankee Candle Holdings owned
90% of Yankee Candle's common stock and Mr. Kittredge owned 10% of Yankee
Candle's common stock.
Yankee Candle financed the redemption of shares from Mr. Kittredge, the
repayment of existing indebtedness, the payment of the expenses of the 1998
recapitalization and one-time employee bonuses by borrowing $2.5 million under a
$60.0 million revolving credit facility and by issuing an aggregate of $320.0
million of subordinated debentures to Forstmann Little & Co. Subordinated Debt
and Equity Management Buyout Partnership-VI, L.P. That partnership immediately
distributed the subordinated debentures to its limited partners. The
subordinated debentures are divided into three equal series, due on
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May 31, 2009, May 31, 2010 and May 31, 2011. The subordinated debentures provide
for an interest rate of 6 3/4% and provide for interest to be paid
semi-annually. As of April 3, 1999, Yankee Candle had paid $12.8 million in
interest. The subordinated debentures may be prepaid by Yankee Candle at any
time without premium, penalty or any charge. Yankee Candle will prepay all of
the subordinated debentures with the proceeds of this offering, the proceeds of
a new credit facility and available cash.
The principal recipients of the one-time bonus aggregating $61.3 million
were Mr. Parry, Mr. Harry Flood, Ms. Gail Flood, Mr. Williams, Ms. Nancy
Spanbauer and Ms. Ann Morrissey.
Yankee Candle Holdings purchased shares of common stock from Mr. Kittredge
for approximately $180.0 million. This purchase was financed with the proceeds
from the sale of shares of Yankee Candle Holdings common stock to the Forstmann
Little partnerships and senior management of Yankee Candle, including Mr. Parry,
Ms. Flood, Mr. Williams and nine other persons.
On September 14, 1998, January 22, 1999 and January 26, 1999, Yankee Candle
Holdings repurchased shares of Yankee Candle Holdings common stock from
employees who resigned from Yankee Candle for an aggregate purchase price of
$750,000. To finance the repurchases, Yankee Candle Holdings borrowed funds from
Yankee Candle pursuant to intercompany notes.
As a result of an award in October 1998 to purchase stock, Mr. Spellman on
February 3, 1999 invested approximately $1.0 million in Yankee Candle Holdings
by purchasing shares of Yankee Candle Holdings common stock. Yankee Candle lent
Mr. Spellman $750,000 to help finance his investment. The loan to Mr. Spellman
carries an interest rate of 7%. The loan provides for full recourse to Mr.
Spellman and is secured. In addition, Mr. Spellman has entered into a pledge
agreement pledging, among other things, his shares of Yankee Candle Holdings
common stock. The loan will be secured by Mr. Spellman's shares of new Yankee
Candle common stock after the offering. The loan matures five years from the
date it was made and must be prepaid in full in circumstances which include a
termination of employment. In addition, Mr. Spellman must apply his after-tax
proceeds of a sale of common stock to reduce the principal amount of, and
accrued interest on, the loan.
Yankee Candle Holdings used the proceeds of Mr. Spellman's investment to
repay all outstanding intercompany notes and used the remainder to make a
capital contribution to Yankee Candle.
Mr. Harry Flood was our Chief Financial Officer until November 1998. In
connection with the 1998 recapitalization, he received a special bonus of
$9,433,962. His compensation in 1998, excluding the special bonus, was $236,212.
He is Ms. Flood's husband.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Yankee Candle's common stock immediately prior to the consummation
of this offering, giving effect to the reorganization occurring in connection
with this offering, and as adjusted to reflect the sale of the shares of common
stock pursuant to this offering. The table includes:
- each person who is known to Yankee Candle to be the beneficial owner of
more than 5% of the outstanding common stock,
- each other director of Yankee Candle,
- each other executive officer named in the summary compensation table,
- all directors and executive officers of Yankee Candle as a group, and
- the other selling stockholders participating in the offering.
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Except as otherwise indicated, the persons or entities listed below have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them, except to the extent their power may be shared with
a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)
------------------------ SHARES ------------------------
NAME NUMBER PERCENT OFFERED (1) NUMBER PERCENT
- --------------------------------------------------------------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Forstmann Little & Co. Equity Partnership-V, L.P.(2)...........
Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P.(2)...............................
Michael J. Kittredge...........................................
OTHER DIRECTORS:
Theodore J. Forstmann(2).......................................
Nicholas C. Forstmann(2).......................................
Steven B. Klinsky(2)...........................................
Sandra J. Horbach(2)...........................................
Michael D. Parry...............................................
Michael S. Ovitz(3)............................................
Ronald L. Sargent(4)...........................................
Emily Woods(5).................................................
OTHER NAMED EXECUTIVE OFFICERS:
Gail M. Flood..................................................
Robert R. Spellman.............................................
Stephen T. Williams............................................
All Directors and Executive Officers as a Group (12 persons)...
ADDITIONAL SELLING STOCKHOLDERS:
additional selling stockholders, each of whom is selling
less than shares in the offering and will beneficially
own less than 1% of the outstanding common stock after the
offering.....................................................
</TABLE>
- ------------------------
* The percentage of shares of common stock beneficially owned does not exceed
one percent of the outstanding shares of common stock.
(1) For purposes of this table, information as to the shares of common stock
assumes that the underwriters' over-allotment option is not exercised. In
addition, a person or group of persons is deemed to have "beneficial
ownership" of any shares of common stock when the person has the right to
acquire them within 60 days after the date of this prospectus. For purposes
of computing the percentage of outstanding shares of common stock held by
each person or group of persons named above, any shares which the person has
the right to acquire within 60 days after the date of this prospectus is
deemed to be outstanding but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person. Each selling
stockholder other than the Forstmann Little partnerships has the right to
participate with the Forstmann Little partnerships in the offering and may
participate in the offering with respect to their options regardless of
whether they beneficially own the shares subject to the options for purposes
of this table. Information about the shares being offered, beneficial
ownership after the offering and the selling stockholders is subject to
change pending final confirmation of selling stockholder participation in
the offering, prior to pricing of the offering.
(2) The general partner of Forstmann Little & Co. Equity Partnership-V, L.P., a
Delaware limited partnership ("Equity-V"), is FLC XXX Partnership, L.P., a
New York limited partnership of which
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Messrs. Theodore J. Forstmann, Nicholas C. Forstmann and Steven B. Klinsky,
Ms. Sandra J. Horbach, Messrs. Thomas H. Lister, Winston W. Hutchins and
Erskine B. Bowles are general partners. The general partner of Forstmann
Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VI,
L.P., a Delaware limited partnership ("MBO-VI"), is FLC XXIX Partnership,
L.P., a New York limited partnership of which Messrs. Theodore J. Forstmann,
Nicholas C. Forstmann and Steven B. Klinsky, Ms. Sandra J. Horbach, Messrs.
Thomas H. Lister, Winston W. Hutchins and Erskine B. Bowles are general
partners. Accordingly, each of the individuals named above, other than Mr.
Lister and Mr. Bowles for the reasons described below, may be deemed the
beneficial owners of shares owned by MBO-VI and Equity-V and, for purposes
of this table, beneficial ownership is included. Mr. Lister and Mr. Bowles
do not have any voting or investment power with respect to, or any economic
interest in, the shares of common stock held by MBO-VI or Equity-V; and,
accordingly, Mr. Lister and Mr. Bowles are not deemed to be the beneficial
owners of these shares. Theodore J. Forstmann and Nicholas C. Forstmann are
brothers. FLC XXX Partnership, L.P. is a limited partner of Equity-V. None
of the other limited partners in each of MBO-VI and Equity-V is otherwise
affiliated with Yankee Candle, or Forstmann Little & Co. The address of
Equity-V and MBO-VI is c/o Forstmann Little & Co., 767 Fifth Avenue, New
York, New York 10153.
(3) Represents shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(4) Represents shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(5) Represents shares subject to options which are currently exercisable or
exercisable within 60 days of the date of this prospectus.
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DESCRIPTION OF THE CREDIT AGREEMENT
Concurrently with the closing of this offering, we expect to terminate our
existing revolving credit facility and enter into a new credit facility with a
syndicate of banks and other financial institutions led by The Chase Manhattan
Bank, as sole administrative agent, and Chase Securities Inc., as the sole and
exclusive lead arranger and sole book manager. The credit facility is expected
to consist of $150 million of term loans and a $150 million revolving credit
facility.
All of the term loans and the loans under the revolving credit facility will
bear interest, at our option, at either of the following rates:
(a) the highest of:
- the rate from time to time publicly announced by The Chase Manhattan
Bank in New York as its prime rate,
- the secondary market rate for three-month certificates of deposit from
time to time plus 1% and
- the federal funds rate from time to time plus 1/2 of 1%,
in each case plus an applicable margin which is
- .50% for the first six months after the closing of this offering and
- after these first six months, based on a pricing grid depending on our
leverage ratio at that time; or
(b) a Eurodollar rate plus an applicable margin which is
- 1.50% for the first six months after the closing of this offering and
- after these first six months, based on a pricing grid depending on our
leverage ratio at that time.
We will also pay a commitment fee for the daily average unused commitment
under the revolving credit facility. The commitment fee will be (a) 0.375% for
the first six months after the closing of this offering and (b) after this
period, based on a pricing grid depending on our specified leverage ratio at
that time. The commitment fee will be payable quarterly in arrears and upon the
final maturity of the revolving credit facility. In addition, we will pay fees
for each letter of credit issued under the credit facility.
Beginning December 31, 1999, term loans under the credit facility will
amortize in quarterly installments. The revolving credit facility will mature
five years after the closing of this offering.
The credit facility will be subject to mandatory prepayment with the net
proceeds of asset sales or additional indebtedness with specified exceptions.
The credit facility will contain covenants and provisions that restrict,
among other things, our ability to change the business we are conducting,
declare dividends, grant liens, incur additional indebtedness, exceed a
specified leverage ratio, fall below a minimum interest coverage ratio and make
capital expenditures. We expect to be in compliance with these covenants
immediately after the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
OVERVIEW
Immediately before the closing of this offering, the capital structure of
Yankee Candle will be reorganized as follows:
- Yankee Candle Holdings will transfer all of its assets, consisting
principally of 449.9782 shares of Yankee Candle common stock, no par
value, to Yankee Candle in exchange for shares of Yankee Candle common
stock par value $.01 per share, and options to purchase Yankee Candle
common stock on the same economic terms and conditions as the Yankee
Candle Holdings options,
- Yankee Candle Holdings will be liquidated, and all of the shares of Yankee
Candle common stock, and all of the options to purchase Yankee Candle
common stock received from Yankee Candle will be exchanged by the Yankee
Candle Holdings Class A common stockholders and option holders,
respectively, for all of the outstanding Yankee Candle Holdings Class A
common stock and all of the outstanding Yankee Candle Holdings options.
Immediately before the liquidation, all of the outstanding Yankee Candle
Holdings Class B common stock will be converted into Yankee Candle
Holdings Class A common stock based on a formula set forth in the
Certificate of Incorporation of Yankee Candle Holdings, and
- the remaining 49.9976 outstanding shares of Yankee Candle common stock, no
par value, will be exchanged for shares of Yankee Candle common stock
par value $.01 per share.
As a result of the liquidation of Yankee Candle Holdings, each share of
Yankee Candle Holdings Class B common stock will be exchanged for shares of
Yankee Candle common stock and each share of Yankee Candle Holdings Class A
common stock will be exchanged for shares of Yankee Candle common stock.
After this reorganization, Yankee Candle's authorized capital stock will
consist of 300,000,000 shares of common stock, $.01 par value per share, and
100,000,000 shares of preferred stock, $.01 par value per share.
After the reorganization, and before the closing of this offering, based on
share information as of April 3, 1999, there will be shares of common
stock outstanding and no shares of preferred stock outstanding. Assuming the
exercise of all outstanding options, approximately 89% of these shares of common
stock would be owned by former Yankee Candle Holdings stockholders,
approximately 10% would be owned by Michael Kittredge and approximately 1% would
be owned by former Yankee Candle Holdings optionholders. After the closing of
this offering, there will be shares of common stock outstanding.
After the closing of this offering, the Forstmann Little partnerships and
our management will beneficially own approximately % of the outstanding
common stock, % on a fully diluted basis. As long as the Forstmann Little
partnerships and our management continue to own in the aggregate more than 50%
of Yankee Candle's outstanding shares of common stock, they will collectively
have the power to
- elect the entire board of directors of Yankee Candle,
- determine, without the consent of Yankee Candle's other stockholders, the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of Yankee Candle's assets,
- prevent or cause a change in control of Yankee Candle, and
- approve substantially all amendments to our Articles of Organization and
By-Laws.
The Forstmann Little partnerships have a contractual right to elect two
directors until such time as they no longer own any shares of Yankee Candle
common stock.
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The following summary contains material information relating to provisions
of Massachusetts law and Yankee Candle's Articles of Organization and By-Laws.
The Articles of Organization and By-Laws are included as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to receive
ratably the dividends, if any, as may be declared by the board of directors out
of legally available funds. Upon the liquidation, dissolution or winding-up of
Yankee Candle, holders of common stock are entitled to receive ratably the net
assets of Yankee Candle available for distribution after the payment of all
liabilities of Yankee Candle and the payment of any required amounts to the
holders of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares sold in this offering will be, when
issued and paid for, validly issued, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of
preferred stock that Yankee Candle may designate and issue in the future.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to establish from time to time one
or more classes or series of preferred stock covering up to an aggregate of
100,000,000 shares of preferred stock, and to issue shares of preferred stock.
Each class or series of preferred stock will cover the number of shares and will
have the preferences, voting powers, qualifications and special or relative
rights or privileges as is determined by the board of directors, which may
include, among others, dividend rights, liquidation preferences, voting rights,
conversion rights, preemptive rights and redemption rights.
The purpose of authorizing the board of directors to establish preferred
stock is to eliminate delays associated with a stockholders vote on the creation
of a particular class or series of preferred stock. The rights of the holders of
common stock will be subject to the rights of holders of any preferred stock
issued in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging, delaying or preventing an
acquisition of Yankee Candle at a price which many stockholders find attractive.
These provisions could also make it more difficult for stockholders of Yankee
Candle to effect corporate actions, including the election of directors. Yankee
Candle has no present plans to issue any shares of preferred stock.
ARTICLES OF ORGANIZATION, BY-LAWS AND MASSACHUSETTS LAW
Yankee Candle's Articles of Organization and By-Laws and Massachusetts law
contain specific provisions that could be deemed to have anti-takeover effects
that discourage, delay or prevent an acquisition of Yankee Candle and make it
more difficult for stockholders of Yankee Candle to effect corporate actions,
including the election of directors.
Massachusetts law provides that stockholders may take action without a
meeting only by the unanimous written consent of all stockholders entitled to
vote. Yankee Candle's By-Laws require Yankee Candle to call a special meeting of
stockholders only at the request of stockholders holding at least 50% of the
outstanding voting stock of Yankee Candle, or a lesser percentage as may be
required by law. Any stockholder who wishes to solicit requests to call a
special meeting must comply with the procedures specified in the By-Laws.
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Yankee Candle's By-Laws provide that nominations for directors may not be
made by stockholders at any annual or special meeting of stockholders unless the
stockholder intending to make a nomination notifies Yankee Candle of the
nomination a specific number of days in advance of the meeting and furnishes to
Yankee Candle detailed information regarding the stockholder and the intended
nominee. The By-Laws also require advance notice of any proposal to be brought
by a stockholder before any annual or special meeting of stockholders and the
provision of detailed information to Yankee Candle regarding the stockholder and
the proposal.
Yankee Candle will be subject to the provisions of Section 50A of Chapter
156B of the Massachusetts General Laws following this offering, which requires
that Yankee Candle have a classified, also called staggered, board of directors.
This statute requires that the classified board consist of three classes, as
nearly equal in size as possible, and provides that directors may be removed
only for cause, as defined in the statute. Yankee Candle's By-Laws contain
provisions that implement a classified board of directors. See
"Management--Directors and Executive Officers."
Yankee Candle will be subject to the provisions of Chapter 110F of the
Massachusetts General Laws, an anti-takeover law, following this offering. In
general, this statute prohibits Yankee Candle from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless either:
- prior to that date, the board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder,
- the interested stockholder acquires, in the transaction in which that
person becomes an interested stockholder, at least 90% of the outstanding
voting stock of Yankee Candle, excluding shares held by affiliates and
employee benefit plans of Yankee Candle, or
- the business combination is approved by the board of directors and by the
holders of two-thirds of the outstanding voting stock of Yankee Candle,
excluding shares held by the interested stockholder, voting at a meeting.
In general, an "interested stockholder" is a person who owns 5%, 15% in the
case of a person eligible to file a Schedule 13G under the Securities Exchange
Act with respect to those shares, or more of the outstanding voting stock of
Yankee Candle; or who is an affiliate or associate of Yankee Candle and was the
owner of 5%, 15% in the case of a person eligible to file a Schedule 13G, or
more of the outstanding voting stock within the prior three years. A "business
combination" generally includes a merger, consolidation, stock or asset sale,
and any other transaction with the interested stockholder resulting in a
financial benefit, except proportionately as a stockholder of Yankee Candle, to
the interested stockholder. Yankee Candle may at any time amend its Articles of
Organization or By-Laws, by a vote of the holders of a majority of its voting
stock, to elect not to be governed by Chapter 110F. An amendment would not be
effective for 12 months and would not apply to a business combination with any
person who became an interested stockholder prior to the date of the amendment.
Yankee Candle's By-Laws include a provision that excludes Yankee Candle from
the applicability of Chapter 110D of the Massachusetts General Laws. In general,
this statute provides that any stockholder who acquires 20% or more of the
outstanding voting stock of a corporation subject to this statute may not vote
that stock unless the disinterested stockholders of the corporation so
authorize. In addition, the statute permits a corporation to provide in its
Articles of Organization or By-Laws that the corporation may redeem for fair
value all of the shares acquired in a control share acquisition if the
interested stockholder does not deliver a control share acquisition statement or
if the interested stockholder delivers a control share acquisition statement but
the stockholders of the corporation do not authorize voting rights for those
shares. The board of directors may amend the By-Laws at any time to subject
Yankee Candle to this statute prospectively.
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Yankee Candle's Articles of Organization provide that transactions involving
the sale, lease or exchange of all or substantially all of Yankee Candle's
assets and the merger or consolidation of Yankee Candle with another corporation
may be authorized by vote of a majority of the outstanding voting stock, or if
there are two or more classes of voting stock, by a majority of each class,
rather than by two-thirds as is otherwise provided by Massachusetts law.
Yankee Candle's Articles of Organization provide that no director of Yankee
Candle shall be personally liable for monetary damages to Yankee Candle or to
its stockholders for a breach of fiduciary duty as a director. This provision
does not eliminate or limit liability:
- for any breach of the director's duty of loyalty to Yankee Candle or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 61 or 62 of Chapter 156B of the Massachusetts General Laws,
dealing with liability for unauthorized distributions and loans to
corporate insiders, or
- for any transaction from which the director derived an improper personal
benefit.
Yankee Candle's Articles of Organization also provide for the
indemnification of Yankee Candle's directors and officers to the fullest extent
permitted by Massachusetts law, including under circumstances in which
indemnification would otherwise be discretionary. In addition, Yankee Candle has
entered into indemnity agreements with each of its directors and officers
providing similar benefits.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be BankBoston,
NA, a Massachusetts banking corporation.
SHARES ELIGIBLE FOR FUTURE SALE
RULE 144 SECURITIES
Upon the consummation of the offering, Yankee Candle will have shares
of common stock outstanding. Of these shares, only the shares of
common stock sold in the offering will be freely tradable without registration
under the Securities Act and without restriction by persons other than
"affiliates" of Yankee Candle. The shares of common stock held by the
Forstmann Little partnerships and Yankee Candle's directors and executive
officers after the offering will be "restricted" securities under the meaning of
Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act, unless an exemption from registration is
available, including exemptions pursuant to Rule 144 or Rule 144A under the
Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of either
of the following:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately the number of shares outstanding immediately after
this offering, or
- the average weekly trading volume of the common stock on the NYSE during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to that sale.
Sales under Rule 144 are also subject to specific manner of sale provisions
and notice requirements and to the availability of current public information
about Yankee Candle.
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Under Rule 144(k), a person who is not deemed to have been one of Yankee
Candle's "affiliates" at any time during the 90 days preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell its shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. The sale of these shares, or the perception that
sales will be made, could adversely effect the price of Yankee Candle's common
stock after the offering because a greater supply of shares would be, or would
be perceived to be, available for sale in the public market.
Each of Yankee Candle, the selling stockholders and our directors and
executive officers have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ended 180 days after the date of this prospectus, sell shares of
common stock or take related actions, subject to limited exceptions, all as
described under "Underwriters."
REGISTRATION RIGHTS
Yankee Candle and the Forstmann Little partnerships have entered into a
registration rights agreement, pursuant to which Yankee Candle has granted to
the Forstmann Little partnerships six demand rights to cause Yankee Candle to
file a registration statement under the Securities Act covering resales of all
shares of common stock held by the Forstmann Little partnerships, and to cause
the registration statement to become effective. The registration rights
agreement also grants "piggyback" registration rights permitting the Forstmann
Little partnerships to include its registrable securities in a registration of
securities by Yankee Candle. Under the agreement, Yankee Candle will pay the
expenses of these registrations.
In addition, pursuant to the stockholder's and subscription agreements,
Yankee Candle is granting "piggyback" registration rights to all of its
employees and directors who have purchased shares of common stock and/or that
have been awarded options to purchase shares of common stock. These registration
rights are exercisable only upon registration by Yankee Candle of shares of
common stock held by the Forstmann Little partnerships. The holders of common
stock entitled to these registration rights are entitled to notice of any
proposal to register shares held by the Forstmann Little partnerships and to
include their shares in Yankee Candle's registration. Yankee Candle will pay the
expenses of these piggyback registrations.
UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of material U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock
applicable to Non-U.S. Holders. A "Non-U.S. Holder" is a person other than:
- an individual who is a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any state,
other than a partnership treated as foreign for U.S. federal income tax
purposes,
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of source, and
- a trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons.
Generally, an individual may be treated as a resident alien, instead of a
non-resident alien, by being present in the United States for at least 31 days
in the calendar year and for a total of at least 183 days
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during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the last year, and one-sixth of the days present in the
second-to-last year. Resident aliens are subject to tax as if they were U.S.
citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences,
- facts and circumstances that may be relevant to a particular Non-U.S.
Holder, including, if it is a partnership, the consequences of some
determinations being made at the partner level,
- the tax consequences to a Non-U.S. Holder's shareholders, partners or
beneficiaries,
- special tax rules that may apply to a Non-U.S. Holder that is, for
example, a bank, an insurance company, a dealer in securities or a trader
in securities that elects mark-to-market accounting treatment, or
- special tax rules that may apply when our common stock is held as part of
a "straddle," "hedge" or "conversion transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable Treasury regulations, and administrative
and judicial interpretations as of the date of this prospectus, all of which may
change retroactively or prospectively. The following summary is for general
information. If you are a Non-U.S. Holder, you should consult a tax advisor on
the U.S. federal tax consequences of holding and disposing of our common stock,
as well as any tax consequences under the laws of any U.S. state or local or
non-U.S. taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate or a lower rate
that an applicable income tax treaty may specify. Non-U.S. Holders should
consult their tax advisors on their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the U.S. are generally subject to U.S. federal income tax
on a net income basis at regular graduated rates, but are not generally subject
to the 30% withholding tax, if the Non-U.S. Holder files the appropriate IRS
form with the payer. Any U.S. trade or business income received by a Non-U.S.
Holder that is a corporation may, under specific circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate that an applicable
income tax treaty may specify.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes of
determining the applicability of an income tax treaty rate. For dividends paid
after 2000:
- a Non-U.S. Holder of common stock that claims the benefit of an income tax
treaty rate generally will be required to satisfy applicable certification
and other requirements,
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership, and the partnership will be required to provide a U.S.
taxpayer identification number and other information, and
- look-through rules will apply to tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
IRS.
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DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is U.S. trade or business income, in which case the branch
profits tax described above may also apply to a corporate Non-U.S. Holder,
- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the taxable
year of the disposition and meets other requirements,
- the Non-U.S. Holder is subject to tax under provisions of U.S. tax law
applicable to specific U.S. expatriates, or
- Yankee Candle is or has been a "U.S. real property holding corporation"
for U.S. federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition and the Non-U.S.
Holder's holding period for the common stock.
The tax relating to stock in a "U.S. real property holding corporation" does
not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the common stock,
provided that the common stock is regularly traded on an established securities
market. Generally, a corporation is a "U.S. real property holding corporation"
if the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
and its other assets used or held for use in a trade or business. Yankee Candle
believes that it has not been and is not, and does not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
FEDERAL ESTATES TAXES
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes and may be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Yankee Candle must report annually to the IRS and to each Non-U.S. Holder
the amount of the dividends paid to that holder and any tax withheld with
respect to those dividends. The information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting those dividends and withholding may also be made available, under an
applicable income tax treaty or agreement, to the tax authorities in the
Non-U.S. Holder's country of residence.
Under specific circumstances, the IRS requires information reporting and
backup withholding at a rate of 31% on specific payments on common stock. Under
currently applicable law, Non-U.S. Holders of common stock generally will be
exempt from information reporting and backup withholding on dividends paid prior
to 2001 to an address outside the U.S. For dividends paid after 2000, however, a
Non-U.S. Holder of common stock that fails to certify its Non-U.S. Holder status
under applicable Treasury regulations may be subject to backup withholding at a
rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by or through
the U.S. office of a broker generally will be subject to information reporting
and backup withholding at a rate of 31% unless the holder certifies its status
as a Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock by or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has particular U.S. relationships that make it a "U.S. related person."
In the case of the payment of proceeds from disposition of common stock by or
through a non-U.S. office
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of a broker that is a U.S. person or a "U.S. related person," information
reporting, but not backup withholding, on the payment applies unless the broker
has documentary evidence in its files that the holder is a Non-U.S. Holder and
that specific conditions are met or that the holder otherwise is entitled to an
exemption. For this purpose, a "U.S. related person" is:
- a "controlled foreign corporation" for U.S. federal income tax purposes,
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for that part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business, or
- effective after 2000, a foreign partnership (A) at least 50% of the
capital or profits interest in which is owned by U.S. persons, or (B) that
is engaged in a U.S. trade or business.
Effective after 2000, backup withholding will apply to a payment of
disposition proceeds if the broker has actual knowledge that the holder is a
U.S. person. Non-U.S. Holders should consult their own tax advisors on the
application of information withholding and backup withholding to them.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, if the holder provides the required information to
the IRS.
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UNDERWRITERS
We intend to offer our common stock in the United States through a number of
U.S. underwriters as well as elsewhere through international managers. Under the
terms and subject to the conditions of the underwriting agreement dated the date
of this prospectus, the U.S. underwriters named below, for whom Morgan Stanley &
Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as U.S. representatives, and the international
underwriters named below, for whom Morgan Stanley & Co. International Limited,
Goldman Sachs International and Merrill Lynch International are acting as
international representatives, have severally agreed to purchase, and we and the
selling stockholders have severally agreed to sell to them, the respective
number of shares of our common stock set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ ----------
<S> <C>
U.S. underwriters:
Morgan Stanley & Co. Incorporated...................................................................
Goldman, Sachs & Co.................................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................................................
Subtotal........................................................................................
International underwriters:
Morgan Stanley & Co. International Limited..........................................................
Goldman Sachs International.........................................................................
Merrill Lynch International.........................................................................
Subtotal........................................................................................
Total...........................................................................................
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the underwriters and the representatives, respectively. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of our common stock offered hereby are subject
to the approval of specific legal matters by their counsel and to other
conditions. The underwriters are obligated to purchase all of the shares of our
common stock except those covered by the U.S. underwriters' over-allotment
option described below if any are purchased.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented and agreed that, with specific exceptions:
- it is not purchasing any shares for the account of anyone other than a
U.S. or Canadian person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
outside the United States or Canada or to anyone other than a U.S. or
Canadian person.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that, with specific
exceptions:
- it is not purchasing any shares for the account of any U.S. or Canadian
person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
in the United States or Canada or to any U.S. or Canadian person.
For any underwriter that is both a U.S. underwriter and an international
underwriter, these representations and agreements made by it in its capacity as
a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and
those made by it in its capacity as an international underwriter apply only to
it in its
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capacity as an international underwriter. The limitations described above do not
apply to stabilization transactions or to other transactions specified in the
agreement between U.S. and international underwriters. As used in this
prospectus, U.S. or Canadian person means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
of their political subdivisions, other than a branch located outside the United
States and Canada of any U.S. or Canadian person. U.S. or Canadian person
includes any U.S. or Canadian branch of a person who is otherwise not a U.S. or
Canadian person. All shares of common stock to be purchased by the underwriters
under the underwriting agreement are referred to as shares.
In the agreement between U.S. and international underwriters, sales of
shares may be made between the U.S. underwriters and international underwriters.
The price of any shares so sold will be the public offering price set forth on
the cover page of this prospectus, in U.S. dollars, less an amount not greater
than $ per share.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented that it has not offered or sold, and has agreed not
to offer or sell, any shares in any province or territory of Canada or to, or
for the benefit of, any resident of any province or territory of Canada in
contravention of the securities laws of Canada. Each U.S. underwriter has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing the shares, the
dealer agrees that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each dealer
will deliver to any other dealer to whom it sells any of the shares a notice
containing substantially the same Canadian selling restrictions.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the international underwriters,
will not offer or sell, any shares to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments for the purposes of their businesses
or otherwise in circumstances which have not resulted and will not result
in an offer to the public in the United Kingdom within the meaning of the
public offers of Securities Regulations 1995,
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986, and
- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom the document
may otherwise lawfully be distributed.
In the agreement between U.S. and international underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell in Japan or to or for the account of
any resident of Japan, any of the shares. This limitation does not apply to
Japanese international underwriters or dealers and offers or sales pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable provisions of Japanese law. Each
international underwriter has further agreed to send to any dealer who purchases
from it any of the shares a notice stating that, by purchasing the shares, the
dealer agrees that any offer or sale of the shares in Japan will be made only to
Japanese international underwriters or dealers or under an exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
66
<PAGE>
compliance with applicable provisions of Japanese law. Each dealer will send to
any other dealer to whom it sells any of the shares a notice containing
substantially the same Japanese selling restrictions.
The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus. The underwriters may also offer the shares to securities dealers at
a price that represents a concession not in excess of $ per share under the
public offering price. Any underwriter may allow and dealers may reallow, a
concession not in excess of $ per share to other underwriters or to securities
dealers. After the initial offering of the shares, the offering price and other
selling terms may from time to time be changed by the representatives.
The selling stockholders have granted to the U.S. underwriters an option,
exercisable for 30 days from the date of this prospectus to purchase up to an
aggregate of additional shares at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
U.S. underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares
offered pursuant to this prospectus. To the extent this option is exercised,
each U.S. underwriter will become obligated, subject to specified conditions, to
purchase about the same percentage of additional shares as the number set forth
next to the U.S. underwriter's name in the preceding table bears to the total
number of shares set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public for this offering would be $ , the total
underwriters' discounts and commissions would be $ and total proceeds to Yankee
Candle and the selling stockholders would be $ .
The underwriters have informed us and the selling stockholders that they do
not intend sales to discretionary accounts to exceed five percent of the total
number of shares offered by them.
We plan to submit an application to list our common stock on the NYSE under
the symbol "YCC," subject to official notice of issuance. The underwriters
intend to sell shares to a minimum of beneficial owners in lots of or more
so as to meet the distribution requirements of this listing.
At our request and request of the selling stockholders, the underwriters
will reserve up to shares to be sold in the offering and offered hereby
for sale, at the initial public offering price, to our directors, officers and
employees and others, generally in the United States. This directed share
program will be administered by Morgan Stanley & Co. Incorporated. The number of
shares available for sale to the general public will be reduced to the extent
these individuals purchase the reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this prospectus.
Each of Yankee Candle, the selling stockholders and all of our directors and
executive officers has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it will not, during
the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the reorganization in connection with this offering,
- the sale of the shares to the underwriters,
67
<PAGE>
- the issuance by us of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
of this prospectus of which the underwriters have been advised in writing,
- the granting of stock options and/or restricted stock units pursuant to
our existing employee benefit plans and to directors in connection with
their initial appointment to the board of directors, provided that these
options, other than director options, do not become exercisable and these
units do not vest during the 180-day period, and
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market or other transactions
after the completion of the offering.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell or
allot more shares than the shares of our common stock we have agreed to
sell to them. This over-allotment would create a short position in our common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. The underwriters have
reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities and may end any of these activities
at any time.
From time to time, some of the underwriters have provided, and may continue
to provide, investment banking services to us and the Forstmann Little
partnerships.
We, the selling stockholders and the underwriters have agreed to indemnify
each other against a variety of liabilities, including liabilities under the
Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
among us, the selling stockholders and the U.S. representatives. Among the
factors to be considered in determining the initial public offering price will
be the future prospects of our company and our industry in general, our sales,
earnings and other financial and operating information in recent periods, and
the price-earnings ratios, sales growth rates, market prices of securities and
other financial and operating information of companies engaged in activities
similar to those of our company. The estimated initial public offering price
range set forth on the cover page of this prospectus is subject to change as a
result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Yankee Candle by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York, and Hale
and Dorr LLP, Boston, Massachusetts as to matters of Massachusetts law and for
the underwriters by Davis Polk & Wardwell, New York, New York. Fried, Frank,
Harris, Shriver & Jacobson has in the past provided, and may continue to
provide, legal services to Forstmann Little and its affiliates.
68
<PAGE>
EXPERTS
The consolidated financial statements of The Yankee Candle Company, Inc. as
of December 31, 1998 and for the year ended December 31, 1998 included in this
prospectus and the related financial statement schedule included elsewhere in
this Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and are included in reliance upon the reports of
Deloitte & Touche LLP given upon their authority as experts in accounting and
auditing.
The financial statements and schedule of The Yankee Candle Company, Inc. at
December 31, 1997, and for the year then ended, 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 the reports of Ernst & Young LLP given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of The Yankee Candle Company, Inc. for
the year ended December 31, 1996 included in this prospectus and the related
financial statement schedule included elsewhere in this Registration Statement
have been audited by Fisk, Bilton, Smith & Co., P.C., independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the report of Fisk, Bilton, Smith &
Co., P.C. given upon their authority as experts in accounting and auditing.
Our current auditors are Deloitte & Touche LLP, who audited our 1998
financial statements. On May 4, 1998, the Board of Directors dismissed Ernst &
Young LLP, who audited our 1997 financial statements, and appointed Deloitte &
Touche LLP. On June 13, 1997, our then sole shareholder dismissed Fisk, Bilton,
Smith & Co., P.C., who audited our 1996 financial statements, and appointed
Ernst & Young LLP.
There were no disagreements between either (a) Ernst & Young LLP and our
management at the decision-making level during the period of their engagement or
(b) Fisk, Bilton, Smith & Co., P.C. and our management at the decision-making
level during the period of their engagement, which disagreements, if not
resolved to the satisfaction of either Ernst & Young LLP or Fisk, Bilton, Smith
& Co., P.C., would have caused either to make reference to the subject matter of
the disagreements in connection with their reports. In addition, there were no
reportable events during the respective engagement periods of Ernst & Young LLP
and Fisk, Bilton, Smith & Co., P.C.
Prior to their respective appointments, neither we nor anyone on our behalf
consulted Deloitte & Touche LLP or Ernst & Young LLP regarding the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on our financial statements, and neither Deloitte &
Touche LLP nor Ernst & Young LLP provided a written or oral report or advice
that our management concluded was an important factor considered by us in
reaching a decision on the issue.
WHERE YOU CAN FIND MORE INFORMATION
Yankee Candle has filed with the Securities and Exchange Commission a
registration statement on Form S-1, which includes amendments, exhibits,
schedules and supplements, under the Securities Act of 1933 and the rules and
regulations under the Securities Act, for the registration of the common stock
offered by this prospectus. Although this prospectus, which forms a part of the
registration statement, contains all material information included in the
registration statement, parts of the registration statement have been omitted
from this prospectus as permitted by the rules and regulations of the
Commission. For further information with respect to Yankee Candle and the common
stock offered by this prospectus, please refer to the registration statement.
The registration statement can be inspected and copied at prescribed rates at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Seven World Trade
69
<PAGE>
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain
information regarding the Washington, D.C. Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, the registration statement is
publicly available through the Commission's site on the Internet's World Wide
Web, located at: http://www.sec.gov. Following the offering, Yankee Candle's
future public filings are expected to be available for inspection at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
After the offering, we will be subject to the full informational
requirements of the Securities Exchange Act of 1934, as amended. To comply with
these requirements, we will file periodic reports, proxy statements and other
information with the Commission.
Our logo and the titles of our products mentioned in this prospectus are our
trademarks.
70
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Historical Consolidated Financial Statements
Independent Auditors' Reports...................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998....................... F-5
Consolidated Statement of Operations for the years ended December 31, 1996, 1997 F-6
and 1998.........................................................................
Consolidated Statements of Stockholders' Equity for the years ended December 31, F-7
1996, 1997 and 1998..............................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 F-8
and 1998.........................................................................
Notes to Consolidated Financial Statements......................................... F-9
Unaudited Interim Condensed Consolidated Financial Statements
Unaudited Interim Condensed Consolidated Balance Sheet as of April 3, 1999......... F-20
Unaudited Interim Condensed Consolidated Statements of Operations for the three F-21
months ended March 31, 1998 and the thirteen weeks ended April 3, 1999...........
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the three F-22
months ended March 31, 1998 and the thirteen weeks ended April 3, 1999...........
Notes to Unaudited Interim Condensed Consolidated Financial Statements............. F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Yankee Candle Company, Inc.
Whately, Massachusetts
We have audited the accompanying consolidated balance sheet of The Yankee
Candle Company, Inc. and subsidiaries as of December 31, 1998 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of The Yankee Candle Company, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 31, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Yankee Candle Company, Inc.
We have audited the accompanying balance sheet of The Yankee Candle Company,
Inc. as of December 31, 1997, and the related statements of operations and cash
flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Yankee Candle Company,
Inc. at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 6, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Yankee Candle Company, Inc.
We have audited the accompanying statement of operations, stockholders'
equity (deficit) and cash flows of The Yankee Candle Company, Inc. for the year
ended December 31, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of The Yankee Candle Company,
Inc. for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ FISK, BILTON, SMITH & CO., P.C.
West Springfield, Massachusetts
March 4, 1997
F-4
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 7,377 $ 30,411
Accounts receivable, less allowance of $360 in 1997 and $450 in 1998, respectively....... 6,933 8,546
Inventory................................................................................ 10,212 12,482
Prepaid expenses and other current assets................................................ 496 855
Deferred tax assets...................................................................... 158 1,542
--------- ----------
Total current assets................................................................... 25,176 53,836
PROPERTY, PLANT AND EQUIPMENT (NET)........................................................ 43,912 48,315
MARKETABLE SECURITIES...................................................................... 386 856
CLASSIC VEHICLES........................................................................... 1,589 874
DEFERRED FINANCING COSTS................................................................... -- 6,566
NOTE RECEIVABLE--RELATED PARTY............................................................. 1,573 --
DEFERRED TAX ASSETS........................................................................ -- 164,474
OTHER ASSETS............................................................................... 460 424
--------- ----------
TOTAL ASSETS........................................................................... $ 73,096 $ 275,345
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank loans............................................................................... $ 17,080 $ --
Accounts payable......................................................................... 6,275 13,287
Accrued interest......................................................................... 124 1,895
Accrued payroll.......................................................................... 3,666 4,768
Accrued income taxes..................................................................... 954 --
Other accrued liabilities................................................................ 1,313 2,982
Current portion of long-term debt........................................................ 874 --
--------- ----------
Total current liabilities.............................................................. 30,286 22,932
--------- ----------
DEFERRED COMPENSATION OBLIGATION........................................................... 540 1,004
LONG-TERM DEBT--Less current portion....................................................... 7,310 320,000
DEFERRED TAX LIABILITIES................................................................... 169 --
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01, par value, 1,000 shares authorized and issued; 1,000 and 500 shares
outstanding at 1997 and 1998, respectively............................................. -- --
Additional paid-in capital............................................................... 62 127,590
Treasury stock, 500 shares at 1998....................................................... -- (212,448)
Retained earnings........................................................................ 34,729 19,048
Capital subscription receivable.......................................................... -- (1,084)
Unearned stock compensation.............................................................. -- (1,698)
Accumulated other comprehensive income................................................... -- 1
--------- ----------
Total stockholders' equity (deficit)................................................... 34,791 (68,591)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)................................... $ 73,096 $ 275,345
--------- ----------
--------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ --------------
<S> <C> <C> <C>
NET SALES............................................................. $ 112,199 $ 144,103 $ 184,477
COST OF SALES......................................................... 53,207 62,069 79,105
------------ ------------ --------------
Gross profit.................................................... 58,992 82,034 105,372
------------ ------------ --------------
OPERATING EXPENSES:
Selling expenses.................................................... 23,244 26,935 30,546
General and administrative expenses................................. 21,687 27,031 19,753
Bonus related to the Recapitalization............................... -- -- 61,263
------------ ------------ --------------
44,931 53,966 111,562
------------ ------------ --------------
INCOME (LOSS) FROM OPERATIONS......................................... 14,061 28,068 (6,190)
------------ ------------ --------------
OTHER (INCOME) EXPENSE:
Interest income..................................................... (165) (151) (219)
Interest expense.................................................... 1,913 2,154 16,268
Other expense....................................................... 221 334 737
------------ ------------ --------------
Total other expense............................................. 1,969 2,337 16,786
------------ ------------ --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES............................................................... 12,092 25,731 (22,976)
PROVISION FOR INCOME TAXES............................................ 410 1,360 9,656
------------ ------------ --------------
NET INCOME (LOSS)..................................................... $ 11,682 $ 24,371 $ (32,632)
------------ ------------ --------------
------------ ------------ --------------
HISTORICAL BASIC EARNINGS (LOSS) PER SHARE............................ $ 11,682.00 $ 24,371.00 $ (49,181.61)
------------ ------------ --------------
------------ ------------ --------------
HISTORICAL DILUTED EARNINGS (LOSS) PER SHARE.......................... $ 11,682.00 $ 24,371.00 $ (49,181.61)
------------ ------------ --------------
------------ ------------ --------------
PRO FORMA INFORMATION (UNAUDITED):
HISTORICAL INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES.............................. $ 12,092 $ 25,731 $ (22,976)
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES...................... $ 4,830 $ 10,686 $ (8,731)
------------ ------------ --------------
PRO FORMA NET INCOME (LOSS)......................................... $ 7,262 $ 15,045 $ (14,245)
------------ ------------ --------------
------------ ------------ --------------
PRO FORMA BASIC EARNINGS (LOSS) PER SHARE........................... $ 7,262.07 $ 15,044.99 $ (21,469.48)
------------ ------------ --------------
------------ ------------ --------------
PRO FORMA DILUTED EARNINGS (LOSS) PER SHARE......................... $ 7,262.07 $ 15,044.99 $ (21,469.48)
------------ ------------ --------------
------------ ------------ --------------
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING............................. 1,000 1,000 663.5
------------ ------------ --------------
------------ ------------ --------------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING........................... 1,000 1,000 663.5
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CAPITAL
------------------------ PAID-IN TREASURY RETAINED SUBSCRIPTION
SHARES AMOUNT CAPITAL STOCK EARNINGS RECEIVABLE
----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..................... 1,000 $ -- $ 62 $ -- $ 28,561 $ --
Distributions to stockholder............... -- -- -- -- (3,125) --
Net income/comprehensive income............ -- -- -- -- 11,682 --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1996................... 1,000 -- 62 -- 37,118 --
Distributions to stockholder............... -- -- -- -- (26,760) --
Net income/comprehensive income............ -- -- -- -- 24,371 --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1997................... 1,000 -- 62 -- 34,729 --
Distributions to stockholder............... -- -- -- -- (34,102) --
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status.................. -- -- (51,053) -- 51,053 --
Redemption of common stock................. -- -- -- (212,448) -- --
Recognition of deferred tax asset.......... -- -- 175,683 -- -- --
Capital subscription receivable............ -- -- 1,084 -- -- (1,084)
Unearned stock compensation................ -- -- 1,814 -- -- --
Amortization of unearned stock
compensation............................. -- -- -- -- -- --
Comprehensive income (loss):
Net loss................................. -- -- -- -- (32,632) --
Foreign currency translation gain........ -- -- -- -- -- --
Comprehensive income (loss)................ -- -- -- -- -- --
----- --- ----------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1998................... 1,000 $ -- $ 127,590 $ (212,448) $ 19,048 $ (1,084)
----- --- ----------- ----------- ---------- ------------
----- --- ----------- ----------- ---------- ------------
<CAPTION>
ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE COMPREHENSIVE
STOCK COMPENSATION INCOME INCOME TOTAL
-------------------- ------------------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..................... $ -- $ -- $ 28,623
Distributions to stockholder............... -- -- (3,125)
Net income/comprehensive income............ -- -- $ 11,682 11,682
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1996................... -- -- 37,180
Distributions to stockholder............... -- -- (26,760)
Net income/comprehensive income............ -- -- 24,371 24,371
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1997................... -- -- 34,791
Distributions to stockholder............... -- -- (34,102)
Transfer of accumulated deficit to
additional paid-in capital at termination
of S-Corporation status.................. -- -- --
Redemption of common stock................. -- -- (212,448)
Recognition of deferred tax asset.......... -- -- 175,683
Capital subscription receivable............ -- -- --
Unearned stock compensation................ (1,814) -- --
Amortization of unearned stock
compensation............................. 116 -- 116
Comprehensive income (loss):
Net loss................................. -- -- (32,632) (32,632)
Foreign currency translation gain........ -- 1 1 1
--- ---------------
Comprehensive income (loss)................ -- -- $ (32,631) --
------- --- --------------- -----------
--- ---------------
BALANCE, DECEMBER 31, 1998................... $ (1,698) $ 1 $ (68,591)
------- -----------
------- -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 11,682 $ 24,371 $ (32,632)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................. 3,094 3,581 4,662
Provision for loss on classic vehicles.................................... 400 46 --
Unrealized gain on marketable equity securities........................... -- (37) (92)
Non-cash stock compensation............................................... -- -- 116
Deferred taxes............................................................ -- (35) 9,656
(Gain) loss on disposal of fixed assets and classic vehicles.............. (14) 460 (146)
Changes in assets and liabilities:
Accounts receivable--net................................................ (501) (983) (1,613)
Inventory............................................................... 2,450 (1,064) (2,270)
Prepaid expenses and other assets....................................... (351) 1,005 (323)
Accounts payable........................................................ (606) 1,105 7,012
Accrued expenses and other liabilities.................................. 1,076 1,586 4,052
---------- ---------- ----------
Net cash provided by (used in) operating activities................... 17,230 30,035 (11,578)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment....................................................... (10,076) (9,173) (9,433)
Acquisition of classic vehicles............................................. (327) (455) --
Acquisition of trademarks................................................... (6) (17) --
Loans to stockholder........................................................ (608) (204) --
Proceeds from sale of equipment............................................. 30 22 506
Proceeds from sale of classic vehicles...................................... -- 215 --
Purchase of marketable equity securities for deferred compensation plan..... -- (349) (378)
---------- ---------- ----------
Net cash used in investing activities................................. (10,987) (9,961) (9,305)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit agreements.................... (4,547) 14,080 (31,097)
Proceeds from long-term borrowings.......................................... 1,599 -- 320,000
Principal payments on long-term debt........................................ (3,038) (861) (8,183)
Deferred financing costs.................................................... -- -- (7,115)
Redemption of common stock.................................................. -- -- (212,448)
Distributions to stockholder................................................ (3,126) (26,760) (17,240)
---------- ---------- ----------
Net cash provided by (used in) financing activities................... (9,112) (13,541) 43,917
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (2,869) 6,533 23,034
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 3,713 844 7,377
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 844 $ 7,377 $ 30,411
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................. $ 1,968 $ 2,078 $ 14,497
---------- ---------- ----------
---------- ---------- ----------
Income taxes.............................................................. $ 352 $ 485 $ 8,730
---------- ---------- ----------
---------- ---------- ----------
Noncash distributions to sole stockholder................................... $ 16,862
----------
----------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. HISTORY, RECAPITALIZATION AND FINANCING
The Yankee Candle Company, Inc. (the "Company") and its subsidiaries is a
leading designer, manufacturer, wholesaler and retailer of premium scented
candles in the growing giftware industry. The Company has a 30-year history of
offering Yankee Candle products and marketing them as affordable luxuries and
consumable gifts. The Company's current products are available in numerous
fragrances and include a wide variety of jar candles,
Samplers-Registered Trademark-, pillars, tapers and other candle products
marketed under the trade names Housewarmer-Registered Trademark- and Country
Kitchen-Registered Trademark-, as well as candle accessories. The Company sells
such products to its wholesale customers who have gift store locations
nationwide and through its retail base of 62 company-owned and operated stores
in 20 states as of December 31, 1998.
On March 25, 1998, the Company entered into a Recapitalization and Stock
Purchase Agreement with Yankee Candle Holdings Corp. ("Holdings"), Michael
Kittredge ("MK"), and affiliates of Forstmann Little & Co. ("FL&Co."). On April
27, 1998 in connection with the Recapitalization, the Company (i) redeemed (the
"Redemption") a portion of its common stock held by MK for approximately
$200,000; (ii) paid transaction fees and expenses, including financing fees, of
approximately $19,550; (iii) repaid existing indebtedness of approximately
$49,300; and (iv) paid bonuses related to the Recapitalization of approximately
$61,300. In addition, Holdings acquired shares of common stock from MK for
approximately $180,000. This purchase was financed by the issuance of Holdings'
common stock to FL&Co. and senior management (together with the Redemption, the
"Recapitalization"). Upon completion of the Recapitalization, Holdings owned 90%
of the common stock and MK retained 10% of the common stock of the Company.
The Redemption and related transactions described above were financed
through the issuance of $320,000 of subordinated debentures (the "Subordinated
Debentures"). In addition, the Company entered into a credit agreement with a
consortium of banks that provided for a $60,000 revolving credit facility. The
Company borrowed $2,500 under this revolving credit facility.
The Company incurred financing costs of approximately $7,100 which were
recorded as deferred financing costs. In addition, the Company incurred
approximately $12,450 of transaction costs related to the Recapitalization which
were charged to treasury stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
REVENUE RECOGNITION--The Company sells its products directly to retail
customers and through wholesale channels. Revenue from the sale of merchandise
to retail customers is recognized at the time of sale. Revenue from sales to
wholesale customers is recognized upon shipment of product. Revenue from
merchandise credits and gift certificates issued is deferred until redemption.
F-9
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--The Company considers all short-term
interest-bearing investments with original maturities of three months or less to
be cash equivalents. Such investments are classified by the Company as "held to
maturity" securities under the provisions of Statement of Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115). These securities are stated at cost, adjusted for amortization
of discounts and premiums to maturity.
MARKETABLE SECURITIES--The Company classifies the marketable securities held
in its deferred compensation plan as "trading" securities under SFAS No. 115. In
accordance with the provisions of this statement, the investment balance is
stated at fair market value, based on quoted market prices. Unrealized gains and
losses are reflected in earnings; realized gains and losses are computed using
the specific identification method. As the assets held in the deferred
compensation plan reflect amounts due to employees, but available for general
creditors of the Company in the event the Company becomes insolvent, the Company
has recorded the investment balance as a non-current asset and has established a
corresponding other long-term liability entitled "deferred compensation
obligation" on the balance sheet.
The marketable securities held in this plan consist of investments in mutual
funds at December 31, 1997 and 1998. Unrealized gains included in earnings
during the years ended December 31, 1997 and 1998 were $37 and $92,
respectively. Gains of $9 and $30 were realized during 1997 and 1998,
respectively.
ACCOUNTS RECEIVABLE--Accounts receivable primarily represents amounts due
from wholesale customers.
INVENTORIES--Inventories are stated at the lower of cost or market on a
last-in, first-out ("LIFO") basis. In 1998, the liquidation of certain LIFO
layers decreased cost of sales by $383.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost and are depreciated on the straight-line method based on the estimated
useful lives of the various assets. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 to 40
years
Computer equipment............................................ 5 years
Furniture and fixtures........................................ 5 to 10
years
Equipment..................................................... 10 years
Leased vehicles............................................... 5 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated life of the improvement or the remaining life of the
lease. Expenditures for normal maintenance and repairs are charged to expense as
incurred.
DEFERRED FINANCING COSTS--The Company amortizes deferred financing costs
using the effective interest method over the life of the related debt.
Accumulated amortization was $0 and $548 at December 31, 1997 and 1998,
respectively.
TRADEMARKS--Trademarks are recorded at cost and amortized over 15 years.
Cost of trademarks, included in other assets at December 31, 1997 and 1998, was
$227 and $231, respectively. Accumulated amortization was $54 and $69, at
December 31, 1997 and 1998, respectively.
F-10
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CLASSIC VEHICLES--The Company has invested in certain vehicles, which it
displays in its car museum. These vehicles are stated at cost, with no provision
for depreciation, since their useful lives are indeterminable and their values
fluctuate with the classic vehicle market. When management believes that a
permanent decline in value has occurred, the assets are written down to their
fair value. During the years ended December 31, 1996, 1997 and 1998, the value
of these vehicles was written down by $400, $46, and $0, respectively.
ADVERTISING--The Company expenses the costs of advertising as they are
incurred. Advertising expense was $733, $1,306 and $1,986 for the years ended
1996, 1997 and 1998, respectively.
IMPAIRMENT ACCOUNTING--The Company reviews the recoverability of its
long-lived assets when events or changes in circumstances occur that indicate
that the carrying value of the assets may not be recoverable. This review is
based on the Company's ability to recover the carrying value of the assets from
the expected undiscounted future cash flows. If an impairment is indicated, the
Company measures the loss based on the fair value of the asset using various
valuation techniques. If an impairment loss exists, the amount of the loss will
be recorded in the consolidated statements of operations. It is possible that
future events or circumstances could cause these estimates to change.
PRO FORMA ADJUSTMENTS--The Company had, until the Recapitalization, elected
to be treated as an S Corporation for federal and state income tax purposes.
Under this previous election, income for federal income tax purposes was not
taxed at the corporate level but was taxed to MK.
On April 27, 1998, the Company's tax status changed from an S Corporation to
a C Corporation. The income statement reflects a provision for income taxes for
federal and state purposes for the period the Company was a C Corporation and a
provision for state taxes for the periods the Company was an S Corporation. The
pro forma financial information shows the effect on the historical financial
statements as if the Company had been taxed as a C Corporation during 1996, 1997
and 1998 instead of an S Corporation until April 27, 1998.
INCOME TAXES--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. The provision for income taxes in the consolidated statements of
operations is the actual computed tax obligation or receivable for the period,
plus or minus the change during the period in deferred income tax assets and
liabilities.
NEWLY ISSUED ACCOUNTING STANDARDS--During 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board. This statement is effective for periods beginning
after June 15, 1999. The Company is currently evaluating the impact, if any, of
this statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair values of all
financial instruments, excluding the Subordinated Debentures (see Note 6),
approximate their carrying amounts in the consolidated balance sheets due to (i)
the short-term maturity of certain instruments or (ii) the floating interest
rate associated with certain instruments which have the effect of repricing such
instruments regularly.
F-11
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In connection with the Recapitalization, the Subordinated Debentures were
issued to a partnership affiliated with FL&Co. and were immediately distributed
to its limited partners. The Subordinated Debentures can only be issued to an
affiliate of FL&Co. as part of an investment unit, are transferable in limited
circumstances and are not traded nor are they readily tradable. Pursuant to the
partnership agreement, the Subordinated Debentures (i) were sold as an
investment unit which included 37.5% of the shares of Holdings' common stock,
(ii) bear interest at a rate of one percent above the five year treasury rate
and (iii) may be prepaid without penalty or premium at any time. Based on the
five year treasury rate at December 31, 1998 and assuming repayment in three
years, the assumed date of refinancing, the Company believes that the fair value
of the Subordinated Debentures at December 31, 1998 is approximately $330
million.
EARNINGS PER SHARE--Statement of Financial Accounting Standards No. 128
"Earnings Per Share," requires two presentations of earnings per share--"basic"
and "diluted." Basic earnings per share is computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common
shares (the denominator) for the period. The computation of diluted earnings per
share is similar to basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
The denominator in the calculation is based on the following weighted
average number of common shares:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic.................................................................................. 1,000 1,000 663.5
Diluted................................................................................ 1,000 1,000 663.5
</TABLE>
The Company has issued no options nor are there any other common stock
equivalents that would cause the basic and diluted share numbers to differ.
PRIOR-YEAR RECLASSIFICATIONS--Certain 1996 and 1997 amounts have been
reclassified to conform with the 1998 presentation.
3. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Finished goods.......................................................... $ 7,735 $ 9,967
Work-in-process......................................................... 45 126
Raw materials and packaging............................................. 3,242 2,816
--------- ---------
11,022 12,909
Less LIFO reserve....................................................... (810) (427)
--------- ---------
$ 10,212 $ 12,482
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Land and improvements.................................................... $ 3,351 $ 3,971
Buildings and improvements............................................... 33,385 36,120
Computer equipment....................................................... 3,429 4,584
Furniture and fixtures................................................... 4,037 5,471
Equipment................................................................ 9,039 9,445
Leased vehicles.......................................................... 1,836 814
Construction-in-process.................................................. 893 1,815
--------- ---------
Total.................................................................... 55,970 62,220
Less accumulated depreciation and amortization........................... (12,058) (13,905)
--------- ---------
$ 43,912 $ 48,315
--------- ---------
--------- ---------
</TABLE>
5. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100. Uninsured balances aggregated $8,534 and $28,177 at
December 31, 1997 and 1998, respectively.
The Company extends credit to its wholesale customers. No single customer
accounted for more than 2% of total sales during any year presented nor did any
such customer account for more than 7% of the outstanding receivable balance at
either December 31, 1997 or 1998.
F-13
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT
Long term debt is summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
6 3/4% Subordinated Debentures; due 2009-2011........................... $ -- $ 320,000
Mortgage loan with interest fixed at 8% through April, 2004, converting
to prime for the remaining term, payable in a monthly installment of
$59 plus interest, with a final payment of the unpaid balance in April
2009.................................................................. 7,933 --
Term note with monthly principal and interest installments of $16 to
maturity in June 1999................................................. 251 --
--------- ----------
8,184 320,000
Less current portion.................................................... 874 --
--------- ----------
Noncurrent portion...................................................... $ 7,310 $ 320,000
--------- ----------
--------- ----------
</TABLE>
In connection with the Recapitalization, the Company issued $320,000 of
Subordinated Debentures that were distributed to limited partners of FL&Co. The
Subordinated Debentures bear interest at 6 3/4%, which is payable semiannually
in May and November commencing on November 30, 1998. The Subordinated Debentures
are payable in three equal annual installments of approximately $106,700
beginning May 31, 2009.
In April 1998, the Company entered into a credit agreement with a consortium
of banks (the "Credit Agreement"). The Credit Agreement provides for a revolving
credit facility of $60,000. A portion of the revolving credit facility, in an
amount not to exceed $15,000, may be used, to the extent available, for standby
and commercial letters of credit. The credit facility under the Credit Agreement
terminates April 27, 2002, with any outstanding amounts due on that date. There
were no borrowings at December 31, 1998. Outstanding letters of credit at
December 31, 1998 were $500.
The Company is required to pay a commitment fee on the average daily
unutilized portion of the revolving-credit facility at a rate of 3/8% per annum.
The Company may elect to set the interest rate on all or a portion of revolving
credit loans at a rate per annum equal to (a) 1% plus the greater of (i) Prime
Rate, (ii) Federal Funds Rate plus 1/2% or (iii) CD Rate plus 1% or (b) the
Eurodollar Rate plus 2%.
The Credit Agreement includes restrictions as to, among other things, the
amount of additional indebtedness, contingent obligations, liens, investments,
asset sales, capital expenditures and dividends, and requires the maintenance of
minimum levels of interest coverage. None of the restrictions contained in the
Credit Agreement are expected to have a significant effect on the ability of the
Company to operate. As of December 31, 1998, the Company was in compliance with
all financial and operating covenants under the Credit Agreement.
The mortgage loan and the term note were prepaid in April 1998 in
conjunction with the Recapitalization. In addition, the Company's short-term
borrowings under a line of credit were prepaid and the line of credit was
terminated in April 1998.
F-14
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. PROVISION FOR INCOME TAXES
Prior to the Recapitalization, the Company was taxed as an S Corporation for
federal and state income tax purposes. Generally, there is no federal income tax
on earnings of an S Corporation; however, some states impose a tax on taxable
earnings. There was no federal income tax provision in 1996 and 1997; but there
was a provision for state income taxes in those years.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Federal:
Current.......................................................... $ -- $ -- $ --
Deferred......................................................... -- -- 8,894
--------- --------- ---------
Total Federal.................................................. -- -- 8,894
--------- --------- ---------
State:
Current.......................................................... 410 1,395 --
Deferred......................................................... -- (35) 762
--------- --------- ---------
Total State.................................................... 410 1,360 762
--------- --------- ---------
Total Income Tax Provision..................................... $ 410 $ 1,360 $ 9,656
--------- --------- ---------
--------- --------- ---------
</TABLE>
In connection with the Recapitalization, an election was made for federal
and state income tax purposes to value the assets and liabilities of the Company
at fair value. As a result of such election, there is a difference between the
financial reporting and tax bases of the Company's assets and liabilities. This
difference was accounted for by recording a deferred tax asset of approximately
$175,700 with a corresponding credit to additional paid-in capital. The deferred
tax asset will be realized as these differences, including tax goodwill, are
deducted, principally over a period of 15 years. In the opinion of management,
the Company will have sufficient profits in the future to realize the deferred
tax asset.
The tax effect of significant items comprising the Company's net deferred
tax assets (liabilities) as of December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
CURRENT NONCURRENT CURRENT NONCURRENT
----------- ----------- ----------- -----------
Deferred tax assets:
Basis differential resulting from tax
election..................................... $ -- $ -- $ -- $ 164,204
Net operating loss carryforward................ -- -- -- 1,382
Deferred compensation arrangements............. -- -- 341 --
Employee benefits.............................. 117 -- 917 --
Other.......................................... 41 -- 284 --
Deferred tax liabilities
Fixed assets................................... -- (169) -- (1,112)
----- ----------- ----------- -----------
$ 158 $ (169) $ 1,542 $ 164,474
----- ----------- ----------- -----------
----- ----------- ----------- -----------
</TABLE>
F-15
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. PROVISION FOR INCOME TAXES (CONTINUED)
At December 31, 1998, the Company had $3,636 of net operating loss
carryforwards available for both federal and state purposes.
A reconciliation of the statutory federal income tax rate and the effective
rate of the provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Statutory federal income tax rate...................................... 35% 35% 35%
State income taxes--net of federal income tax benefit.................. 3 3 3
S Corporation income................................................... (35) (35) (80)
Other.................................................................. -- 2 --
--- --- ---
3% 5% (42)%
--- --- ---
--- --- ---
</TABLE>
8. PROFIT SHARING PLAN
The Company maintains a profit sharing/salary reduction plan under section
401(k) of the Internal Revenue Code. Employer contributions amounted to $111,
$137 and $347 for 1996, 1997 and 1998, respectively. The Company, at its
discretion, may also make annual profit sharing contributions to the plan. There
were no profit sharing contributions in 1996, 1997 or 1998.
9. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with seven key employees,
three of whom retired during 1998. Under this agreement, the Company will match
certain elective salary deferrals of eligible employees' compensation up to a
maximum of $20. Employer contributions amounted to $68, $140 and $133 for 1996,
1997 and 1998, respectively. Benefits under the plan (which are determined based
on the value of the investments held in the employee's name by the Company) will
be paid in a lump sum upon termination of the plan or termination of employment.
10. CONTINGENCIES
The Company is engaged in various lawsuits, either as plaintiff or
defendant, involving alleged patent infringement and breaches of contract. In
the opinion of management, the ultimate outcome of these lawsuits will not have
a material adverse effect on the Company's financial condition, results of
operations, or cash flows.
11. STOCKHOLDERS' EQUITY
CAPITAL STOCK--As of December 31, 1997 and 1998, the Company had 1,000
shares of common stock (par value $.01) authorized and issued. In connection
with the 1998 recapitalization, the Company redeemed approximately 500 shares of
common stock from MK. These shares were held in treasury at December 31, 1998.
As discussed in Note 1, Holdings currently owns 90% of the outstanding
common stock of the Company. In connection with the 1998 recapitalization,
common stock of Holdings was purchased by
F-16
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
management. The Company made loans to certain members of management to aid them
in the purchase of this common stock. These loans are reflected also in
Stockholders' Equity under the caption "Capital subscription receivable," carry
an interest rate of 7%, are secured by the shares and provide for full recourse
to the borrower. In addition, rights to purchase common stock of Holdings were
granted to a member of management in October 1998 and he committed to purchase
such shares in November 1998. This common stock was purchased in 1999. A
subscription receivable for this common stock is reflected in Stockholders'
Equity as "Capital subscription receivable." In addition, Holdings granted
options to purchase common stock to key employees and directors of the Company.
The options granted are "nonqualified" for tax purposes. For financial reporting
purposes, the award of the right to purchase stock and the grant of options, in
certain cases, were considered to be below the fair value of the stock at the
time of grant. The fair value was determined based on an appraisal conducted by
an independent appraisal firm as of the relevant dates. The differences between
fair value and the purchase price or the exercise price is being charged to
compensation expense over the relevant vesting period. In 1998, such expense
aggregated $116.
Options granted and outstanding represent approximately 1% of Holdings'
equity interest in the Company. A summary of the status of option grants made by
Holdings in its own stock (which would become equity interests in the Company
upon an initial public offering) as of December 31, 1998 and changes during the
period ending on that date is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS PER SHARE
----------- ----------
<S> <C> <C>
Outstanding at December 31, 1997........................................ -- $ --
Granted................................................................. 1,750 1,038.46
Forfeited............................................................... -- --
----------- ----------
Outstanding at December 31, 1998........................................ 1,750 $ 1,038.46
----------- ----------
----------- ----------
</TABLE>
Employee option grants were made pursuant to the Yankee Candle Holdings
Stock Option Plan (the "Plan").
Effective with the adoption of the Plan, the Company elected to use the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation."
The Company accounts for employee options or share awards under the intrinsic
value method prescribed by APB Opinion No. 25 with pro forma disclosures of net
earnings and earnings per share, as if the fair value method of accounting
defined in SFAS No. 123 had been applied. SFAS No. 123 establishes a fair value
based method of accounting for stock-based employee compensation plans; however,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock.
F-17
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant. The following weighted average assumptions were used for grants
under the Plan in 1998 to allow for the computation of pro forma results of
operations: volatility of 20%, dividend yield of 0%, risk-free interest rate of
4.54% and expected lives of 5 years. The fair value of options granted during
1998 was between $289.61 and $1,094.01 for options issued with an exercise price
of $1,038.46.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for the year ended December 31, 1998
consistent with the method prescribed by SFAS No. 123, the Company's pro forma
net loss would have been $(13,264) or $(19,992.36) per share.
The following table summarizes information about Holdings stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE OPTIONS OPTIONS AVERAGE
PRICE OUTSTANDING EXERCISABLE REMAINING LIFE
- ---------- ------------- --------------- -----------------
<S> <C> <C> <C>
$ 1,038.46 1,750 -- 9.46
</TABLE>
12. COMMITMENTS
The Company leases most store locations and several vehicles. Most store
leases provide for base rentals plus contingent rentals thereafter, which are a
function of sales volume. In addition, the Company is required to pay real
estate taxes, maintenance and other operating expenses applicable to the leased
premises. Furthermore, several store leases contain rent escalation clauses.
The aggregate annual future minimum lease commitments under operating leases
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1999............................................................................... $ 3,355
2000............................................................................... 3,263
2001............................................................................... 3,177
2002............................................................................... 3,004
2003............................................................................... 2,732
Thereafter......................................................................... 8,551
-----------
Total minimum lease payments....................................................... $ 24,082
-----------
-----------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $2,886, $3,062 and $3,997, respectively.
At December 31, 1998, the Company has purchase commitments of $306
outstanding for various capital projects related to the acquisition of new
equipment and construction of new retail stores.
F-18
<PAGE>
THE YANKEE CANDLE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has segmented its operations in a manner that reflects how its
chief operating decision-maker (the "CEO") currently reviews the results of the
Company and its subsidiaries' businesses. The Company has two reportable
segments--retail and wholesale. The identification of these segments results
from management's recognition that while the product produced is similar, the
type of customer for the product and services and the methods used to distribute
the product are different.
The CEO evaluates both its retail and wholesale operations based on an
"operating earnings" measure. Such measure gives recognition to specifically
identifiable operating costs such as cost of sales, selling, and depreciation
and amortization charges. Administrative charges are generally not allocated to
specific operating segments and are accordingly reflected in the
unallocated/corporate/other category as are such costs relating to items such as
LIFO reserves, etc. Other components of the statement of operations which are
classified below operating income are also not allocated by segments. The
Company does not account for or report assets, capital expenditures or
depreciation and amortization by segment to the CEO.
The following are the relevant data for the years ended December 31:
<TABLE>
<CAPTION>
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
1996 RETAIL WHOLESALE OTHER STATEMENTS
- --------------------------------------------------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................................ $ 42,909 $ 69,290 $ -- $ 112,199
Operating earnings (loss)................................ 13,156 18,508 (17,604) 14,061
Unallocated costs........................................ -- -- (1,969) (1,969)
------------
Earnings (loss) before taxes............................. -- -- -- $ 12,092
------------
------------
1997
- ---------------------------------------------------------
Net sales................................................ $ 59,227 $ 84,876 $ -- $ 144,103
Operating earnings (loss)................................ 18,118 31,188 (21,238) 28,068
Unallocated costs........................................ -- -- (2,337) (2,337)
------------
Earnings (loss) before taxes............................. -- -- -- $ 25,731
------------
------------
1998
- ---------------------------------------------------------
Net sales................................................ $ 81,210 $ 103,267 $ -- $ 184,477
Operating earnings (loss)................................ 23,343 45,102 (74,635) (6,190)
Unallocated costs........................................ -- -- (16,786) (16,786)
------------
Earnings (loss) before taxes............................. -- -- -- $ (22,976)
------------
------------
</TABLE>
F-19
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 3, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 27,560
Accounts receivable, less allowance of $480..................................... 10,299
Inventory....................................................................... 19,688
Prepaid expenses and other current assets....................................... 1,395
Deferred tax assets............................................................. 1,542
---------
Total current assets.......................................................... 60,484
PROPERTY, PLANT AND EQUIPMENT (NET)............................................... 51,413
MARKETABLE SECURITIES............................................................. 618
CLASSIC VEHICLES.................................................................. 874
DEFERRED FINANCING COSTS.......................................................... 6,362
DEFERRED TAX ASSETS............................................................... 164,474
OTHER ASSETS...................................................................... 475
---------
TOTAL ASSETS.................................................................. $ 284,700
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................................ $ 13,337
Accrued interest................................................................ 7,398
Accrued payroll................................................................. 4,259
Accrued income taxes............................................................ 1,634
Other accrued liabilities....................................................... 2,217
---------
Total current liabilities..................................................... 28,845
DEFERRED COMPENSATION OBLIGATION.................................................. 1,071
LONG-TERM DEBT--Less current portion.............................................. 320,000
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01, par value, 1,000 shares authorized and issued;
500 shares outstanding........................................................ --
Additional paid-in capital...................................................... 128,413
Treasury stock, 500 shares...................................................... (212,988)
Retained earnings............................................................... 22,524
Capital subscription receivable................................................. (815)
Unearned stock compensation..................................................... (2,239)
Accumulated other comprehensive income.......................................... (111)
---------
Total stockholders' equity (deficit).......................................... (65,216)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).......................... $ 284,700
---------
---------
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-20
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND THIRTEEN WEEKS ENDED APRIL 3, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 35,313 $ 46,590
COST OF SALES............................................................................... 16,400 20,804
--------- ---------
Gross Profit.............................................................................. 18,913 25,786
OPERATING EXPENSES:
Selling expenses.......................................................................... 7,480 8,509
General and administrative expenses....................................................... 4,006 6,213
--------- ---------
11,486 14,722
--------- ---------
INCOME FROM OPERATIONS...................................................................... 7,427 11,064
--------- ---------
OTHER (INCOME) EXPENSE:
Interest income........................................................................... (48) (290)
Interest expense.......................................................................... 369 5,768
Other income.............................................................................. (11) (44)
Total other expense..................................................................... 310 5,434
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES.................................................... 7,117 5,630
PROVISION FOR INCOME TAXES.................................................................. -- 2,252
--------- ---------
NET INCOME.................................................................................. $ 7,117 $ 3,378
--------- ---------
--------- ---------
HISTORICAL BASIC EARNINGS PER SHARE.........................................................
HISTORICAL DILUTED EARNINGS PER SHARE.......................................................
PRO FORMA INFORMATION:
HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES....................................... $ 7,117
PRO FORMA PROVISION FOR INCOME TAXES...................................................... 2,704
---------
---------
PRO FORMA NET INCOME...................................................................... $ 4,413
---------
---------
PRO FORMA BASIC EARNINGS PER SHARE........................................................
PRO FORMA DILUTED EARNINGS PER SHARE......................................................
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING...................................................
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING.................................................
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-21
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND THIRTEEN WEEKS ENDED APRIL 3, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 7,117 $ 3,378
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................................................... 981 1,305
Unrealized gain on marketable equity securities........................................ (3) (45)
Non-cash stock compensation............................................................ -- 282
Loss on disposal of fixed assets and classic vehicles.................................. 2 8
Changes in assets and liabilities:
Accounts receivable-net.............................................................. (1,722) (1,777)
Inventory............................................................................ (2,755) (7,279)
Prepaid expenses and other assets.................................................... (763) (607)
Accounts payable..................................................................... 3,857 46
Accrued expenses and other liabilities............................................... 442 6,034
---------- ---------
Net cash provided by operating activities.......................................... 7,156 1,345
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.................................................................... (1,604) (4,242)
Sale of marketable equity securities..................................................... 386 410
Loans to stockholder..................................................................... (127) --
Proceeds from sale of equipment.......................................................... 80 26
Purchase of marketable equity securities for deferred compensation plan.................. -- (127)
---------- ---------
Net cash used in investing activities.................................................. (1,265) (3,933)
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts paid for capital redemption...................................................... -- (540)
Payment on capital subscription receivable............................................... -- 269
Principal payments on long-term debt..................................................... (6,807) --
Distributions to stockholder............................................................. (3,830) --
---------- ---------
Net cash used in financing activities.................................................. (10,637) (271)
EFFECT OF EXCHANGE RATE ON CASH............................................................ -- 8
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................. (4,746) (2,851)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................. 7,377 30,411
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................... $ 2,631 $ 27,560
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................................... $ 396 $ 258
Income taxes........................................................................... -- 618
</TABLE>
See notes to unaudited interim condensed consolidated financial statements.
F-22
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND THIRTEEN WEEKS ENDED APRIL 3, 1999
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of The
Yankee Candle Company, Inc. and its wholly-owned subsidiaries (the "Company") as
of and for the thirteen weeks and the three month periods ended April 3, 1999
and March 31, 1998, respectively, have been prepared in accordance with
generally accepted accounting principles. Effective January 1, 1999, the Company
adopted a 52/53 week fiscal year. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such periods. Certain prior
year amounts have been reclassified to conform to the current presentation. All
intercompany transactions and balances have been eliminated. The results of
operations for the 13 weeks ended April 3, 1999 are not necessarily indicative
of the results to be expected for the full fiscal year ending January 1, 2000.
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited financial statements should
be read in conjunction with the financial statements of the Company for the year
ended December 31, 1998.
2. INVENTORIES
Inventory quantities are substantiated through the completion of quarter-end
physical inventory counts. Inventories are stated at the lower of cost or market
on a last-in first-out ("LIFO") basis. Because the inventory determination under
the LIFO method is based on an annual determination of inventory levels and
costs as of the final year-end, the interim LIFO calculation is based on
management's estimates of expected year-end inventory levels.
<TABLE>
<CAPTION>
AS OF APRIL
3,
1999
------------
<S> <C>
(AUDITED)
Finished goods.................................................................. $ 15,610
Work in process................................................................. 165
Raw materials................................................................... 3,913
------------
Total inventory........................................................... $ 19,688
------------
------------
</TABLE>
3. INCOME TAXES
The Company's effective tax rate in the first quarter of fiscal 1999 was
40%. The Company was taxed as an S Corporation for federal and state income tax
purposes for the quarter ended March 31, 1998, and therefore, there was no
federal income tax provision for that period. These financial statements also
contain a pro forma calculation of tax expense as if the Company had become a C
Corporation on January 1, 1998.
4. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of earnings per
share ("EPS") on a basic and diluted basis. The computation of basic earnings
per share is based on the weighted average
F-23
<PAGE>
THE YANKEE CANDLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1998 AND THIRTEEN WEEKS ENDED APRIL 3, 1999
4. EARNINGS PER SHARE (CONTINUED)
number of common shares outstanding during the period. The computation of
diluted earnings per share equals the basic earnings per share since there are
no common stock equivalents currently outstanding.
5. COMPREHENSIVE INCOME
The Company adopted SFAS 130, "Reporting Comprehensive Income" as of
December 31, 1998. Comprehensive income includes all changes in equity during
the period except those resulting from transactions with owners of the Company;
it has two components: net income and other comprehensive income. Accumulated
other comprehensive income reported on the Company's Consolidated Balance Sheets
consists of foreign currency translation adjustments. Comprehensive income, net
of related tax effects (where applicable), is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS THIRTEEN WEEKS
ENDED ENDED
MARCH 31, APRIL 3,
1998 1999
------------- ---------------
<S> <C> <C>
Net income..................................................... $ 7,117 $ 3,378
Translation adjustment......................................... -- 112
------ ------
Total comprehensive income............................... $ 7,117 $ 3,490
------ ------
------ ------
</TABLE>
6. SEGMENT INFORMATION
The Company has two reportable segments--retail and wholesale.
The following are the relevant data for the three months ended March 31,
1998 and the thirteen weeks ended April 3, 1999:
<TABLE>
<CAPTION>
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
1998 RETAIL WHOLESALE OTHER STATEMENTS
- ------------------------------------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 11,623 $ 23,690 $ -- $ 35,313
Operating earnings......................... 1,489 8,415 (2,477) 7,427
Unallocated costs.......................... -- -- 310 310
------------
Earnings before taxes...................... -- -- -- $ 7,117
------------
------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE PER
UNALLOCATED/ CONSOLIDATED
CORPORATE/ FINANCIAL
1999 RETAIL WHOLESALE OTHER STATEMENTS
- ------------------------------------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 17,027 $ 29,563 $ -- $ 46,590
Operating earnings......................... 2,774 12,796 (4,506) 11,064
Unallocated costs.......................... -- -- 5,434 5,434
------------
Earnings before taxes...................... -- -- -- $ 5,630
------------
------------
</TABLE>
F-24
<PAGE>
[PICTURE OF PRODUCTS]
EDGAR ARTWORK DESCRIPTIONS
Inside Back Cover of Prospectus:
Caption: A Sampling of Yankee Candle-Registered Trademark- fragrances.
- Upper left hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Honeydew Melon" fragrance.
- Upper right hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Mountain Lake" fragrance.
- Lower left hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Fresh Lilac" fragrance.
- Lower right hand corner: Picture showing a full line of Yankee
Candle-Registered Trademark- products with "Gardenia" fragrance.
<PAGE>
[LOGO]
<PAGE>
[ALTERNATE INTERNATIONAL COVER]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE AND THE SELLING STOCKHOLDERS ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[LOGO]
THE YANKEE CANDLE COMPANY, INC.
COMMON STOCK
-----------------
THE YANKEE CANDLE COMPANY, INC. IS OFFERING SHARES AND THE SELLING
STOCKHOLDERS ARE OFFERING SHARES. FOR INFORMATION RELATING TO THE SELLING
STOCKHOLDERS, SEE "PRINCIPAL AND SELLING STOCKHOLDERS" ON PAGE 53. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
-------------------
WE PLAN TO SUBMIT AN APPLICATION TO LIST OUR COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "YCC."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS YANKEE CANDLE STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE....................... $ $ $ $
TOTAL........................... $ $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
OUR SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of common stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee, and the New York Stock Exchange listing application fee, are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $ 55,600
National Association of Securities Dealers, Inc. filing fee..................... 20,500
New York Stock Exchange listing application fee.................................
Printing and engraving fees and expenses........................................ 600,000
Legal fees and expenses......................................................... 1,000,000
Accounting fees and expenses....................................................
Blue Sky fees and expenses...................................................... 5,000
Transfer Agent and Registrar fees and expenses.................................. 15,000
Miscellaneous expenses..........................................................
---------
Total.....................................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Organization provide that the directors and officers of
Yankee Candle shall be indemnified by Yankee Candle to the fullest extent
authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of Yankee Candle, EXCEPT with respect to any
matter that such director or officer has been adjudicated not to have acted in
good faith in the reasonable belief that his action was in the best interests of
Yankee Candle or, to the extent such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
Yankee Candle has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Articles of
Organization. These agreements, among other things, indemnify Yankee Candle's
directors and officers to the fullest extent permitted by Massachusetts law for
certain expenses (including attorneys' fees), judgments, fines, penalties and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of Yankee Candle or an affiliate
of Yankee Candle.
Policies of insurance are maintained by Yankee Candle under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
The form of Underwriting Agreement filed as Exhibit 1.1 hereto provides for
the indemnification of the registrant, its controlling persons, its directors
and certain of its officers by the underwriters against certain liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years preceding the filing of this registration statement,
Yankee Candle has not sold its securities without registration under the
Securities Act of 1933, except as described below.
II-1
<PAGE>
In connection with the 1998 recapitalization, Yankee Candle issued to
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-VI, L.P. $320 million aggregate principal amount of 6 3/4% Series A
Debentures due May 31, 2009, 6 3/4% Series B Debentures due May 31, 2010 and
6 3/4% Series C Debentures due May 31, 2011. The issuance of these debentures
was not registered under the Securities Act because it did not involve a public
offering. The issuance was exempt from registration under the Securities Act
pursuant to Section 4(2).
Immediately before the closing of this offering, the capital structure of
Yankee Candle will be reorganized as follows:
- Yankee Candle Holdings will transfer all of its assets, consisting
principally of 449.9782 shares of Yankee Candle common stock, no par
value, to Yankee Candle in exchange for shares of Yankee Candle common
stock par value $.01 per share, and options to purchase Yankee Candle
common stock on the same economic terms and conditions as the Yankee
Candle Holdings options,
- Yankee Candle Holdings will be liquidated, and all of the shares of Yankee
Candle common stock, and all of the options to purchase Yankee Candle
common stock received from Yankee Candle will be exchanged by the Yankee
Candle Holdings Class A common stockholders and option holders,
respectively, for all of the outstanding Yankee Candle Holdings Class A
common stock and all of the outstanding Yankee Candle Holdings options.
Immediately before the liquidation, all of the outstanding Yankee Candle
Holdings Class B common stock will be converted into Yankee Candle
Holdings Class A common stock based on a formula set forth in the
Certificate of Incorporation of Yankee Candle Holdings, and
- The remaining 49.9976 outstanding shares of Yankee Candle common stock, no
par value, will be exchanged for shares of Yankee Candle common
stock, par value $.01 per share.
Registration under the Securities Act will not be required for issuances of
Yankee Candle common stock pursuant to this reorganization, since the shares
will be issued to a small group of existing Yankee Candle and Yankee Candle
Holdings stockholders in a transaction not involving a public offering. These
issuances will be exempt from registration under the Securities Act pursuant to
Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed with this registration statement.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among The Yankee Candle Company, Inc., the selling stockholders
named therein and the underwriters named therein.*
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended, by and among Yankee Candle Holdings
Corp., The Yankee Candle Company, Inc., Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The Yankee Candle Company, Inc.,
Chandler's Tavern, Inc. and Michael J. Kittredge.*
2.3 Form of Agreement and Plan of Reorganization between The Yankee Candle Company, Inc. and Yankee Candle
Holdings Corp.**
2.4 Form of Share Exchange Agreement between The Yankee Candle Company, Inc. and Michael S. Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company, Inc.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
3.2 Form of Amended and Restated By-Laws of The Yankee Candle Company, Inc.*
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Hale and Dorr LLP.*
10.1 Form of outside director Stock Option Agreement.*
10.2 Form of outside director Stockholder's Agreement.*
10.3 Form of Employee Stockholder's Agreement.*
10.4 The Yankee Candle Company, Inc. Employee Stock Option Plan and form of Stock Option Agreement.*
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.**
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The Yankee Candle Company, Inc. and Michael
J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and employees.*
10.8 Registration Rights Agreement, dated as of May 6, 1999, among The Yankee Candle Company, Inc., Forstmann
Little & Co. Equity Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P.*
10.9 Form of Indemnification Agreement between The Yankee Candle Company, Inc. and its directors and executive
officers.*
10.10 Form of Credit Agreement among The Yankee Candle Company, Inc., The Chase Manhattan Bank, as sole
administrative agent, and the banks and other financial institutions party thereto.**
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R. Spellman and Stock Pledge
Agreement, dated as of February 3, 1999, by and between The Yankee Candle Company, Inc. and Robert R.
Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on February 9, 1999, between The Yankee
Candle Company, Inc. and Robert R. Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company, Inc. and the partnerships affiliated
with Forstmann Little & Co.*
16.1 Letter from Ernst & Young LLP relating to change in certifying accountants.*
16.2 Letter from Fisk, Bilton, Smith & Co., P.C. relating to change in certifying accountants.*
23.1 Consent of Hale and Dorr LLP (included in the opinion filed as Exhibit 5.1).*
23.2 Consent of Deloitte and Touche LLP.**
23.3 Consent of Ernst & Young LLP.**
23.4 Consent of Fisk, Bilton, Smith & Co., P.C.**
24.1 Power of Attorney for Michael S. Ovitz.*
24.2 Power of Attorney for Ronald L. Sargent.*
27 Financial Data Schedules.*
99.1 Report of Independent Auditors on Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
II-3
<PAGE>
(b) Financial Statement Schedules
SUPPLEMENTAL SCHEDULE VALUATION AND QUALIFYING AMOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND DEDUCTIONS BALANCE AT
DESCRIPTION YEAR EXPENSES FROM RESERVES END OF YEAR
- ---------------------------------------------------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts......................... $ 367,000 $ (33,727) $ 26,273 $ 307,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts......................... $ 307,000 $ 93,677 $ 40,677 $ 360,000
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts......................... $ 360,000 $ 181,946 $ 91,946 $ 450,000
</TABLE>
All the other schedules are omitted because they are not required, are not
applicable or the information is included in the selected consolidated financial
data or notes contained in this registration statement.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the 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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by the director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Whately, State of Massachusetts, on the 4th day of June, 1999.
THE YANKEE CANDLE COMPANY, INC.
By: /s/ MICHAEL D. PARRY
-----------------------------------------
Michael D. Parry
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed below by the following
persons in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MICHAEL D. PARRY President, Chief Executive June 4, 1999
- ------------------------------ Officer and Director
Michael D. Parry (principal executive
officer)
* Senior Vice President of June 4, 1999
- ------------------------------ Finance and Chief
Robert R. Spellman Financial Officer
(principal financial and
accounting officer)
* Director June 4, 1999
- ------------------------------
Michael J. Kittredge
* Director June 4, 1999
- ------------------------------
Theodore J. Forstmann
* Director June 4, 1999
- ------------------------------
Nicholas C. Forstmann
* Director June 4, 1999
- ------------------------------
Sandra J. Horbach
* Director June 4, 1999
- ------------------------------
Steven B. Klinsky
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Director June 4, 1999
- ------------------------------
Michael S. Ovitz
* Director June 4, 1999
- ------------------------------
Emily Woods
* Director June 4, 1999
- ------------------------------
Ronald L. Sargent
*By: /s/ MICHAEL D. PARRY
--------------------------------------
Michael D. Parry
as Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement by and among The Yankee Candle Company, Inc., the selling
stockholders named therein and the underwriters named therein.*
2.1 Recapitalization Agreement, dated as of March 25, 1998, as amended, by and among Yankee Candle
Holdings Corp., The Yankee Candle Company, Inc., Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-VI, L.P. and Michael J. Kittredge.*
2.2 Asset Purchase Agreement, dated as of April 1, 1998, by and among The Yankee Candle Company,
Inc., Chandler's Tavern, Inc. and Michael J. Kittredge.*
2.3 Form of Agreement and Plan of Reorganization between The Yankee Candle Company, Inc. and Yankee
Candle Holdings Corp.**
2.4 Form of Share Exchange Agreement between The Yankee Candle Company, Inc. and Michael S.
Kittredge.*
3.1 Form of Restated Articles of Organization of The Yankee Candle Company, Inc.**
3.2 Form of Amended and Restated By-Laws of The Yankee Candle Company, Inc.*
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Hale and Dorr LLP*
10.1 Form of outside director Stock Option Agreement.*
10.2 Form of outside director Stockholder's Agreement.*
10.3 Form of Employee Stockholder's Agreement.*
10.4 The Yankee Candle Company Inc. Employee Stock Option Plan and form of Stock Option Agreement.*
10.5 The Yankee Candle Company, Inc. 1999 Stock Option and Award Plan.**
10.6 Stockholder's Agreement, dated April 27, 1998, by and between The Yankee Candle Company, Inc. and
Michael J. Kittredge.*
10.7 Form of Stockholder's Agreement between The Yankee Candle Company, Inc. and employees.*
10.8 Registration Rights Agreement, dated as of May 6, 1999, among The Yankee Candle Company, Inc.,
Forstmann Little & Co. Equity Partnership-V, L.P. and Forstmann Little & Co. Subordinated Debt
and Equity Management Buyout Partnership-VI, L.P.*
10.9 Form of Indemnification Agreement between The Yankee Candle Company, Inc. and its directors and
executive officers.*
10.10 Form of Credit Agreement among The Yankee Candle Company, Inc., The Chase Manhattan Bank, as sole
administrative agent, and the banks and other financial institutions party thereto.**
10.11 Recourse Secured Promissory Note, dated February 3, 1999, by Robert R. Spellman, and Stock Pledge
Agreement, dated as of February 3, 1999, by and between The Yankee Candle Company, Inc. and
Robert R. Spellman.*
10.12 Employment Agreement, dated as of October 22, 1998, as amended on February 9, 1999, between The
Yankee Candle Company, Inc. and Robert R. Spellman.*
10.13 Form of Management Rights Letter between The Yankee Candle Company, Inc. and the partnerships
affiliated with Forstmann Little and Co.*
16.1 Letter from Ernst & Young LLP relating to change in certifying accountants.*
16.2 Letter from Fisk, Bilton, Smith & Co., P.C. relating to change in certifying accountants.*
23.1 Consent of Hale and Dorr LLP (included in the opinion filed as Exhibit 5.1).*
23.2 Consent of Deloitte and Touche LLP.**
23.3 Consent of Ernst & Young LLP.**
23.4 Consent of Fisk, Bilton, Smith & Co., P.C.**
24.1 Power of Attorney for Michael S. Ovitz.*
24.2 Power of Attorney for Ronald L. Sargent.*
27 Financial Data Schedules.*
99.1 Report of Independent Auditors on Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 2.3
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of _______,
1999 (the "Reorganization Agreement"), between The Yankee Candle Company, Inc.,
a Massachusetts corporation (the "Company"), and Yankee Candle Holdings Corp., a
Delaware corporation ("Holdings").
WHEREAS, the Boards of Directors of each of the Company and
Holdings have determined that it is in the best interests of their respective
organizations that the Company and Holdings enter into an exchange whereby the
Company would issue shares of Common Stock (as defined below) in exchange for
the assets of Holdings on the terms and conditions set forth herein (the
"Exchange");
WHEREAS, in connection with the Exchange, the Company will
cancel its existing no par value common stock and authorize new common stock,
par value $.01 per share, of the Company ("Common Stock"); and
WHEREAS, the Company and Holdings desire to adopt this
Reorganization Agreement as a plan of reorganization in accordance with the
provisions of Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as
amended;
NOW THEREFORE, in consideration of the premises, the mutual
benefits to be derived from this Reorganization Agreement and the covenants,
agreements and promises hereinafter set forth, the parties hereto agree as
follows:
1. THE EXCHANGE. On the business day immediately preceding the
day of the closing of the initial public offering (the "Offering") of Common
Stock registered under the Securities Act of 1933, as amended (the "Effective
Date"), on the terms and conditions set forth herein, Holdings shall sell,
transfer, convey and deliver to the Company all of its right, title and interest
in and to all of its properties and business as a going concern and goodwill and
assets of every kind, nature and description, as the same may exist as of the
Effective Date, wherever such assets are located and whether real, personal or
mixed, tangible or intangible, and whether or not any of such assets have any
value for accounting purposes or are carried or reflected on or specifically
referred to in its books or financial statements (collectively, the "Assets"),
including, without limitation, the following:
(i) Certificates representing 449.9782 shares of
common stock, no par value, of the Company, duly
endorsed in blank or with stock powers attached;
<PAGE>
(ii) All cash, including cash deposits and cash
collateral, and other cash equivalents; and
(iii) All books, records, files and data, in each case
however evidenced (including, without limitation,
by computer disk or tape);
in exchange for (i) a number of newly issued, fully paid and non-assessable
shares of Common Stock equal to (a) plus (b) the number obtained by
dividing $27.35 by the price per share to the public of the Common Stock sold
in the Offering and (ii) the issuance of options to purchase shares of
Common Stock to persons with outstanding options to purchase Holdings stock
pursuant to the Holdings Employee Stock Option Plan or director option
agreements, in exchange for the cancellation of such options. The options to
purchase Common Stock shall have the same intrinsic value as the cancelled
options. In connection with the Exchange, Holdings shall retain all of its
liabilities and no such liabilities shall be transferred to, assumed by or
otherwise become liabilities of, the Company.
2. RESTATED ARTICLES OF INCORPORATION. In connection with the
Exchange, the Company will amend and restate its Articles of Organization to
authorize 300,000,000 shares of Common Stock, and 100,000,000 shares of
preferred stock, par value $.01 per share, of the Company.
3. KITTREDGE SHARES. Simultaneously with the execution of this
Reorganization Agreement, the Company is entering into an agreement with Michael
Kittredge (the "Kittredge Agreement", attached hereto as Exhibit A) pursuant to
which Michael Kittredge will exchange his 49.9976 shares of common stock, no par
value, of the Company for shares of Common Stock, simultaneously with the
Exchange.
4. DISSOLUTION OF HOLDINGS. Immediately following the
Exchange, and as part of this Reorganization Agreement, Holdings shall
dissolve in accordance with Section 275 of the Delaware General Corporation
Law. Upon such dissolution, Holdings shall liquidate by distributing all of
its assets to its stockholders pursuant to a plan of dissolution and
liquidation (the "Plan of Dissolution", attached hereto as Exhibit B).
5. TERMINATION. Notwithstanding approval and adoption of this
Reorganization Agreement by the stockholders of each of Holdings and the
Company, this Reorganization Agreement may be terminated, and the Exchange
abandoned, at any time prior to the Effective Date by mutual written consent of
the parties hereto.
6. ENTIRE AGREEMENT. This Reorganization Agreement, the
Kittredge
-2-
<PAGE>
Agreement and the Plan of Dissolution contain the entire agreement of the
parties with respect to the transactions contemplated hereby.
7. MODIFICATIONS. No amendment or modification of this
Reorganization Agreement shall be valid unless it is in writing and signed by or
on behalf of each of the parties hereto.
8. GOVERNING LAW. This Reorganization Agreement shall be
governed by the laws of the State of New York, without regard to the principles
of conflict of laws.
9. COUNTERPARTS. This Reorganization Agreement may be executed
in one or more counterparts, each of which shall for all purposes be an original
and all of which shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Reorganization Agreement as of the date first above written.
THE YANKEE CANDLE COMPANY, INC.
By:
-------------------------------------
Name:
Title:
YANKEE CANDLE HOLDINGS CORP.
By:
-------------------------------------
Name:
Title:
-3-
<PAGE>
Exhibit A
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT, dated as of __________, 1999 (the
"Agreement"), by and between The Yankee Candle Company, Inc., a Massachusetts
corporation (the "Company"), and Michael J. Kittredge ("Kittredge").
WHEREAS, in connection with the initial public offering of the
Company's securities (the "Offering"), the Company and Yankee Candle Holdings
Corp., a Delaware corporation ("Holdings"), have entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement"), dated as of the date
hereof, providing for the issuance by the Company of shares of new common stock,
par value $.01 per share ("New Common Stock"), of the Company to Holdings, in
exchange for the transfer by Holdings of all of its assets, including, without
limitation, its existing shares of common stock, no par value, of the Company
("Existing Common Stock");
WHEREAS, Kittredge is the owner of 49.9976 shares of Existing
Common Stock; and
WHEREAS, to carry out the intent of the Reorganization
Agreement, the parties hereto deem it desirable that Kittredge exchange his
shares of Existing Common Stock for shares of New Common Stock on the terms and
subject to the conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. THE KITTREDGE EXCHANGE On the business day immediately
preceding the day of the closing of the Offering (the "Effective Date"), on the
terms and conditions set forth herein, Kittredge shall sell, transfer, convey
and deliver certificates representing his 49.9976 shares of Existing Common
Stock, duly endorsed in blank or with stock powers attached, to the Company in
exchange for certificates representing newly issued, fully paid and
non-assessable shares of New Common Stock (the "Kittredge Exchange"). Kittredge
represents and warrants to the Company that his shares of Existing Common Stock
are on the date hereof, and will be on the Effective Date, free of all liens,
claims and encumbrances except those created pursuant to agreements to which the
Company is a party.
2. TERMINATION. This Agreement shall automatically terminate,
and the Kittredge Exchange shall automatically be abandoned, upon the
termination of the Reorganization Agreement. This Agreement may not otherwise be
terminated without the written consent of the parties hereto and Holdings.
3. THIRD PARTY BENEFICIARY. This Agreement shall inure to the
benefit of the
<PAGE>
parties hereto and Holdings which shall be a third party beneficiary hereto.
4. ENTIRE AGREEMENT. This Agreement and the Reorganization
Agreement contain the entire agreement of the parties with respect to the
transactions contemplated hereby.
5. MODIFICATIONS. No amendment or modification of this
Agreement shall be valid unless it is in writing and signed by or on behalf of
each of the Company and Kittredge.
6. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of New York, without giving effect to the principles of conflict of
laws.
7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be an original and all of
which shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE YANKEE CANDLE COMPANY, INC.
By:
-------------------------------------
Name:
Title:
MICHAEL J. KITTREDGE
-2-
<PAGE>
Exhibit B
YANKEE CANDLE HOLDINGS CORP.
PLAN OF DISSOLUTION AND LIQUIDATION
As part of the Plan of Reorganization (as defined below) and
following the adoption of this Plan of Dissolution and Liquidation (the "Plan")
by (i) holders of a majority of the outstanding stock entitled to vote thereon
and a majority of the Board of Directors of Yankee Candle Holdings Corp., a
Delaware corporation (the "Company"), or (ii) unanimous consent of all
stockholders entitled to vote thereon, and following the exchange (the
"Exchange") of all of the Company's assets for shares of common stock, par value
$.01 per share ("YCC Common Stock"), of The Yankee Candle Company, Inc., a
Massachusetts corporation ("YCC"), pursuant to that certain Agreement and Plan
of Reorganization dated as of _____, 1999 (the "Plan of Reorganization"), by and
between YCC and the Company:
1. DISSOLUTION. The appropriate officers of the Company will
file a Certificate of Dissolution with the Secretary of State of the State of
Delaware. The date of such filing shall be the effective date of dissolution of
the Company (the "Effective Date").
2. CESSATION OF BUSINESS. After the filing of the Certificate
of Dissolution, the Company will not carry on any business except as may be
necessary or incidental to the winding up of the Company's affairs.
3. PAYMENT OF DEBTS; OPTIONS. The Company will, pursuant to
the Delaware General Corporation Law ("DGCL"), (i) pay or make reasonable
provision to pay or otherwise satisfy all claims and obligations, including
any obligations pursuant to outstanding Company stock option agreements
("Stock Option Agreements"), and all other contingent, conditional, or
unmatured contractual claims known to the Company, (ii) make such provision
as will be reasonably likely to be sufficient to provide compensation for any
claim against the Company which is the subject of a pending action, suit or
proceeding to which the Company is a party, and (iii) make such provision as
will be reasonably likely to be sufficient to provide compensation for claims
that have not been made known to the Company or that have not arisen but
that, based on facts known to the Company, are likely to arise or to become
known to the Company within 10 years of the date of dissolution. Such claims
shall be paid in full and any such provision for payment made shall be made
in full if there are sufficient funds. If there are insufficient funds, such
claims and obligations shall be paid or provided for according to their
priority and, among claims of equal priority, ratably to the extent of funds
legally available therefor. Any assets remaining following the establishment
of such provisions shall be distributed to the holders of Class A Stock (as
defined below). The Company will cause each Stock Option Agreement to be
cancelled and in exchange therefor shall cause to be delivered to each
optionholder a stock option agreement for options to
<PAGE>
purchase shares of YCC Common Stock having the same intrinsic value as the
cancelled options.
4. LIQUIDATION OF ASSETS; CANCELLATION OF SHARES. The sole
assets of the Company will be shares of YCC Common Stock and options to
purchase shares of YCC Common Stock which will have been received in exchange
for the cancellation of outstanding options under the Stock Option
Agreements. On the business day immediately preceding the day of the closing
of the initial public offering of YCC Common Stock and after the Exchange,
the YCC Common stock owned by the Company will be distributed to the holders
of Class A Stock as follows: (i) each outstanding share of the Company's
Class B Non-Voting Common Stock, par value $.01 per share ("Class B Stock"),
will be converted into shares of the Company's Class A Common Stock, par
value $.01 per share ("Class A Stock"), at the exchange rate set forth in
Article Fourth, Section A, Subsection 4(d) of the Company's Restated
Certificate of Incorporation (the "Restated Certificate") and (ii)
immediately thereafter, each share of Class A Stock shall be exchanged for
shares of YCC Common Stock, calculated in the manner set forth in Article
Fourth, Section A, Subsection 3 of the Restated Certificate. Following the
Exchange, the certificates representing Class A Stock and Class B Stock will
be cancelled. No interest shall accrue at any time on any assets held for
distribution. At the same time, YCC will deliver to each optionholder a stock
option agreement for options to purchase shares of YCC Common Stock, which
YCC options shall have the same intrinsic value as the cancelled Company
options.
5. LIABILITY OF COMPANY STOCKHOLDERS. After the
dissolution of the Company, Company stockholders will retain liability for
claims against the Company as provided in Section 282 of the DGCL.
6. POWER OF OFFICERS. The officers of the Company shall have
authority to do or authorize any and all acts and things as provided for in the
Plan and any and all such further acts and things as they may consider desirable
to carry out the purposes of the Plan, including the execution and filing of all
such certificates, documents, information returns, tax returns, and other
documents which may be necessary or appropriate to implement the Plan, as well
as the distribution of assets to stockholders of the Company.
-2-
<PAGE>
Exhibit 3.1
FEDERAL IDENTIFICATION
NO. 04-2591416
THE COMMONWEALTH OF MASSACHUSETTS
- -----------
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
- -----------
Name
Approved
We, Michael D. Parry, "President" and Robert R. Spellman, "Clerk",
of The Yankee Candle Company, Inc.,
- --------------------------------------------------------------------------------
(Exact name of corporation)
located at 102 Christian Lane, Whately, Massachusetts 01093
- --------------------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of Organization
was duly adopted at a meeting held on _________________, 19__ by a vote of the
directors/or:
shares of Common Stock, no par value of 1,100 shares outstanding,
- --------- ----------------------------- -----
(type, class & series if any)
shares of of shares outstanding, and
- --------- ----------------------------- ----
(type, class & series if any)
shares of of shares outstanding,
- --------- ----------------------------- -----
(type, class & series if any)
being at least two-thirds of each type, class or series outstanding and entitled
to vote thereon and of each type, class or series of stock whose rights are
adversely affected thereby:
C |_|
P |_|
M |_|
R.A. |_|
ARTICLE I
The name of the corporation is:
The Yankee Candle Company, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activity(ies):
To engage in the business of designing, manufacturing, retailing and
wholesaling scented and unscented candles and other home fragrancing
products and to engage in any and all business activities in which a
corporation organized under M.G.L. CH 156B may engage.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 300,000,000 $.01
- --------------------------------------------------------------------------------
Preferred: Preferred: 100,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
(See Attachment 4)
ARTICLE V
The restrictions, if any, imposed by the Article of Organization upon the
transfer of shares of stock of any class are:
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
(See Attachment 6)
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
102 Christian Lane, Whately, Massachusetts 01093
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer:
Clerk: (See Attachment 8)
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day
of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is:
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretobefore amended, except amendments to the following articles. Briefly
describe amendments below:
Article III -Recapitalization
Article IV -Recapitalization
Article VI -other lawful provisions
SIGNED UNDER THE PENALTIES OF PERJURY, this _______ day of _________, 1999.
Michael D. Parry, President
Robert R. Spellman, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
=====================================================
I hereby approve the within Restated Articles of
Organization and, the filing fee in the amount of
$_________ having been paid, said articles are deemed
to have been filed with me this _________ day of
_______________, 19__.
Effective Date:______________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
_______________________________________________________
_______________________________________________________
_______________________________________________________
Telephone:_____________________________________________
<PAGE>
ATTACHMENT 4
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 400,000,000 shares, consisting of (i)
300,000,000 shares of Common Stock, $.01 par value per share ("Common Stock"),
and (ii) 100,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the corporation.
4A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
4B. PREFERRED STOCK.
Up to 100,000,000 shares of Preferred Stock may be issued from time to
time in one or more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors as hereinafter provided. Any
shares of Preferred Stock which may be redeemed, purchased or acquired by the
corporation may be reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to constitute different classes
of shares for the purposes of voting by classes unless expressly provided.
-1-
<PAGE>
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by Chapter 156B of the Massachusetts General Laws. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law. No vote of the holders of the Preferred Stock or Common
Stock shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the Articles
of Organization, the right to have such vote being expressly waived by all
present and future holders of the capital stock of the corporation.
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ATTACHMENT 6
Other lawful provisions, if any, for the conduct and regulation of the business
and affairs of the corporation, for its voluntary dissolution, or for limiting,
defining, or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders:
6A. LIMITATION OF DIRECTOR LIABILITY.
Except to the extent that Chapter 156B of the Massachusetts General Laws
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall 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 such director
occurring prior to such amendment.
6B. INDEMNIFICATION.
1. The corporation shall, to the fullest extent permitted by the
applicable provisions of Chapter 156B of the Massachusetts General Laws, as
amended from time to time, indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to serve, at the
request of the corporation, as a director or officer of, or in a similar
capacity with, another organization or in any capacity with respect to any
employee benefit plan of the corporation (all such persons being referred to
hereafter as an "Indemnitee"), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement incurred by or
on behalf of an Indemnitee in connection with such action, suit or proceeding
and any appeal therefrom, unless such Indemnitee shall be finally adjudicated in
such action, suit or proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation
or, to the extent such matter relates to service with respect to an employee
benefit plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
2. Notwithstanding the provisions of Section 1 of this Article, in the
event that a pending or threatened action, suit or proceeding is compromised or
settled in a manner which imposes any liability or obligation upon an Indemnitee
in a matter for which such Indemnitee would otherwise be entitled to
indemnification hereunder, no indemnification
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shall be provided to such Indemnitee with respect to such matter if it is
determined that such Indemnitee did not act in good faith in the reasonable
belief that his action was in the best interests of the corporation or, to the
extent such matter relates to service with respect to an employee benefit plan,
in the best interests of the participants or beneficiaries of such employee
benefit plan.
3. As a condition precedent to his right to be indemnified, the Indemnitee
must notify the corporation in writing as soon as practicable of any action,
suit, proceeding or investigation involving him for which indemnity will or
could be sought. With respect to any action, suit, proceeding or investigation
of which the corporation is so notified, the corporation will be entitled to
participate therein at its own expense and/or to assume, with legal counsel
reasonably acceptable to the Indemnitee, the defense thereof at its own expense.
4. In the event that the corporation does not assume the defense of any
action, suit, proceeding or investigation of which the corporation receives
notice under this Article, the corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided, however, that the payment of
such expenses incurred by an Indemnitee in advance of the final disposition of
such matter shall be made only upon receipt of an undertaking by or on behalf of
the Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the corporation as authorized in this Article, which undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment; and further provided that no such advancement of expenses shall
be made if it is determined that the Indemnitee did not act in good faith in the
reasonable belief that his action was in the best interests of the corporation
or, to the extent such matter relates to service with respect to an employee
benefit plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
5. All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made by: (a) a majority vote
of a quorum of the directors of the corporation, (b) a majority vote of a quorum
of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the corporation), or (d) a court of competent
jurisdiction.
6. The corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such Indemnitee unless the
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initiation thereof was approved by the Board of Directors of the corporation. In
addition, the corporation shall not indemnify any such Indemnitee to the extent
such Indemnitee is reimbursed from the proceeds of insurance, and, in the event
the corporation makes any indemnification payments to any such Indemnitee and
such Indemnitee is subsequently reimbursed from the proceeds of insurance, such
Indemnitee shall promptly refund such indemnification payments to the
corporation to the extent of such insurance reimbursement.
7. If Indemnitee is entitled to indemnification by the corporation for
some or a portion of the expenses, judgments, fines, penalties or amounts paid
in settlement actually and reasonably incurred by him or on his behalf, but not,
however, for the total amount thereof, the corporation shall nevertheless
indemnify Indemnitee for the portion of such expenses, judgments, fines,
penalties or amounts paid in settlement to which Indemnitee is entitled.
8. The corporation may maintain directors' and officers' liability
insurance.
9. The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which an Indemnitee may be entitled
under any law, agreement or vote of stockholders or directors or otherwise, and
(ii) shall inure to the benefit of the heirs, executors and administrators of
such Indemnitees. The corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the corporation or other persons serving the corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
6C. OTHER PROVISIONS.
1. The directors may make, amend, or repeal the by-laws in whole or in
part, except with respect to any provision of such by-laws which by law or these
Articles or the by-laws requires action by the stockholders.
2. Meetings of the stockholders of the corporation may be held anywhere in
the United States.
3. The corporation shall have the power to be a partner in any business
enterprise which this corporation would have the power to conduct by itself.
4. The corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock entitled
to vote as separate classes, then by vote of a majority of each such class of
stock outstanding), may (i) authorize any amendment to its Articles of
Organization pursuant to Section 71 of Chapter 156B of the Massachusetts General
Laws, as amended from time to time,
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(ii) authorize the sale, lease or exchange of all or substantially all of its
property and assets, including its goodwill, pursuant to Section 75 of Chapter
156B of the Massachusetts General Laws, as amended from time to time, and (iii)
approve an agreement of merger or consolidation pursuant to Section 78 of
Chapter 156B of the Massachusetts General Laws, as amended from time to time.
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ATTACHMENT 8
President and Chief Executive Officer: Michael D. Parry
5 Pocumtuck Drive
South Deerfield, MA 01373
Senior Vice President of Finance, Chief
Financial Officer, Clerk and Treasurer: Robert R. Spellman
89 Far Reach Road
Westwood, MA 02090
Directors: Theodore J. Forstmann
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, NY 10153
Nicholas C. Forstmann
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, NY 10153
Steven B. Klinsky
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, NY 10153
Sandra J. Horbach
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, NY 10153
Michael S. Ovitz
c/o Artists Management Group
9465 Wilshire Blvd., Suite 519
Beverly Hills, CA 90212
Emily Woods
c/o J.Crew Group, Inc.
770 Broadway
New York, NY 10003
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<PAGE>
Ronald L. Sargent
c/o Staples, Inc.
One Research Drive
Westborough, MA 01581
Michael D. Parry
5 Pocumtuck Drive
South Deerfield, MA 01373
Michael J. Kittredge
203 South Beach Road
Hobe Sound, FL 33455
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Exhibit 10.5
Yankee Candle Company, Inc.
1999 STOCK OPTION AND AWARD PLAN
(As Adopted April 15, 1999)
<PAGE>
Yankee Candle Company, Inc.
1999 STOCK OPTION AND AWARD PLAN
1. PURPOSE.
The purpose of this Plan is to strengthen Yankee Candle Company,
Inc., a Massachusetts corporation (the "Company"), by providing an incentive to
its employees, officers, consultants and directors and thereby encouraging them
to devote their abilities and industry to the success of the Company's business
enterprise. It is intended that this purpose be achieved by extending to
employees (including future employees who have received a formal written offer
of employment), officers, consultants and directors of the Company and its
Subsidiaries an added long-term incentive for high levels of performance and
unusual efforts through the grant of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Performance Awards, Share Awards, Phantom
Stock and Restricted Stock (as each term is herein defined).
2. DEFINITIONS.
For purposes of the Plan:
2.1 "Affiliate" means any entity, directly or indirectly, controlled
by, controlling or under common control with the Company or any corporation or
other entity acquiring, directly or indirectly, all or substantially all the
assets and business of the Company, whether by operation of law or otherwise.
2.2 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
2.3 "Award" means a grant of Restricted Stock, Phantom Stock, a
Stock Appreciation Right, a Performance Award, a Share Award or any or all of
them.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary, which
employment agreement includes a definition of "Cause", the term "Cause" as used
in this Plan or any
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Agreement shall have the meaning set forth in such employment agreement during
the period that such employment agreement remains in effect; and
(b) in all other cases, (i) intentional failure to perform
reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries which
transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance of
duties (other than traffic violations or similar offenses); PROVIDED, HOWEVER,
that following a Change in Control clause (i) of this Section 2.5(b) shall not
constitute "Cause".
2.6 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, in the case
of a spin-off, dividend or other distribution in respect of Shares, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
spin-off, split-up, issuance of warrants or rights or debentures, stock
dividend, stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or otherwise.
2.7 A "Change in Control" shall mean the occurrence of any of the
following:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Exchange Act), other than Forstmann Little & Co. Equity Partnership - V, L.P.
and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership - VI, L.P. or any of their Affiliates, immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than fifty percent (50%) of the then outstanding
Shares or the combined voting power of the Company's then outstanding Voting
Securities; PROVIDED, HOWEVER, in determining whether a Change in Control has
occurred pursuant to this Section 2.7(a), Shares or Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by (A) the Company or (B) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
the Company (for purposes of this definition, a "Related
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Entity"), (ii) the Company or any Related Entity, or (iii) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of April 15, 1999 are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least a
majority of the members of the Board; PROVIDED, HOWEVER, that if the election,
or nomination for election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Plan, be considered as a member of
the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with
or into the Company or in which securities of the Company are issued, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Company or in which securities of the Company are issued where:
(A) the stockholders of the Company,
immediately before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or reorganization,
at least fifty percent (50%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such merger or consolidation
or reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least a majority
of the members of the board of directors of the Surviving Corporation, or a
corporation beneficially directly or indirectly owning a majority of the Voting
Securities of the Surviving Corporation, and
(C) no Person other than (1) the Company, (2)
any Related Entity, (3) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Company or any Related Entity, or (4) any
Person who, immediately prior to such
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merger, consolidation or reorganization had Beneficial Ownership of more than
fifty percent (50%) of the then outstanding Voting Securities or Shares, has
Beneficial Ownership of more than fifty percent (50%) of the combined voting
power of the Surviving Corporation's then outstanding voting securities or its
common stock.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Related Entity or the distribution to the Company's stockholders
of the stock of a Related Entity or any other assets).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Shares or Voting Securities as a result of the acquisition of Shares or Voting
Securities by the Company which, by reducing the number of Shares or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Shares or Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Shares or Voting Securities which increases the percentage of the
then outstanding Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
If an Eligible Individual's employment is terminated by the Company
without Cause prior to the date of a Change in Control but the Eligible
Individual reasonably demonstrates that the termination (A) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a change in control or (B) otherwise arose in connection
with, or in anticipation of, a Change in Control which has been threatened or
proposed, such termination shall be deemed to have occurred after a Change in
Control for purposes of this Plan provided a Change in Control shall actually
have occurred.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.
2.10 "Company" means Yankee Candle Company, Inc.
2.11 "Director" means a director of the Company.
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2.12 "Disability" means:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary, which
employment agreement includes a definition of "Disability", the term
"Disability" as used in this Plan or any Agreement shall have the meaning set
forth in such employment agreement during the period that such employment
agreement remains in effect; or
(b) the term "Disability" as used in the Company's long-term
disability plan, if any; or
(c) in all other cases, the term "Disability" as used in this
Plan or any Agreement shall mean a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
2.13 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
2.14 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with respect to
Shares.
2.15 "Eligible Individual" means any of the following individuals
who is designated by the Committee as eligible to receive Options or Awards
subject to the conditions set forth herein: (a) any director, officer or
employee of the Company or a Subsidiary, (b) any individual to whom the Company
or a Subsidiary has extended a formal, written offer of employment, or (c) any
consultant or advisor of the Company or a Subsidiary.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.17 "Fair Market Value" on any date means the closing sales prices
of the Shares on such date on the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if such Shares are not
so listed or admitted to trading, the average of the per Share closing bid price
and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the Fair
Market Value shall be the value established by the Board in good faith and, in
the case of an Incentive Stock Option, in accordance with Section 422 of the
Code.
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2.18 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.19 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.20 "Initial Public Offering" means the consummation of the first
public offering of Shares pursuant to a registration statement (other than a
Form S-8 or successor forms) filed with, and declared effective by, the
Securities and Exchange Commission.
2.21 "Nonemployee Director" means a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.22 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.23 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, or any or all of them.
2.24 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.25 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.26 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.27 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
2.28 "Performance-Based Compensation" means any Option or Award that
is intended to constitute "performance based compensation" within the meaning of
Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.
2.29 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.30 "Performance Objectives" has the meaning set forth in Section
8.
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2.31 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 8.
2.32 "Performance Units" means Performance Units granted to an
Eligible Individual under Section 8.
2.33 "Phantom Stock" means a right granted to an Eligible Individual
under Section 9 representing a number of hypothetical Shares.
2.34 "Plan" means the Yankee Candle Company, Inc. 1999 Stock
Option and Award Plan, as amended and restated from time to time.
2.35 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.36 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 7.
2.37 "Share Award" means an Award of Shares granted pursuant to
Section 9.
2.38 "Shares" means the common stock of the Company.
2.39 "Stock Appreciation Right" means a right to receive all or some
portion of the increase in the value of the Shares as provided in Section 6
hereof.
2.40 "Subsidiary" means (i) except as provided in subsection (ii)
below, any corporation which is a subsidiary corporation within the meaning of
Section 424(f) of the Code with respect to the Company, and (ii) in relation to
the eligibility to receive Options or Awards other than Incentive Stock Options
and continued employment for purposes of Options and Awards (unless the
Committee determines otherwise), any entity, whether or not incorporated, in
which the Company directly or indirectly owns 50% or more of the outstanding
equity or other ownership interests.
2.41 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.42 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the
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total combined voting power of all classes of stock of the Company, or of a
Parent or a Subsidiary.
2.43 "Transition Period" means the period beginning with an Initial
Public Offering and ending as of the earlier of (i) the date of the first annual
meeting of shareholders of the Company at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which the Initial Public Offering occurs, or (ii) the earlier of the "reliance
period" under Treasury Regulation ss. 1.162-27(f)(2).
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper administration of
the Plan. The Committee shall keep minutes of its meetings. If the Committee
consists of more than one (1) member, a quorum shall consist of not fewer than
two (2) members of the Committee and a majority of a quorum may authorize any
action. Any decision or determination reduced to writing and signed by a
majority of all of the members of the Committee shall be as fully effective as
if made by a majority vote at a meeting duly called and held. The Committee
shall consist of at least one (1) Director and may consist of the entire Board;
PROVIDED, HOWEVER, that from and after the date of an Initial Public Offering,
(A) if the Committee consists of less than the entire Board, then with respect
to any Option or Award to an Eligible Individual who is subject to Section 16 of
the Exchange Act, the Committee shall consist of at least two (2) Directors each
of whom shall be a Nonemployee Director and (B) to the extent necessary for any
Option or Award intended to qualify as Performance-Based Compensation to so
qualify, each member of the Committee, whether or not it consists of the entire
Board, shall be an Outside Director. For purposes of the preceding sentence, if
one or more members of the Committee is not a Nonemployee Director and an
Outside Director but recuses himself or herself or abstains from voting with
respect to a particular action taken by the Committee, then the Committee, with
respect to that action, shall be deemed to consist only of the members of the
Committee who have not recused themselves or abstained from voting. Subject to
applicable law, the Committee may delegate its authority under the Plan to any
other person or persons.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with respect
to this Plan or any transaction hereunder. The Company hereby agrees to
indemnify each member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in connection with
defending against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind
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arising in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
3.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options shall
be granted under the Plan and the number of such Options to be granted and to
prescribe the terms and conditions (which need not be identical) of each such
Option, including the exercise price per Share subject to each Option, and make
any amendment or modification to any Option Agreement consistent with the terms
of the Plan;
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Shares in respect of which
each Award is granted, the terms and conditions (which need not be identical) of
each such Award, and make any amendment or modification to any Award Agreement
consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable, including so that the Plan and the
operation of the Plan complies with Rule 16b-3 under the Exchange Act, the Code
to the extent applicable and other applicable law, and otherwise to make the
Plan fully effective. All decisions and determinations by the Committee in the
exercise of this power shall be final, binding and conclusive upon the Company,
its Subsidiaries, the Optionees and Grantees, and all other persons having any
interest therein;
(d) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes of the
Plan;
(e) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
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4. STOCK SUBJECT TO THE PLAN; GRANT LIMITATIONS.
4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is five percent (5%) of the
Company's outstanding Shares as of the date the Plan is adopted, determined
on a fully diluted basis (treating, for this purpose, all Shares that may be
made the subject of Options and Awards granted under the Plan as
outstanding)(1). The Company shall reserve for the purposes of the Plan, out
of its authorized, but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be determined
by the Board.
4.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 4.1 for the granting of further Options and Awards shall
be reduced as follows:
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated; PROVIDED, HOWEVER, that if any
Option is exercised by tendering Shares, either actually or by attestation, to
the Company as full or partial payment of the exercise price, the maximum number
of Shares available under Section 4.1 shall be increased by the number of Shares
so tendered.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof,
expires, is canceled, is settled in cash (including the settlement of tax
withholding obligations using Shares) or is otherwise terminated for any reason
without having been exercised or payment having been made in respect of the
entire Option or Award, the Shares allocable to the expired, canceled, settled
or otherwise terminated portion of the Option or Award may again be the subject
of Options or Awards granted hereunder.
5. OPTION GRANTS FOR ELIGIBLE INDIVIDUALS.
5.1 AUTHORITY OF COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full and final authority to select those Eligible
Individuals who will receive Options, and the terms and conditions of the grant
to such Eligible Individuals shall be set forth in an Agreement.
5.2 EXERCISE PRICE. The purchase price or the manner in which the
exercise price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; PROVIDED, HOWEVER,
that the exercise price
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(1) The maximum number of Shares that may be the subject of Options and
Awards granted under the Plan will be automatically adjusted such that,
after the issuance of shares of common stock, par value $0.01 per share,
of the Company and options to purchase shares of common stock, par value
$0.01 per share, of the Company contemplated by the Agreement and Plan of
Reorganization between the Company and Yankee Candle Holdings Corp. and
the Share Exchange Agreement between the Company and Micheal S.
Kittredge, such maximum number of Shares will be five percent (5%) of the
Company's outstanding Shares after giving effect to such issuances,
determined on a fully diluted basis (treating, for this purpose, all
Shares that may be made the subject of Options and Awards granted under
the Plan as outstanding).
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per Share under each Incentive Stock Option shall not be less than 100% of the
Fair Market Value of a Share on the date the Option is granted (110% in the case
of an Incentive Stock Option granted to a Ten-Percent Stockholder).
5.3 MAXIMUM DURATION. Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock Option
shall not be exercisable after the expiration of ten (10) years from the date it
is granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be
exercisable after the expiration of ten (10) years from the date it is granted;
PROVIDED, HOWEVER, that unless the Committee provides otherwise, an Option
(other than an Incentive Stock Option) may, upon the death of the Optionee prior
to the expiration of the Option, be exercised for up to one (1) year following
the date of the Optionee's death even if such period extends beyond ten (10)
years from the date the Option is granted. The Committee may, subsequent to the
granting of any Option, extend the term thereof, but in no event shall the term
as so extended exceed the maximum term provided for in the preceding sentence.
5.4 VESTING. Subject to Section 5.10, each Option shall become
exercisable in such installments (which need not be equal) and at such times as
may be designated by the Committee and set forth in the Agreement. To the extent
not exercised, installments shall accumulate and be exercisable, in whole or in
part, at any time after becoming exercisable, but not later than the date the
Option expires. The Committee may accelerate the exercisability of any Option or
portion thereof at any time.
5.5 DEFERRED DELIVERY OF OPTION SHARES. The Committee may, in its
discretion permit Optionees to elect to defer the issuance of Shares upon the
exercise of one or more Nonqualified Stock Options granted pursuant to the Plan.
The terms and conditions of such deferral shall be determined at the time of the
grant of the Option or thereafter and shall be set forth in the Agreement
evidencing the Option.
5.6 LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined as of the date of the grant) of Shares
with respect to which Incentive Stock Options granted under the Plan and
"incentive stock options" (within the meaning of Section 422 of the Code)
granted under all other plans of the Company or its Subsidiaries (in either case
determined without regard to this Section 5.6) are exercisable by an Optionee
for the first time during any calendar year exceeds $100,000, such Incentive
Stock Options shall be treated as Nonqualified Stock Options. In applying the
limitation in the preceding sentence in the case of multiple Option grants,
Options which were intended to be Incentive Stock Options shall be treated as
Nonqualified Stock Options according to the order in which they were granted
such that the most recently granted Options are first treated as Nonqualified
Stock Options.
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5.7 NON-TRANSFERABILITY. No Option shall be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution or,
in the case of an Option other than an Incentive Stock Option, pursuant to a
domestic relations order (within the meaning of Rule 16a-12 promulgated under
the Exchange Act), and an Option shall be exercisable during the lifetime of
such Optionee only by the Optionee or his or her guardian or legal
representative. Notwithstanding the foregoing, the Committee may set forth in
the Agreement evidencing an Option (other than an Incentive Stock Option) at the
time of grant or thereafter, that the Option may be transferred to members of
the Optionee's immediate family, to trusts solely for the benefit of such
immediate family members and to partnerships in which such family members and/or
trusts are the only partners, and for purposes of this Plan, a transferee of an
Option shall be deemed to be the Optionee. For this purpose, immediate family
means the Optionee's spouse, parents, children, stepchildren and grandchildren
and the spouses of such parents, children, stepchildren and grandchildren. The
terms of an Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
5.8 METHOD OF EXERCISE. The exercise of an Option shall be made only
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be exercised and, to the extent applicable, accompanied by payment
therefor and otherwise in accordance with the Agreement pursuant to which the
Option was granted; PROVIDED, HOWEVER, that Options may not be exercised by an
Optionee for twelve months following a hardship distribution to the Optionee, to
the extent such exercise is prohibited under Treasury Regulation ss.
1.401(k)-1(d)2(iv)(B)(4). The exercise price for any Shares purchased pursuant
to the exercise of an Option shall be paid in either of the following forms (or
any combination thereof): (a) cash or (b) the transfer, either actually or by
attestation, to the Company of Shares that have been held by the Optionee for at
least six (6) months (or such lesser period as may be permitted by the
Committee) prior to the exercise of the Option, such transfer to be upon such
terms and conditions as determined by the Committee or (c) a combination of cash
and the transfer of Shares; PROVIDED, HOWEVER, that the Committee may determine
that the exercise price shall be paid only in cash. In addition, Options may be
exercised through a registered broker-dealer pursuant to such cashless exercise
procedures which are, from time to time, deemed acceptable by the Committee. Any
Shares transferred to the Company as payment of the exercise price under an
Option shall be valued at their Fair Market Value on the day of exercise of such
Option. If requested by the Committee, the Optionee shall deliver the Agreement
evidencing the Option to the Secretary of the Company who shall endorse thereon
a notation of such exercise and return such Agreement to the Optionee. No
fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an
Option and the number
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of Shares that may be purchased upon exercise shall be rounded to the nearest
number of whole Shares.
5.9 RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and until (a) the
Option shall have been exercised pursuant to the terms thereof, (b) the Company
shall have issued and delivered Shares to the Optionee, and (c) the Optionee's
name shall have been entered as a stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement.
5.10 EFFECT OF CHANGE IN CONTROL. In the event an Optionee's
employment with the Company and its Subsidiaries is terminated by the Company
without Cause following a Change in Control, or in the case of a Director who is
not an employee of the Company or any Subsidiary, his services as a Director of
the Company ceases following a Change in Control, each Option held by the
Optionee as of the date of termination of the Optionee's employment or service
shall become immediately and fully exercisable and shall, notwithstanding any
shorter period set forth in the Agreement evidencing the Option, remain
exercisable for a period ending not before the earlier of (x) the six (6) month
anniversary of the termination of the Optionee's employment or service or (y)
the expiration of the stated term of the Option. In addition, the Agreement
evidencing the grant of an Option may provide for any other treatment of the
Option in the event of a Change in Control.
6. STOCK APPRECIATION RIGHTS.
The Committee may in its discretion, either alone or in connection
with the grant of an Option, grant Stock Appreciation Rights in accordance with
the Plan, the terms and conditions of which shall be set forth in an Agreement.
If granted in connection with an Option, a Stock Appreciation Right shall cover
the same Shares covered by the Option (or such lesser number of Shares as the
Committee may determine) and shall, except as provided in this Section 6, be
subject to the same terms and conditions as the related Option.
6.1 TIME OF GRANT. A Stock Appreciation Right may be granted (a) at
any time if unrelated to an Option, or (b) if related to an Option, either at
the time of grant or at any time thereafter during the term of the Option.
6.2 STOCK APPRECIATION RIGHT RELATED TO AN OPTION.
(a) EXERCISE. A Stock Appreciation Right granted in connection
with an Option shall be exercisable at such time or times and only to the extent
that the related Options are exercisable, and will not be transferable except to
the extent the
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related Option may be transferable. A Stock Appreciation Right granted in
connection with an Incentive Stock Option shall be exercisable only if the Fair
Market Value of a Share on the date of exercise exceeds the exercise price
specified in the related Incentive Stock Option Agreement.
(b) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation
Right related to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (i) the excess of the Fair Market Value of a Share on
the date of exercise of such Stock Appreciation Right over the per Share
exercise price under the related Option, by (ii) the number of Shares as to
which such Stock Appreciation Right is being exercised. Notwithstanding the
foregoing, the Committee may limit in any manner the amount payable with respect
to any Stock Appreciation Right by including such a limit in the Agreement
evidencing the Stock Appreciation Right at the time it is granted.
(c) TREATMENT OF RELATED OPTIONS AND STOCK APPRECIATION RIGHTS
UPON EXERCISE. Upon the exercise of a Stock Appreciation Right granted in
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
Shares as to which the Option is exercised or surrendered.
6.3 STOCK APPRECIATION RIGHT UNRELATED TO AN OPTION. The Committee
may grant to Eligible Individuals Stock Appreciation Rights unrelated to
Options. Stock Appreciation Rights unrelated to Options shall contain such terms
and conditions as to exercisability (subject to Section 6.7), vesting and
duration as the Committee shall determine, but in no event shall they have a
term of greater than ten (10) years; provided, however, that the Committee may
provide that Stock Appreciation right may, upon the death of the Grantee, be
exercised for up to one (1) year following the date of the Grantee's death even
if such period extends beyond ten (10) years from the date the Stock
Appreciation Right is granted. Upon exercise of a Stock Appreciation Right
unrelated to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (a) the excess of the Fair Market Value of a Share on
the date of exercise of such Stock Appreciation Right over the Fair Market Value
of a Share on the date the Stock Appreciation Right was granted, by (b) the
number of Shares as to which the Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such a limit
in the Agreement evidencing the Stock Appreciation Right at the time it is
granted.
6.4 NON-TRANSFERABILITY. No Stock Appreciation Right shall be
transferable by the Grantee otherwise than by will or by the laws of descent and
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distribution or pursuant to a domestic relations order (within the meaning of
Rule 16a-12 promulgated under the Exchange Act), and such Stock Appreciation
Right shall be exercisable during the lifetime of such Grantee only by the
Grantee or his or her guardian or legal representative. The terms of such Stock
Appreciation Right shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Grantee.
6.5 METHOD OF EXERCISE. Stock Appreciation Rights shall be exercised
by a Grantee only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office, specifying
the number of Shares with respect to which the Stock Appreciation Right is being
exercised. If requested by the Committee, the Grantee shall deliver the
Agreement evidencing the Stock Appreciation Right being exercised and the
Agreement evidencing any related Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Grantee.
6.6 FORM OF PAYMENT. Payment of the amount determined under Sections
6.2(b) or 6.3 may be made in the discretion of the Committee solely in whole
Shares in a number determined at their Fair Market Value on the date of exercise
of the Stock Appreciation Right, or solely in cash, or in a combination of cash
and Shares. If the Committee decides to make full payment in Shares and the
amount payable results in a fractional Share, payment for the fractional Share
will be made in cash.
6.7 EFFECT OF CHANGE IN CONTROL. In the event a Grantee's employment
with the Company is terminated by the Company without Cause following a Change
in Control, each Stock Appreciation Right held by the Grantee shall become
immediately and fully exercisable and shall, notwithstanding any shorter period
set forth in the Agreement evidencing the Stock Appreciation Right, remain
exercisable for a period ending not before the earlier of the six (6) month
anniversary of (x) the termination of the Grantee's employment or (y) the
expiration of the stated term of the Stock Appreciation Right. In addition, the
Agreement evidencing the grant of a Stock Appreciation Right unrelated to an
Option may provide for any other treatment of the Stock Appreciation Rights in
the event of a Change in Control.
7. RESTRICTED STOCK.
7.1 GRANT. The Committee may grant Awards to Eligible Individuals of
Restricted Stock, which shall be evidenced by an Agreement between the Company
and the Grantee. Each Agreement shall contain such restrictions, terms and
conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share
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certificates. Awards of Restricted Stock shall be subject to the terms and
provisions set forth below in this Section 7.
7.2 RIGHTS OF GRANTEE. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, or any documents which the Committee may require within the time
period prescribed by the Committee at the time the Award is granted, the Award
shall be null and void. At the discretion of the Committee, Shares issued in
connection with a Restricted Stock Award shall be deposited together with the
stock powers with an escrow agent (which may be the Company) designated by the
Committee. Unless the Committee determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall
have all of the rights of a stockholder with respect to such Shares, including
the right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.
7.3 NON-TRANSFERABILITY. Until all restrictions upon the Shares of
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth
in Section 7.4, such Shares shall not be sold, transferred or otherwise disposed
of and shall not be pledged or otherwise hypothecated.
7.4 LAPSE OF RESTRICTIONS.
(a) GENERALLY. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and
conditions as the Committee may determine. The Agreement evidencing the Award
shall set forth any such restrictions.
(b) EFFECT OF CHANGE IN CONTROL. The Committee may determine
at the time of the grant of an Award of Restricted Stock the extent to which the
restrictions upon Shares of Restricted Stock shall lapse upon a Change in
Control. The Agreement evidencing the Award shall set forth any such provisions.
7.5 TREATMENT OF DIVIDENDS. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on such Shares by the Company shall be (a) deferred until the
lapsing of the restrictions imposed upon such Shares and (b) held by the Company
for the account of the Grantee
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until such time. In the event that dividends are to be deferred, the Committee
shall determine whether such dividends are to be reinvested in Shares (which
shall be held as additional Shares of Restricted Stock) or held in cash. If
deferred dividends are to be held in cash, there may be credited at the end of
each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its discretion,
may determine. Payment of deferred dividends in respect of Shares of Restricted
Stock (whether held in cash or as additional Shares of Restricted Stock),
together with interest accrued thereon, if any, shall be made upon the lapsing
of restrictions imposed on the Shares in respect of which the deferred dividends
were paid, and any dividends deferred (together with any interest accrued
thereon) in respect of any Shares of Restricted Stock shall be forfeited upon
the forfeiture of such Shares.
7.6 DELIVERY OF SHARES. Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.
8. PERFORMANCE AWARDS.
8.1 PERFORMANCE UNITS. The Committee, in its discretion, may grant
Awards of Performance Units to Eligible Individuals, the terms and conditions of
which shall be set forth in an Agreement between the Company and the Grantee.
Performance Units may be denominated in Shares or a specified dollar amount and,
contingent upon the attainment of specified Performance Objectives within the
Performance Cycle, represent the right to receive payment as provided in Section
8.3(c) of (i) in the case of Share-denominated Performance Units, the Fair
Market Value of a Share on the date the Performance Unit was granted, the date
the Performance Unit became vested or any other date specified by the Committee,
(ii) in the case of dollar-denominated Performance Units, the specified dollar
amount or (iii) a percentage (which may be more than 100%) of the amount
described in clause (i) or (ii) depending on the level of Performance Objective
attainment; PROVIDED, HOWEVER, that, the Committee may at the time a Performance
Unit is granted specify a maximum amount payable in respect of a vested
Performance Unit. Each Agreement shall specify the number of Performance Units
to which it relates, the Performance Objectives which must be satisfied in order
for the Performance Units to vest and the Performance Cycle within which such
Performance Objectives must be satisfied.
(a) VESTING AND FORFEITURE. Subject to Sections 8.3(c) and
8.4, a Grantee shall become vested with respect to the Performance Units to the
extent that the Performance Objectives set forth in the Agreement are satisfied
for the Performance Cycle.
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(b) PAYMENT OF AWARDS. Subject to Section 8.3(c), payment to
Grantees in respect of vested Performance Units shall be made as soon as
practicable after the last day of the Performance Cycle to which such Award
relates unless the Agreement evidencing the Award provides for the deferral of
payment, in which event the terms and conditions of the deferral shall be set
forth in the Agreement. Subject to Section 8.4, such payments may be made
entirely in Shares valued at their Fair Market Value, entirely in cash, or in
such combination of Shares and cash as the Committee in its discretion shall
determine at any time prior to such payment; PROVIDED, HOWEVER, that if the
Committee in its discretion determines to make such payment entirely or
partially in Shares of Restricted Stock, the Committee must determine the extent
to which such payment will be in Shares of Restricted Stock and the terms of
such Restricted Stock at the time the Award is granted.
8.2 PERFORMANCE SHARES. The Committee, in its discretion, may grant
Awards of Performance Shares to Eligible Individuals, the terms and conditions
of which shall be set forth in an Agreement between the Company and the Grantee.
Each Agreement may require that an appropriate legend be placed on Share
certificates. Awards of Performance Shares shall be subject to the following
terms and provisions:
(a) RIGHTS OF GRANTEE. The Committee shall provide at the time
an Award of Performance Shares is made the time or times at which the actual
Shares represented by such Award shall be issued in the name of the Grantee;
PROVIDED, HOWEVER, that no Performance Shares shall be issued until the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the Agreement
evidencing an Award of Performance Shares, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period prescribed by
the Committee at the time the Award is granted, the Award shall be null and
void. At the discretion of the Committee, Shares issued in connection with an
Award of Performance Shares shall be deposited together with the stock powers
with an escrow agent (which may be the Company) designated by the Committee.
Except as restricted by the terms of the Agreement, upon delivery of the Shares
to the escrow agent, the Grantee shall have, in the discretion of the Committee,
all of the rights of a stockholder with respect to such Shares, including the
right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.
(b) NON-TRANSFERABILITY. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 8.2(c) or 8.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be
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delivered to the Grantee. The Committee may also impose such other restrictions
and conditions on the Performance Shares, if any, as it deems appropriate.
(c) LAPSE OF RESTRICTIONS. Subject to Sections 8.3(c) and 8.4,
restrictions upon Performance Shares awarded hereunder shall lapse and such
Performance Shares shall become vested at such time or times and on such terms,
conditions and satisfaction of Performance Objectives as the Committee may, in
its discretion, determine at the time an Award is granted.
(d) TREATMENT OF DIVIDENDS. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on Shares represented by such Award which have been issued by
the Company to the Grantee shall be (i) deferred until the lapsing of the
restrictions imposed upon such Performance Shares and (ii) held by the Company
for the account of the Grantee until such time. In the event that dividends are
to be deferred, the Committee shall determine whether such dividends are to be
reinvested in shares of Stock (which shall be held as additional Performance
Shares) or held in cash. If deferred dividends are to be held in cash, there may
be credited at the end of each year (or portion thereof) interest on the amount
of the account at the beginning of the year at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends in
respect of Performance Shares (whether held in cash or in additional Performance
Shares), together with interest accrued thereon, if any, shall be made upon the
lapsing of restrictions imposed on the Performance Shares in respect of which
the deferred dividends were paid, and any dividends deferred (together with any
interest accrued thereon) in respect of any Performance Shares shall be
forfeited upon the forfeiture of such Performance Shares.
(e) DELIVERY OF SHARES. Upon the lapse of the restrictions on
Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares, free of
all restrictions hereunder.
8.3 PERFORMANCE OBJECTIVES
(a) ESTABLISHMENT. Performance Objectives for Performance
Awards may be expressed in terms of (i) earnings per Share, (ii) Share price,
(iii) pre-tax profits, (iv) net earnings, (v) return on equity or assets, (vi)
sales, (vii) any combination of the foregoing or (viii) prior to the end of the
Transition Period, such other criteria as the Committee may determine.
Performance Objectives may be in respect of the performance of the Company, any
of its Subsidiaries, any of its Divisions or any combination thereof.
Performance Objectives may be absolute or relative (to prior performance of the
Company or to the performance of one or more other entities or external indices)
and may be expressed in terms of a progression within a specified range.
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The Performance Objectives with respect to a Performance Cycle shall be
established in writing by the Committee by the earlier of (x) the date on which
a quarter of the Performance Cycle has elapsed or (y) the date which is ninety
(90) days after the commencement of the Performance Cycle, and in any event
while the performance relating to the Performance Objectives remain
substantially uncertain.
(b) EFFECT OF CERTAIN EVENTS. At the time of the granting of a
Performance Award, or at any time thereafter, in either case to the extent
permitted under Section 162(m) of the Code and the regulations thereunder
without adversely affecting the treatment of the Performance Award as
Performance-Based Compensation, the Committee may provide for the manner in
which performance will be measured against the Performance Objectives (or may
adjust the Performance Objectives) to reflect the impact of specified corporate
transactions, accounting or tax law changes and other extraordinary or
nonrecurring events.
(c) DETERMINATION OF PERFORMANCE. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award that is intended to constitute Performance-Based Compensation
made to a Grantee who is subject to Section 162(m) of the Code, the Committee
shall certify in writing that the applicable Performance Objectives have been
satisfied.
8.4 EFFECT OF CHANGE IN CONTROL. The Agreements evidencing
Performance Shares and Performance Units may provide for the treatment of such
Awards (or portions thereof) in the event of a Change in Control, including, but
not limited to, provisions for the adjustment of applicable Performance
Objectives.
8.5 NON-TRANSFERABILITY. Until the vesting of Performance Units or
the lapsing of any restrictions on Performance Shares, as the case may be, such
Performance Units or Performance Shares shall not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated.
9. OTHER SHARE BASED AWARDS.
9.1 SHARE AWARDS. The Committee may grant a Share Award to any
Eligible Individual on such terms and conditions as the Committee may determine
in its sole discretion. Share Awards may be made as additional compensation for
services rendered by the Eligible Individual or may be in lieu of cash or other
compensation to which the Eligible Individual is entitled from the Company.
9.2 PHANTOM STOCK AWARDS.
(a) GRANT. The Committee may, in its discretion, grant shares
of Phantom Stock to any Eligible Individuals. Such Phantom Stock shall be
subject to the
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terms and conditions established by the Committee and set forth in the
applicable Agreement.
(b) PAYMENT OF AWARDS. Upon the vesting of a Phantom Stock
Award, the Grantee shall be entitled to receive a cash payment in respect of
each share of Phantom Stock which shall be equal to the Fair Market Value of a
Share as of the date the Phantom Stock Award was granted, or such other date as
determined by the Committee at the time the Phantom Stock Award was granted. The
Committee may, at the time a Phantom Stock Award is granted, provide a
limitation on the amount payable in respect of each share of Phantom Stock. In
lieu of a cash payment, the Committee may settle Phantom Stock Awards with
Shares having a Fair Market Value equal to the cash payment to which the Grantee
has become entitled.
10. EFFECT OF A TERMINATION OF EMPLOYMENT.
The Agreement evidencing the grant of each Option and each Award
shall set forth the terms and conditions applicable to such Option or Award upon
a termination or change in the status of the employment of the Optionee or
Grantee by the Company, a Subsidiary or a Division (including a termination or
change by reason of the sale of a Subsidiary or a Division), which shall be as
the Committee may, in its discretion, determine at the time the Option or Award
is granted or thereafter.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Committee
shall conclusively determine the appropriate adjustments, if any, to (i) the
maximum number and class of Shares or other stock or securities with respect to
which Options or Awards may be granted under the Plan, (ii) the number and class
of Shares or other stock or securities which are subject to outstanding Options
or Awards granted under the Plan and the exercise price therefor, if applicable,
and (iii) the Performance Objectives.
(b) Any such adjustment in the Shares or other stock or
securities (i) subject to outstanding Incentive Stock Options (including any
adjustments in the exercise price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code, or (ii)
subject to outstanding Options or Awards that are intended to qualify as
Performance-Based Compensation shall be made in such a manner as not to
adversely affect the treatment of the Option or Award as Performance-Based
Compensation.
(c) If, by reason of a Change in Capitalization, a Grantee of
an Award shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities of the Company or any
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other corporation, such new, additional or different shares shall thereupon be
subject to all of the conditions, restrictions and performance criteria which
were applicable to the Shares subject to the Award or Option, as the case may
be, prior to such Change in Capitalization.
12. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Sections 5.10, 6.7, 7.4(b) and 8.4 or as otherwise
provided in an Agreement, in the event of (a) the liquidation or dissolution of
the Company or (b) a merger or consolidation of the Company (a "Transaction"),
the Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms, except that following a Transaction each
Optionee and Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Awards, as the case may be, upon exercise
of any Option or payment or transfer in respect of any Award, the same number
and kind of stock, securities, cash, property or other consideration that each
holder of a Share was entitled to receive in the Transaction in respect of a
Share; PROVIDED, HOWEVER, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Options and Awards prior to
such Transaction.
13. INTERPRETATION.
Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option, Stock Appreciation Right and Performance Award granted
under the Plan is intended to be Performance-Based Compensation. The Committee
shall not be entitled to exercise any discretion otherwise authorized hereunder
with respect to such Options or Awards if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to qualify as
Performance-Based Compensation.
(c) To the extent that any legal requirement of Section 16 of
the Exchange Act or Section 162(m) of the Code as set forth in the Plan ceases
to be required
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under Section 16 of the Exchange Act or Section 162(m) of the Code, that Plan
provision shall cease to apply.
14. POOLING TRANSACTIONS.
Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
the Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (a)
deferring the vesting, exercise, payment, settlement or lapsing of restrictions
with respect to any Option or Award, (b) providing that the payment or
settlement in respect of any Option or Award be made in the form of cash, Shares
or securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (c) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but not beyond the
maximum term permitted for any Option or Award.
15. TERMINATION AND AMENDMENT OF THE PLAN OR MODIFICATION OF OPTIONS AND
AWARDS.
15.1 PLAN AMENDMENT OR TERMINATION. The Plan shall terminate on the
day preceding the tenth anniversary of the date of its adoption by the Board and
no Option or Award may be granted thereafter. The Board may sooner terminate the
Plan and the Board may at any time and from time to time amend, modify or
suspend the Plan; PROVIDED, HOWEVER, that:
(a) no such amendment, modification, suspension or termination
shall impair or adversely alter any Options or Awards theretofore granted under
the Plan, except with the consent of the Optionee or Grantee, nor shall any
amendment, modification, suspension or termination deprive any Optionee or
Grantee of any Shares which he or she may have acquired through or as a result
of the Plan; and
(b) to the extent necessary under any applicable law,
regulation or exchange requirement no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law,
regulation or exchange requirement.
15.2 MODIFICATION OF OPTIONS AND AWARDS. No modification of an
Option or Award shall adversely alter or impair any rights or obligations under
the Option or Award without the consent of the Optionee or Grantee, as the case
may be.
16. NON-EXCLUSIVITY OF THE PLAN.
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The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
17. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(a) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company or any
Subsidiary to terminate the employment of any person at any time; or
(d) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
18. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
18.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.
18.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
18.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
18.4 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or
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<PAGE>
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or Award or the
issuance of Shares, no Options or Awards shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions as
acceptable to the Committee.
18.5 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option or Award granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended or have an appropriate legend placed thereon to reflect
their status as restricted securities as aforesaid.
19. MISCELLANEOUS.
19.1 MULTIPLE AGREEMENTS. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, either in addition
to, or in substitution for, one or more Options or Awards previously granted to
that Eligible Individual.
19.2 WITHHOLDING OF TAXES.
(a) At such times as an Optionee or Grantee recognizes taxable
income in connection with the receipt of Shares or cash hereunder (a "Taxable
Event"), the Optionee or Grantee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
Shares or the payment of such cash. The Company shall have the right to deduct
from any payment of cash to an Optionee or Grantee an amount equal to the
Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes.
The Committee may provide in an Agreement evidencing an Option
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<PAGE>
or Award at the time of grant or thereafter, that the Optionee or Grantee, in
satisfaction of the obligation to pay Withholding Taxes to the Company, may
elect to have withheld a portion of the Shares issuable to him or her pursuant
to the Option or Award having an aggregate Fair Market Value equal to the
Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
19.3 EFFECTIVE DATE. The effective date of this Plan shall be as
determined by the Board, subject only to the approval by the affirmative vote of
the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws within twelve (12) months of the adoption of
the Plan by the Board.
19.4 POST-TRANSITION PERIOD. Following the Transition Period, any
Option, Stock Appreciation Right or Performance Award granted under the Plan
which is intended to be Performance-Based Compensation, shall be subject to the
approval of the material terms of the Plan by a majority of the shareholders of
the Company in accordance with Section 162(m) of the Code and the regulations
promulgated thereunder.
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Exhibit 10.10
================================================================================
CREDIT AGREEMENT
among
THE YANKEE CANDLE COMPANY, INC.,
CERTAIN LENDERS,
NATIONSBANC MONTGOMERY SECURITIES LLC, as Syndication Agent
THE BANK OF NOVA SCOTIA, as Documentation Agent
BANKBOSTON, as Managing Agent
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of June ___, 1999
================================================================================
CHASE SECURITIES INC.,
as Arranger and Book Manager
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 22
SECTION 2. TERM LOANS 22
2.1 Term Loans 22
2.2 Repayment of Term Loans 22
2.3 Proceeds of Term Loans 23
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 23
3.1 Revolving Credit Commitments 23
3.2 Proceeds of Revolving Credit Loans 24
3.3 Issuance of Letters of Credit 24
3.4 Participating Interests 25
3.5 Procedure for Opening Letters of Credit 25
3.6 Payments in Respect of Letters of Credit 25
3.7 Swing Line Commitment 26
3.8 Participations 27
3.9 Closing Date Obligations 27
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT 27
4.1 Procedure for Borrowing by the Company 27
4.2 Repayment of Loans; Evidence of Debt 28
4.3 Conversion Options 29
4.4 Changes of Commitment Amounts 29
4.5 Optional Prepayments 30
4.6 Mandatory Prepayments 31
4.7 Interest Rates and Payment Dates 32
4.8 Computation of Interest and Fees 33
4.9 Commitment Fees 33
4.10 Certain Fees 33
4.11 Letter of Credit Fees 33
4.12 Letter of Credit Reserves 34
4.13 Further Assurances 35
4.14 Obligations Absolute 35
4.15 Assignments 36
4.16 Participations 36
4.17 Inability to Determine Interest Rate for
Eurodollar Loans 36
4.18 Pro Rata Treatment and Payments 37
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4.19 Illegality 39
4.20 Requirements of Law 39
4.21 Indemnity 41
SECTION 5. REPRESENTATIONS AND WARRANTIES 41
5.1 Corporate Existence; Compliance with Law 42
5.2 Corporate Power; Authorization 42
5.3 Enforceable Obligations 42
5.4 No Legal Bar 42
5.5 No Material Litigation 43
5.6 Investment Company Act 43
5.7 Federal Regulation 43
5.8 No Default 43
5.9 No Burdensome Restrictions 43
5.10 Taxes 43
5.11 Subsidiaries 44
5.12 Ownership of Property; Liens 44
5.13 ERISA 44
5.14 Environmental Matters 45
5.15 Financial Condition 45
5.16 Year 2000 46
SECTION 6. CONDITIONS PRECEDENT 46
6.1 Conditions to Initial Loans and Letters of Credit 46
6.2 Conditions to All Loans and Letters of Credit 48
SECTION 7. AFFIRMATIVE COVENANTS 49
7.1 Financial Statements 49
7.2 Certificates; Other Information 50
7.3 Payment of Obligations 51
7.4 Conduct of Business and Maintenance of Existence 51
7.5 Maintenance of Property; Insurance 52
7.6 Inspection of Property; Books and Records; Discussions 52
7.7 Notices 52
7.8 Additional Subsidiary Guarantors; Pledge of Stock
of Additional Subsidiaries 53
SECTION 8. NEGATIVE COVENANTS 54
8.1 Financial Covenants 54
8.2 Indebtedness 55
8.3 Limitation on Liens 56
8.4 Limitation on Contingent Obligations 57
8.5 Prohibition of Fundamental Changes 58
8.6 Prohibition on Sale of Assets 58
8.7 Limitation on Investments, Loans and Advances 59
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8.8 Capital Expenditures 60
8.9 Limitation on Dividends 61
8.10 Transactions with Affiliates 61
8.11 Derivative Contracts 61
8.12 Limitation on Sales and Leasebacks 62
8.13 Fiscal Year 62
SECTION 9. EVENTS OF DEFAULT 62
SECTION 10. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER 65
10.1 Appointment 65
10.2 Delegation of Duties 66
10.3 Exculpatory Provisions 66
10.4 Reliance by the Administrative Agent 66
10.5 Notice of Default 67
10.6 Non-Reliance on Administrative Agent and Other Lenders 67
10.7 Indemnification 67
10.8 Administrative Agent in its Individual Capacity 68
10.9 Successor Administrative Agent 68
10.10 Issuing Lender as Issuer of Letters of Credit 68
10.11 Other Agents 68
SECTION 11. MISCELLANEOUS 69
11.1 Amendments and Waivers 69
11.2 Notices 70
11.3 No Waiver; Cumulative Remedies 71
11.4 Survival of Representations and Warranties 71
11.5 Payment of Expenses and Taxes 71
11.6 Successors and Assigns; Participations;
Purchasing Lenders 73
11.7 Adjustments; Set-off 76
11.8 Counterparts 77
11.9 Integration 77
11.10 GOVERNING LAW; NO THIRD PARTY RIGHTS 77
11.11 SUBMISSION TO JURISDICTION; WAIVERS 77
11.12 Acknowledgments 78
SCHEDULES:
Schedule 1 Commitment Amounts
Schedule 1.1(C) NonSignificant Subsidiaries
Schedule 5.5 Litigation
Schedule 5.11(a) Domestic Subsidiaries
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Schedule 5.11(b) Foreign Subsidiaries
Schedule 8.2 Existing Indebtedness
Schedule 8.3 Existing Liens
Schedule 8.4 Contingent Obligations
Schedule 8.7 Investments, Loans and Advances
Schedule 8.10 Transactions with Affiliates
EXHIBITS:
Exhibit A-1 Form of Revolving Credit Note
Exhibit A-2 Form of Swing Line Note
Exhibit A-3 Form of Term Note
Exhibit B-1 Form of Company Pledge Agreement
Exhibit B-2 Form of Subsidiary Guarantee
Exhibit B-3 Form of Subsidiary Pledge Agreement
Exhibit C-1 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
Exhibit C-2 Form of Opinion of General Counsel
Exhibit D Form of Company Closing Certificate
Exhibit E Form of L/C Participation Certificate
Exhibit F Form of Refunded Swing Line Loan Participation Certificate
Exhibit G Form of Assignment and Acceptance
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<PAGE>
CREDIT AGREEMENT, dated as of June __, 1999, among THE YANKEE CANDLE
COMPANY, INC., a Massachusetts corporation (the "COMPANY"), the several lenders
from time to time parties hereto (the "LENDERS"), NATIONSBANC MONTGOMERY
SECURITIES LLC, as syndication agent (in such capacity, the "SYNDICATION
AGENT"), THE BANK OF NOVA SCOTIA, as documentation agent (in such capacity, the
"DOCUMENTATION AGENT") and BANKBOSTON, as managing agent (in such capacity, the
"MANAGING AGENT"), and THE CHASE MANHATTAN BANK, as administrative agent for the
Lenders and (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the Company has informed the Administrative Agent and the
Lenders that the Company intends to issue and sell shares of its common stock in
an initial public offering registered under the Securities Act of 1933, as
amended (the "IPO"); and
WHEREAS, in connection with the IPO, the Company has requested the
Lenders to enter into this Agreement to make loans and other extensions of
credit to be used, together with the proceeds of the IPO, to refinance certain
of the outstanding indebtedness of Company, to pay fees and expenses related to
the IPO and the other transactions contemplated hereby and to provide financing
for the working capital needs and general corporate purposes of the Company and
its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company, the Lenders and the Administrative Agent hereby
agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the terms defined in the
preamble or recitals hereto shall have the meanings set forth therein, and
the following terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean the
rate of interest per annum publicly announced from time to time by Chase
as its prime rate in effect at its principal office in New York City
(the Prime Rate not being intended to be the lowest rate of interest
charged by Chase in connection with extensions of credit to debtors);
"BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D
<PAGE>
Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for
any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit
of major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; and "FEDERAL
FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate, or both,
for any reason, including the inability or failure of the Administrative
Agent to obtain sufficient quotations in accordance with the terms
hereof, the ABR shall be determined without regard to clause (b) or (c),
or both, of the first sentence of this definition, as appropriate, until
the circumstances giving rise to such inability no longer exist. Any
change in the ABR due to a change in the Prime Rate, the Base CD Rate or
the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Base
CD Rate or the Federal Funds Effective Rate, respectively.
"ABR LOANS": Loans whose interest rate is based on the ABR.
"ACQUIRED BUSINESS": as defined in the definition of
"Consolidated EBITDA".
"ADJUSTMENT DATE": (a) the Closing Date and (b) the first
Business Day following receipt by the Administrative Agent of both (i)
the financial statements required to be delivered pursuant to subsection
7.1(a) or 7.1(b), as the case may be, for the most recently completed
fiscal period and (ii) the certificate required to be delivered pursuant
to subsection 7.2(b) with respect to such fiscal period.
"ADMINISTRATIVE AGENT": as defined in the preamble hereto.
"AFFILIATE": of any Person (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any
Person who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause (a)
above. For purposes of this definition, "control" of a Person shall mean
the power, direct or indirect,
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<PAGE>
either to (i) vote 10% or more of the securities having ordinary voting power
for theelection of directors of such Person, or (ii) direct or cause the
direction of the management and policies of such Person whether by contract
or otherwise.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"AGGREGATE REVOLVING CREDIT EXTENSIONS OF CREDIT": at any particular
time, the sum of (a) the aggregate then outstanding principal amount of the
Revolving Credit Loans, (b) the aggregate amount then available to be drawn
under all outstanding Letters of Credit and (c) the aggregate amount of
Revolving L/C Obligations.
"APB 16": Accounting Principles Board Opinion No. 16.
"APPLICABLE MARGIN": initially, the Applicable Margin set forth on Annex
A hereto opposite the Leverage Ratio of the Company in effect on the Closing
Date, PROVIDED that (i) subject to clauses (ii) and (iii) below, from and after
the first Adjustment Date occurring after the Closing Date the Applicable Margin
for all Loans will be adjusted, if required on each Adjustment Date, to the
Applicable Margin set forth on Annex A hereto opposite the Leverage Ratio Level
of the Company in effect on such Adjustment Date, (ii) on each Adjustment Date
prior to the Reset Date the Leverage Ratio shall be deemed for purposes of
determining the Applicable Margin not to be lower than Leverage Ratio Level II,
(iii) from and after the date which is the first Business Day following the date
which is six months after the Closing Date (the "RESET DATE") to the first
Adjustment Date occurring thereafter, the Applicable Margin for all Loans will
be adjusted, if required, to the Applicable Margin set forth on Annex A hereto
opposite the Leverage Ratio Level of the Company in effect on the Adjustment
Date which most recently preceded the Reset Date and (iv) in the event that the
financial statements required to be delivered pursuant to subsection 7.1(a)
or 7.1(b), as applicable, and the related certificate required pursuant to
subsection 7.2(b), are not delivered when due, then, during the period from
the date upon which such financial statements were required to be delivered
until one Business Day following the date upon which they actually are
delivered, Leverage Ratio Level I shall be deemed to be in effect for the
purposes of determining Applicable Margins during such period.
"ASSET SALE": any sale, sale-leaseback, assignment, conveyance, transfer
or other disposition by the Company or any Subsidiary thereof of any of its
property or assets, including the stock of any Subsidiary of the Company (except
sales, sale-leasebacks, assignments, conveyances, transfers and other
dispositions permitted (i) by clauses (a), (b), (c), (d) and (f) of subsection
8.6 and (ii) by subsection 8.12 only, in the case of this clause (ii), to the
extent of the first $10,000,000 thereunder).
"ASSIGNEE": as defined in subsection 11.6(c).
"ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance substantially
in the form of Exhibit G hereto.
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"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Lender, at a
particular time, an amount equal to the excess, if any, of (a) the amount of
such Lender's Revolving Credit Commitment at such time less (b) the sum of
(i) the aggregate unpaid principal amount at such time of all Revolving
Credit Loans made by such Lender pursuant to subsection 3.1, (ii) such
Lender's L/C Participating Interest in the aggregate amount available to be
drawn at such time under all outstanding Letters of Credit, (iii) such
Lender's Revolving Credit Commitment Percentage of the aggregate outstanding
amount of Revolving L/C Obligations and (iv) such Lender's Revolving Credit
Commitment Percentage of the aggregate unpaid principal amount at such time
of all Swing Line Loans, PROVIDED that for purposes of calculating Available
Revolving Credit Commitments pursuant to subsection 4.9, the amount referred
to in this clause (iv) shall be zero; collectively, as to all the Lenders,
the "AVAILABLE REVOLVING CREDIT COMMITMENTS".
"BENEFITTED LENDER": as defined in subsection 11.7 hereof.
"BOARD": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"BORROWING DATE": any Business Day, or, in the case of Eurodollar Loans,
any Working Day, specified in a notice pursuant to (a) subsection 3.7 or 4.1
as a date on which the Company requests Chase to make Swing Line Loans or the
Lenders to make Revolving Credit Loans hereunder or (b) subsection 3.5 as a
date on which the Company requests the Issuing Lender to issue a Letter of
Credit hereunder.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"CAPITAL EXPENDITURES": for any period, all amounts (other than those
arising from the acquisition or lease of businesses and assets which are
permitted by subsection 8.7) which are set forth on the Company and its
Subsidiaries' consolidated statement of cash flows for such period as the
"purchase of property, plant and equipment," in accordance with GAAP, consistent
with the Company's financial statements for the year ended December 31, 1998.
"CASH EQUIVALENTS": (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case (A) with any Lender, (B) with any domestic commercial
bank having capital and surplus in excess of $300,000,000 or (C) with Greenfield
Saving Bank or United Bank so long as, in the case of this clause (C), such
banks have assets in excess of $225,000,000, (iii) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (i) and (ii) entered into with any financial institution
meeting the qualifications specified in clause (ii) above, and (iv)
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commercial paper issued by any Lender, the parent corporation of any Lender
or any Subsidiary of such Lender's parent corporation, and commercial paper
rated A-1 or the equivalent thereof by Standard & Poor's Rating Group or P-1
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within six months after the date of acquisition thereof.
"C/D ASSESSMENT RATE": for any day as applied to any ABR Loan, the
net annual assessment rate (rounded upward to the nearest 1/100th of 1%)
determined by the Administrative Agent to be payable on such day to the
Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's
insuring time deposits made in Dollars at the offices of Chase in the United
States.
"C/D RESERVE PERCENTAGE": for any day as applied to any ABR Loan, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board) in respect of
new non-personal time deposits in Dollars having a maturity of 30 days or more.
"CHANGE IN LAW": with respect to any Lender, the adoption of any law,
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or any change therein or in the interpretation or application
thereof by any Governmental Authority, including, without limitation, the
issuance of any final rule, regulation or guideline by any regulatory agency
having jurisdiction over such Lender or, in the case of subsection 4.12(b) or
4.20(b), any corporation controlling such Lender.
"CHASE": The Chase Manhattan Bank.
"CLASSIC VEHICLES": classic automobiles owned by the Company and used
for public display only at the Company's South Deerfield, Massachusetts
location.
"CLOSING DATE": the date on which each of the conditions precedent to
the effectiveness of this Agreement contained in subsection 6.1 have been either
satisfied or waived, and the initial Loans are made hereunder, in accordance
with the terms and provisions of subsection 6.1.
"CODE": the Internal Revenue Code of 1986, as amended from time to time.
"COMMERCIAL L/C": a commercial documentary Letter of Credit under which
the relevant Issuing Lender agrees to make payments in Dollars for the account
of the Company, on behalf of the Company or any Subsidiary thereof, in respect
of obligations of the Company or any Subsidiary thereof in connection with the
purchase of goods or services in the ordinary course of business.
"COMMITMENT FEE RATE" .375%, PROVIDED that (i) from the Reset Date to
the first Adjustment Date occurring thereafter, the Commitment Fee Rate will be
adjusted, if required, to the Commitment Fee Rate set forth on Annex A hereto
opposite the Leverage
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Ratio Level of the Company in effect on the Adjustment Date which most
recently preceded the Reset Date, and (ii) thereafter, the Commitment Fee
Rate will be adjusted, if required on each Adjustment Date, to the Commitment
Fee Rate set forth on Annex A hereto opposite the Leverage Ratio Level of the
Company in effect on such Adjustment Date and PROVIDED further, that in the
event that the financial statements required to be delivered pursuant to
subsection 7.1(a) or 7.1(b), as applicable, and the related certificate
required pursuant to subsection 7.2(b), are not delivered when due, then,
during the period from the date upon which such financial statements were
required to be delivered until one Business Day following the date upon which
they actually are delivered, Leverage Ratio Level I shall be deemed to be in
effect for the purposes of determining the Commitment Fee Rate during such
period.
"COMMITMENT PERCENTAGE": with respect to any Lender its Term Loan
Commitment Percentage or its Revolving Credit Commitment Percentage, as the
context may require.
"COMMITMENT PERIOD": the period from and including the Closing Date to
but not including the Revolving Credit Termination Date.
"COMMITMENTS": the collective reference to the Revolving Credit
Commitments, the Swing Line Commitment and the Term Loan Commitments;
individually, a "COMMITMENT".
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of Section
4001 of ERISA or is part of a group which includes the Company and which is
treated as a single employer under Section 414 of the Code.
"COMPANY": as defined in the preamble hereto.
"COMPANY PLEDGE AGREEMENT": the Pledge Agreement made by the Company in
favor of the Administrative Agent, for the ratable benefit of the Lenders,
substantially in the form of Exhibit B-1, as the same may be amended,
supplemented or otherwise modified in accordance with its terms from time to
time (it being understood and agreed that, notwithstanding anything that may be
to the contrary herein, the Company Pledge Agreement shall not require the
Company to pledge (x) any of the outstanding capital stock of, or other equity
interests in, (i) any Non-Significant Subsidiary of the Company or (ii) any
Foreign Subsidiary of the Company which is owned by a Foreign Subsidiary of the
Company or, (y) more than 65% of the outstanding capital stock of, or other
equity interests in, (i) any other Foreign Subsidiary of the Company, or (ii)
any other Subsidiary of the Company if more than 65% of the assets of such
Subsidiary are securities of foreign Persons (such determination to be made on
the basis of fair market value).
"CONSOLIDATED CASH INTEREST EXPENSE": for any period, Consolidated
Interest Expense for such period less all amounts included in such Consolidated
Interest Expense which are not paid in cash.
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"CONSOLIDATED EBITDA": for any period, Consolidated Net Income ((i)
including earnings and losses from discontinued operations, (ii) excluding
extraordinary gains, and gains and losses arising from the proposed or actual
disposition of material assets, and (iii) excluding the non-cash portion of
other non-recurring losses) of the Company and its Subsidiaries for such
period, PLUS to the extent reflected as a charge in the statement of
consolidated net income for such period, the sum of (a) interest expense (net
of interest income but including, to the extent otherwise deducted in
calculating Consolidated Net Income, interest expense on the Subordinated
Debentures), amortization and write offs of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Letters of Credit, (b) taxes measured by income, (c) depreciation and
amortization expenses including acceleration thereof and including the
amortization of the increase in inventory resulting from the application of
APB 16 for transactions contemplated by this Agreement including Permitted
Acquisitions, (d) non-cash compensation expenses arising from or as a
consequence of the sale of stock, the granting of stock options, the granting
of stock appreciation rights and similar arrangements (e) any writedown or
loss from the sale of Classic Vehicles, (f) expenses or costs of split dollar
life insurance, (g) non-cash costs or expenses associated with deferred
compensation plans, (h) any costs or expenses associated with or in
connection with the reengineering or installation of new operational or
accounting systems which are required to be expensed under GAAP, (i) any
costs or expenses associated with or incurred in connection with the IPO and
the Refinancing, (j) the excess of the expense in respect of post-retirement
benefits and post-employment benefits accrued under Statement of Financial
Accounting Standards No. 106 ("FASB 106") and Statement of Financial
Accounting Standards No. 112 ("FASB 112") over the cash expense in respect of
such post-retirement benefits and post-employment benefits and (k) the excess
of the expenses in respect of rent accrued under the Statement of Financial
Accounting Standards No. 13 ("FASB 13") over the actual cash expenses
incurred in respect of such rent expenses. For purposes of subsection 8.1, if
the Company or any of its Subsidiaries acquires any business (an "ACQUIRED
BUSINESS") in a Permitted Acquisition during any period of four consecutive
fiscal quarters (a "ROLLING PERIOD"), Consolidated EBITDA for such Rolling
Period will be determined on a pro forma basis as if such Acquired Business
were acquired on the first day thereof. In determining the pro forma
adjustments to Consolidated EBITDA to be made with respect to any Acquired
Business for periods prior to the acquisition date thereof, actions taken by
the Company and its subsidiaries prior to the first anniversary of the
related acquisition date that result in cost savings with respect to such
Acquired Business will be deemed to have been taken on the first day of the
Rolling Period for which Consolidated EBITDA is being determined (with the
intent that such cost savings be effectively annualized by extrapolation from
the demonstrated cost savings since the related acquisition date). Such pro
forma adjustments will be subject to delivery to the Administrative Agent of
a certificate of a Responsible Officer of the Company; such certificate may
be delivered with respect to any Acquired Business at any time after the last
day of the first fiscal quarter of the Company to end after the related
acquisition date and may be delivered quarterly (but only once per fiscal
quarter with respect to each Acquired Business). Each such certificate shall
be accompanied by supporting information and calculations demonstrating the
actual cost savings with
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respect to such Acquired Business and such information as any Lender, through
the Administrative Agent, may reasonably request.
"CONSOLIDATED INTEREST EXPENSE": for any period, the amount of interest
expense, both expensed and capitalized (excluding amortization and write offs of
debt discount and debt issuance costs), net of interest income, of the Company
and its Subsidiaries, determined on a consolidated basis in accordance with
GAAP, for such period and excluding for purposes of Section 8.1 any interest
expense attributable to Indebtedness incurred or assumed in connection with
any acquisition of any business until the day following the end of the fiscal
quarter during which the acquisition occurred. For purposes of calculating
Consolidated Interest Expense for any period prior to the Closing Date
interest expense on the Subordinated Debentures shall be excluded. For the
purposes of determining Consolidated Interest Expense for the fiscal quarters
of the Company ending on the Saturday closest to September 30, 1999, December
31, 1999 and March 31, 2000, Consolidated Interest Expense for the relevant
period shall be deemed to equal Consolidated Interest Expense for such fiscal
quarter (and, in the case of the latter two such determinations, each
previous fiscal quarter commencing after the Closing Date) multiplied by 4, 2
and 4/3, respectively.
"CONSOLIDATED NET INCOME": for any period, the net income or net loss of
the Company and its Subsidiaries for such period, determined in accordance with
GAAP on a consolidated basis, as reflected in the financial statements furnished
to the Administrative Agent in accordance with subsections 7.1(a) and (b)
hereof.
"CONSOLIDATED TOTAL DEBT": at any date of determination, the principal
amount of all indebtedness of the Company and its consolidated Subsidiaries
outstanding in accordance with GAAP under this Agreement plus any other amounts,
without duplication, included in clause (a) of the definition of Indebtedness
(including any amounts drawn and unreimbursed under letters of credit)
outstanding at such date of determination, on a consolidated basis in accordance
with GAAP.
"CONTINGENT OBLIGATION": as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY
OBLIGOR") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
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determinable amount (based on the maximum reasonably anticipated net liability
in respect thereof as determined by the Company in good faith) of the primary
obligation or portion thereof in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reasonably anticipated net
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by the Company in good faith.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"CREDIT DOCUMENTS": the collective reference to this Agreement, the
Notes, the Pledge Agreements, the Guarantees and any guarantee executed and
delivered pursuant to the terms of subsection 7.8.
"CREDIT PARTIES": the collective reference to the Company and each
Subsidiary which is a party, or which at any time becomes a party, to a Credit
Document.
"DEFAULT": any of the events specified in Section 9, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Company other than a
Foreign Subsidiary.
"ENVIRONMENTAL LAWS": any and all applicable Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning human health or the
protection of the environment, including without limitation, Materials of
Environmental Concern, as now or may at any time hereafter be in effect.
"EP-V": Forstmann Little & Co. Equity Partnership-V, a Delaware limited
partnership.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day, as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal) of reserve requirements current on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto), as now and from time to time hereafter in effect, dealing
with reserve requirements prescribed for Eurocurrency
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funding (currently referred to as "Eurocurrency liabilities" in Regulation D
of such Board) maintained by a member bank of such System.
"EURODOLLAR BASE RATE": with respect to each day during any Interest
Period for any Eurodollar Loan, the rate per annum equal to the rate at which
Chase is offered Dollar deposits at or about 10:00 a.m., New York City time, two
Working Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the foreign currency and exchange operations in respect
of its Eurodollar Loans then are being conducted for delivery on the first day
of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"EURODOLLAR LENDING OFFICE": the office of each Lender which shall be
making or maintaining its Eurodollar Loans.
"EURODOLLAR LOANS": Loans at such time as they are made and/or being
maintained at a rate of interest based upon a Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for such
day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurodollar Base Rate
--------------------------------
1.00 - Eurocurrency Reserve Requirement
"EVENT OF DEFAULT": any of the events specified in Section 9, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"EXTENSIONS OF CREDIT": the collective reference to Loans made and
Letters of Credit issued under this Agreement.
"EXISTING CREDIT AGREEMENT": the Credit Agreement dated as of April 27,
1998 among the Company, Yankee Candle Holdings Corp., the banks and other
financial institutions party thereto and Chase, as administrative agent.
"FIXED CHARGE COVERAGE RATIO": as at the last day of any fiscal quarter
of the Company, the ratio of (a) the sum of Consolidated EBITDA plus Lease
Expense, in each case for the period of four fiscal quarters ending on such day
to (b) the sum of Consolidated Cash Interest Expense plus Lease Expense for the
period of four fiscal quarters ending on such day.
"FL AFFILIATE": any of FL & Co., MBO-VI, EP-V, FLC, FLC XXIX, the
partners of FL & Co., MBO-VI, EP-V, FLC or FLC XXIX on the Closing Date, any
subordinated debt and equity partnership controlled by FL & Co., MBO-VI, EP-V,
FLC or FLC XXIX, any equity partnership controlled by FL & Co., MBO-VI, EP-V,
FLC or FLC XXIX, any Affiliate of FL & Co., MBO-VI, EP-V, FLC or FLC XXIX, any
directors, executive
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officers or other employees or other members of the management of the Company
or any Subsidiary of any thereof (or any "associate" (as defined in Rule 405
under the Securities Act of 1933, as amended) of any thereof or employee
benefit plan beneficially owned by any thereof) on the Closing Date, or any
combination of the foregoing.
"FL & CO.": FLC XXXI, a New York limited partnership, doing business as
"Forstmann Little & Co.," the general partners of which are FLC Partnership,
L.P., a New York limited partnership ("FLC"), and FLC XXIX, a New York general
partnership ("FLC XXIX"), and the limited partner of which is FLC XXIX.
"FOREIGN SUBSIDIARY": any Subsidiary of the Company (a) which is
organized under the laws of any jurisdiction outside the United States (within
the meaning of Section 7701(a)(9) of the Code), or (b) whose principal assets
consist of capital stock or other equity interests of one or more Persons which
conduct the major portion of their business outside the United States (within
the meaning of Section 7701(a)(9) of the Code).
"GAAP": generally accepted accounting principles in the United States of
America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTEE": the collective reference to the Subsidiary Guarantees.
"HOLDINGS LIQUIDATION": the liquidation of Yankee Candle Holdings Corp.
before the IPO.
"INDEBTEDNESS": of any Person, at any particular date, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade payables or liabilities
and deferred payment for services to employees or former employees incurred in
the ordinary course of business and payable in accordance with customary
practices and other deferred compensation arrangements), (b) the face amount of
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (c) all liabilities (other than lease
obligations) secured by any Lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof, (d) lease
obligations of such Person which, in accordance with GAAP, should be capitalized
and (e) all indebtedness of such Person arising under acceptance facilities; but
excluding (y) customer deposits and interest payable thereon in the ordinary
course of business and (z) trade and other accounts and accrued expenses payable
in the ordinary course of business in accordance with customary trade terms and
in the case of both clauses (y) and (z) above, which are not overdue for a
period of more than 90 days or, if overdue for more than 90 days, as to
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which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person.
"INSOLVENCY": with respect to a Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of such term as used in Section 4245
of ERISA.
"INTEREST PAYMENT DATE": (a) as to ABR Loans, the last day of each
March, June, September and December, commencing on the first such day to occur
after any ABR Loans are made or any Eurodollar Loans are converted to ABR Loans,
(b) as to any Eurodollar Loan in respect of which the Company has selected an
Interest Period of one, two or three months, the last day of such Interest
Period, (c) as to any Eurodollar Loan in respect of which the Company has
selected an Interest Period of six months, the day which is three months after
the date on which such Eurodollar Loan is made or an ABR Loan is converted to
such a Eurodollar Loan, and the last day of such Interest Period, (d) in the
case of any Term Loan, when such Loan is paid in full and (e) in the case of
Revolving Credit Loans, on the Revolving Credit Termination Date.
"INTEREST PERIOD": with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan
and ending one, two, three or six months thereafter as selected by the
Company in its notice of borrowing as provided in subsection 4.1 or its
notice of conversion as provided in subsection 4.3; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter as selected by the
Company by irrevocable notice to the Administrative Agent not less than
three Working Days prior to the last day of the then current Interest
Period with respect to such Eurodollar Loan;
PROVIDED that the foregoing provisions relating to Interest Periods are subject
to the following:
(A) if any Interest Period would otherwise end on a day which is
not a Working Day, that Interest Period shall be extended to the next
succeeding Working Day, unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Working Day;
(B) any Interest Period with respect to any Revolving Credit
Loan that would otherwise extend beyond the Revolving Credit Termination
Date shall end on the Revolving Credit Termination Date or, if the
Revolving Credit Termination Date shall not be a Working Day, on the
next preceding Working Day;
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(C) if the Company shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an ABR Loan (which conversion shall occur
automatically and without need for compliance with the conditions for
conversion set forth in subsection 4.3);
(D) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Working Day of a calendar month; and
(E) the Company shall select Interest Periods so as not to
require a prepayment (to the extent practicable) or a scheduled payment
of a Eurodollar Loan during an Interest Period for such Eurodollar Loan.
"IPO": as defined in the Recitals hereto.
"ISSUING LENDER": any of Chase or Chase Manhattan Bank (Delaware), as
issuer of Letters of Credit.
"L/C APPLICATION": a letter of credit application in the Issuing
Lender's then customary form for the type of letter of credit requested.
"L/C PARTICIPATING INTEREST": an undivided participating interest in the
face amount of each issued and outstanding Letter of Credit and the L/C
Application relating thereto.
"L/C PARTICIPATION CERTIFICATE": a certificate in substantially the form
of Exhibit E hereto.
"LEASE EXPENSE": of the Company and its Subsidiaries, for any period,
the aggregate amount of rents actually paid in cash during such period by the
Company and its Subsidiaries for such period with respect to leases of real
and personal property, determined on a consolidated basis, excluding however,
obligations under leases which are classified as Indebtedness under clause
(d) of the definition of Indebtedness.
"LENDERS": as defined in the preamble hereto.
"LETTER OF CREDIT": a letter of credit issued by an Issuing Lender
pursuant to the terms of subsection 3.3.
"LEVERAGE RATIO": at any date, the ratio of Consolidated Total Debt at
such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on such date.
"LEVERAGE RATIO LEVEL": the existence of Leverage Ratio Level I,
Leverage Ratio Level II, Leverage Ratio Level III or Leverage Ratio Level IV, as
the case may be.
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"LEVERAGE RATIO LEVEL I": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is greater than or equal to 3.75 to 1.00.
"LEVERAGE RATIO LEVEL II": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 3.75 to 1.00 but greater than or equal to 3.00 to
1.00.
"LEVERAGE RATIO LEVEL III": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 3.00 to 1.00 but greater than or equal to 2.00 to
1.00.
"LEVERAGE RATIO LEVEL IV": shall exist on an Adjustment Date if the
Leverage Ratio for the period of four consecutive fiscal quarters ending on the
last day of the period covered by the financial statements relating to such
Adjustment Date is less than 2.00 to 1.00.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing, except for the filing of financing statements in
connection with lease obligations incurred by the Company or its Subsidiaries to
the extent that such financing statements relate to the property subject to such
lease obligations).
"LOANS": the collective reference to the Term Loans, the Revolving
Credit Loans and the Swing Line Loans; individually, a "LOAN".
"MATERIAL ADVERSE EFFECT": a material adverse effect on the business,
financial condition, assets or results of operations of the Company and its
Subsidiaries taken as a whole.
"MATERIAL SUBSIDIARIES": any Subsidiary of the Company, other than (i)
any Foreign Subsidiary of the Company, (ii) any Subsidiary of the Company if
more than 65% of the assets of such Subsidiaries are securities of foreign
Persons (such determination to be made on the basis of fair market value) and
(iii) any Non-Significant Subsidiary of the Company.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in, or which form the basis of liability under, any Environmental Law,
including, without limitation, asbestos,
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polychlorinated biphenyls and urea-formaldehyde insulation, medical waste,
radioactive materials and electromagnetic fields.
"MBO-VI": Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VI, L.P., a Delaware limited partnership.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS": (a) when used with respect to any Asset Sale, the
aggregate cash proceeds received by the Company or any Subsidiary of the Company
in respect of any Asset Sale, and any cash payments received in respect of
promissory notes or other non-cash consideration delivered to the Company or
such Subsidiary in respect of an Asset Sale (subject to the limitations set
forth in subsection 8.7(i), net of (without duplication) (i) the reasonable
expenses (including legal fees and brokers' and underwriters' commissions paid
to third parties which are not Affiliates or Subsidiaries of the Company)
incurred in effecting such Asset Sale, (ii) any taxes reasonably attributable to
such Asset Sale and, in case of an Asset Sale in a foreign jurisdiction, any
taxes reasonably attributable to the repatriation of the proceeds of such Asset
Sale reasonably estimated by the Company or such Subsidiary to be actually
payable, (iii) any amounts payable to a Governmental Authority triggered as a
result of any such Asset Sale, (iv) any Indebtedness or Contractual Obligation
of the Company and its Subsidiaries (other than the Loans and other Obligations)
required to be paid or retained in connection with such Asset Sale and (v) the
aggregate amount of reserves required in the reasonable judgment of the Company
or such Subsidiary to be maintained on the books of the Company or such
Subsidiary in order to pay contingent liabilities with respect to such Asset
Sale; PROVIDED that amounts deducted from aggregate proceeds pursuant to clause
(v) and not actually paid by the Company or any of its Subsidiaries in
liquidation of such contingent liabilities shall be deemed to be Net Proceeds
and shall be applied in accordance with subsection 4.6 at such time as such
contingent liabilities shall cease to be obligations of the Company or any of
its Subsidiaries; and (b) when used with respect to the incurrence of
Indebtedness, the aggregate cash proceeds received by the Company or any
Subsidiary of the Company in respect of such Indebtedness less the aggregate
amount of any reasonable underwriter's commissions and discounts, placement
agency fees and expenses, financial advisory fees and expenses, accounting and
legal fees and expenses, and other fees and expenses, in each case relating
to, and payable at the closing of, the transaction or transactions resulting
in such cash proceeds.
"NON-SIGNIFICANT SUBSIDIARY": at any time, any Subsidiary of the Company
which at such time has total assets (including the total assets of any
Subsidiaries), or for which the Company or any of its Subsidiaries shall have
paid (including the assumption of Indebtedness) in connection with the
acquisition of capital stock (or other equity interests) or the total assets of
such Subsidiary, less than $2,000,000 and which is listed on Schedule 1.1(C)
hereto (or on any updates to such Schedule subsequently furnished by the Company
to the Administrative Agent) as a "Non-Significant Subsidiary" of the Company,
provided that the total assets of all Non-Significant Subsidiaries at any time
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does not exceed 5% of the total assets of the Company and its Subsidiaries on a
consolidated basis.
"NON-U.S. LENDER": as defined in subsection 4.18(e) hereof.
"NOTES": the collective reference to the Revolving Credit Notes, the
Swing Line Note and the Term Loan Notes; one of the Notes, a "NOTE".
"OBLIGATIONS": the unpaid principal of and interest on the Loans and all
other obligations and liabilities of the Company to the Administrative Agent or
any Lender (and in the case of any interest rate, currency or similar swap and
hedging arrangements entered into with any Affiliate of a Lender, such
Affiliates) (including, without limitation, interest accruing after the maturity
of the Loans and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, related to the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Loans, the other Credit Documents, any Letter of Credit or L/C
Application, any agreements between the Company and any Lender relating to
interest rate, currency or similar swap and hedging arrangements permitted
pursuant to subsection 8.11 or any other document made, delivered or given in
connection therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without limitation,
all fees and disbursements of counsel to the Administrative Agent or any Lender
or any such Affiliate) or otherwise.
"PARTICIPANTS": as defined in subsection 11.6(b).
"PARTICIPATING LENDER": any Lender (other than the Issuing Lender with
respect to such Letter of Credit) with respect to its L/C Participating Interest
in each Letter of Credit.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (or any successor).
"PERMITTED ACQUISITIONS": non-hostile acquisitions (by merger, purchase,
lease (including any lease that contains up front payments and/or buyout
options) or otherwise) by the Company or any of its Subsidiaries of any of
the assets of, or shares of the capital stock of or other equity interests
in, a Person or division or line of business of a Person engaged in a similar
line of business to that of the Company and its Subsidiaries or in a related
business, PROVIDED that immediately after giving effect thereto: (1) at least
80% of the outstanding capital stock or other equity interests of any
acquired or newly formed corporation or other entity that acquires or leases
such Person, division or line of business is owned directly by the Company or
a Domestic Subsidiary; (2) any such capital stock or other equity interests
owned directly by the Company or a Domestic Subsidiary are duly and validly
pledged to the Administrative Agent for the ratable benefit of the Lenders
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(other than any capital stock of, or other equity interests in, any
Non-Significant Subsidiary or Foreign Subsidiary of the Company or any other
Subsidiary of the Company that is not required to be so pledged pursuant to
the definition of "Company Pledge Agreement" or "Subsidiary Pledge Agreement"
or pursuant to subsection 7.8(c)); (3) the Company causes any such
corporation or other entity to comply with subsection 7.8 hereof, if
subsection 7.8 is applicable; (4) any such corporation or other entity is not
liable for and the Company and its Subsidiaries do not assume any
Indebtedness (except for Indebtedness permitted pursuant to subsection 8.2);
and (5) no Default or Event of Default shall have occurred and be continuing
and the Company shall have delivered to the Administrative Agent an officers'
certificate to such effect, together with all relevant financial information
for such corporation or other entity or acquired assets.
"PERMITTED USES OF PROCEEDS": to consummate the Refinancing, to finance
the working capital needs and general corporate purposes of the Company,
including, without limitation, to finance capital expenditures, to finance
receivables and inventory and to finance the importing of goods and to fund
reimbursement obligations under Letters of Credit and for the purposes described
in subsection 2.3.
"PERSON": an individual, partnership, corporation, business trust, joint
stock company, trust, limited liability company, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"PLAN": any pension plan which is covered by Title IV of ERISA and in
respect of which the Company or a Commonly Controlled Entity is an "employer" as
defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENTS": the collective reference to the Company Pledge
Agreement and the Subsidiary Pledge Agreement.
"PLEDGED NOTES": as defined in the Pledge Agreements.
"PLEDGED STOCK": as defined in the Pledge Agreements.
"PRO FORMA BALANCE SHEET": as defined in subsection 5.15(a).
"PROPERTIES": each parcel of real property currently or previously owned
or operated by the Company or any Subsidiary of the Company.
"REFINANCING": the collective reference to (i) the refinancing of
existing indebtedness of the Company under the Existing Credit Agreement,
(ii) the refinancing of the Subordinated Debentures and (iii) the payment of
fees and expenses in connection with the foregoing, the IPO and the
transactions contemplated thereby.
"REFUNDED SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate in
substantially the form of Exhibit F hereto.
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"REFUNDED SWING LINE LOANS": as defined in subsection 3.7(b).
"REGISTER": as defined in subsection 11.6(e).
"REGISTRATION STATEMENT": the Registration Statement No. 333-76397 on
Form S-1, filed by the Company with the Securities and Exchange Commission on
April 16, 1999, as such Registration Statement may be amended from time to time.
"REGULATION T": Regulation T of the Board, as from time to time in
effect.
"REGULATION U": Regulation U of the Board, as from time to time in
effect.
"REGULATION X": Regulation X of the Board, as from time to time in
effect.
"RELATED DOCUMENT": any agreement, certificate, document or instrument
relating to a Letter of Credit.
"RELEASE LENDERS": at a particular time Lenders that hold Term Loans and
Revolving Credit Commitments (or if the Revolving Credit Commitments have been
cancelled (w) the aggregate then outstanding principal amount of the Revolving
Credit Loans, (x) the L/C Participating Interests in the aggregate amount then
available to be drawn under all outstanding Letters of Credit, (y) the aggregate
then outstanding principal amount of Revolving L/C Obligations and (z) the
aggregate amount represented by the agreements of the Lenders in subsections
3.7(b) and (d) with respect to the Swing Line Loans then outstanding or the
Swing Line Loan Participation Certificates then outstanding) in an aggregate
principal amount equal to at least 75% of the sum of the aggregate unpaid
principal amount of the Term Loans and the aggregate Revolving Credit
Commitment at such time (or if the Revolving Credit Commitments have been
cancelled (w) the aggregate then outstanding principal amount of the
Revolving Credit Loans, (x) the L/C Participating Interests in the aggregate
amount then available to be drawn under all outstanding Letters of Credit,
(y) the aggregate then outstanding principal amount of Revolving L/C
Obligations and (z) the aggregate amount represented by the agreements of the
Lenders in subsections 3.7(b) and (d) with respect to the Swing Line Loans
then outstanding or the Swing Line Loan Participation Certificates then
outstanding).
"REORGANIZATION": with respect to a Multiemployer Plan, the condition
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"REPURCHASE LIMIT" : as defined in subsection 8.9.
"REQUIRED LENDERS": at a particular time Lenders that hold Term Loans
and Revolving Credit Commitments (or if the Revolving Credit Commitments have
been cancelled (i) the aggregate then outstanding principal amount of the
Revolving Credit
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Loans, (ii) the L/C Participating Interests in the aggregate amount then
available to be drawn under all outstanding Letters of Credit, (iii) the
aggregate then outstanding principal amount of Revolving L/C Obligations and
(iv) the aggregate amount represented by the agreements of the Lenders in
subsections 3.7(b) and (d) with respect to the Swing Line Loans then
outstanding or the Swing Line Loan Participation Certificates then
outstanding) in an aggregate principal amount equal to at least 51% of the
sum of the aggregate unpaid principal amount of the Term Loans and the
aggregate Revolving Credit Commitment at such time (or if the Revolving
Credit Commitments have been cancelled (i) the aggregate then outstanding
principal amount of the Revolving Credit Loans, (ii) the L/C Participating
Interests in the aggregate amount then available to be drawn under all
outstanding Letters of Credit, (iii) the aggregate then outstanding principal
amount of Revolving L/C Obligations and (iv) the aggregate amount represented
by the agreements of the Lenders in subsections 3.7(b) and (d) with respect
to the Swing Line Loans then outstanding or the Swing Line Loan Participation
Certificates then outstanding).
"REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation (including, without limitation,
Environmental Laws) or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"RESET DATE": as defined in the definition of "Applicable Margin".
"RESPONSIBLE OFFICER": the chief executive officer or the chief
operating officer of the Company or, with respect to financial matters, the
chief financial officer or controller of the Company.
"RESTRICTED PAYMENTS": as defined in subsection 8.9.
"REVOLVING CREDIT COMMITMENT": as to any Lender, its obligations to make
Revolving Credit Loans to the Company pursuant to subsection 3.1, and to
purchase its L/C Participating Interest in any Letter of Credit in an
aggregate amount not to exceed at any time the amount set forth opposite such
Lender's name in Schedule 1 under the heading "Revolving Credit Commitment"
and in an aggregate amount not to exceed at any time the amount equal to such
Lender's Revolving Credit Commitment Percentage of the aggregate Revolving
Credit Commitments, as the aggregate Revolving Credit Commitments may be
reduced or adjusted from time to time pursuant to this Agreement;
collectively, as to all the Lenders, the "REVOLVING CREDIT COMMITMENTS".
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Lender at any
time, the percentage which such Lender's Revolving Credit Commitment
constitutes of all of the Revolving Credit Commitments (or, if the Revolving
Credit Commitments shall have been terminated, the percentage of the
outstanding Aggregate Revolving Credit Extensions of Credit and Swing Line
Loans constituted by such Lender's Aggregate Revolving Credit Extensions of
Credit and participating interest in Swing Line Loans).
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"REVOLVING CREDIT LOAN" and "REVOLVING CREDIT LOANS": as defined in
subsection 3.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 4.2(e).
"REVOLVING CREDIT TERMINATION DATE": June ___, 2004.
"REVOLVING L/C OBLIGATIONS": the obligations of the Company to
reimburse the Issuing Lender for any payments made by an Issuing Lender under
any Letter of Credit that have not been reimbursed by the Company pursuant to
subsection 3.6.
"ROLLING PERIOD": as defined in the definition of "Consolidated EBITDA".
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"STANDBY L/C": an irrevocable standby or direct pay Letter of Credit
under which the Issuing Lender agrees to make payments in Dollars for the
account of the Company on behalf of the Company or any Subsidiary thereof, in
respect of obligations of the Company or a Subsidiary thereof incurred pursuant
to contracts made or performance undertaken, or to be undertaken, or like
matters relating to contracts to which the Company or a Subsidiary thereof is or
proposes to become a party in the ordinary course of the Company's or such
Subsidiary's business, including, without limitation, for insurance purposes or
in respect of advance payments or as bid or performance bonds.
"SUBORDINATED DEBENTURES": the collective reference to the Company's (i)
6-3/4% Series A Debentures due May 31, 2009, in the aggregate principal amount
of $106,666,666, (ii) 6-3/4% Series B Debentures due May 31, 2010, in the
aggregate principal amount of $106,666,668 and (c) 6-3/4% Series C Debentures
due May 31, 2011, in the aggregate principal amount of $106,666,668.
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of capital stock or other equity interests having
ordinary voting power (other than capital stock or other equity interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, directly or indirectly, or the management of
which is otherwise controlled, directly or indirectly, or both, by such Person.
"SUBSIDIARY GUARANTEE": the Subsidiary Guarantee to be executed by each
Subsidiary Guarantor in favor of the Administrative Agent, for the ratable
benefit of the Lenders, substantially in the form of Exhibit B-4 hereto, as the
same may be amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY GUARANTOR": any Subsidiary which enters into a Subsidiary
Guarantee pursuant to subsection 7.8(a) or (b) (it being understood and
agreed that, subject to subsection 7.8(b), (i) no Foreign Subsidiary of the
Company, (ii) no other Subsidiary of
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the Company if more than 65% of the assets of such Subsidiary are securities
of foreign Persons (such determination to be made on the basis of fair market
value) and (iii) no Non-Significant Subsidiary shall, in any case, enter into
a Subsidiary Guarantee pursuant to subsection 7.8(a)).
"SUBSIDIARY PLEDGE AGREEMENT": any Pledge Agreement made by any Material
Subsidiary in favor of the Administrative Agent, for the ratable benefit of the
Lenders, substantially in the form of Exhibit B-2, as the same may be amended,
supplemented or otherwise modified from time to time (it being understood and
agreed that, notwithstanding anything that may be to the contrary herein, the
Subsidiary Pledge Agreement shall not require any Material Subsidiary to pledge
(x) any of the outstanding capital stock of, or other equity interests in any
(i) Non-Significant Subsidiary of the Company or (ii) any Foreign Subsidiary of
the Company which is owned by a Foreign Subsidiary of the Company or, (y) more
than 65% of the outstanding capital stock of, or other equity interest in, (i)
any other Foreign Subsidiary of the Company, or (ii) any other Subsidiary of the
Company if more than 65% of the assets of such Subsidiary are securities of
foreign Persons (such determination to be made on the basis of fair market
value)).
"SWING LINE COMMITMENT": Chase's obligation to make Swing Line Loans
pursuant to subsection 3.7.
"SWING LINE LOAN" and "SWING LINE LOANS": as defined in subsection
3.7(a).
"SWING LINE NOTE": as defined in subsection 4.2(e).
"TERM INSTALLMENT PAYMENT DATE": as defined in subsection 2.2.
"TERM LOAN" and "TERM LOANS": as defined in subsection 2.1.
"TERM LOAN COMMITMENT": as to any Lender, its obligations to make Term
Loans to the Company pursuant to subsection 2.1 in an aggregate amount not to
exceed the amount set forth opposite such Lender's name in Schedule 1 under
the heading "Term Loan Commitment", as the same may be reduced from time to
time pursuant to this Agreement; collectively, as to all the Lenders, the
"TERM LOAN COMMITMENTS".
"TERM LOAN COMMITMENT PERCENTAGE": as to any Lender, at any time, the
percentage which such Lender's outstanding Term Loans constitute of all of the
Term Loans then outstanding.
"TERM NOTE" and "TERM NOTES": as defined in subsection 4.2.
"TYPE": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
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"UNIFORM CUSTOMS": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500 (or any successor publication), as the same may be
amended from time to time.
"U.S. TAXES": any tax, assessment, or other charge or levy
and any liabilities with respect thereto, including any penalties,
additions to tax, fines or interest thereon, imposed by or on behalf of
the United States or any taxing authority thereof.
"WORKING DAY": any day on which dealings in foreign currencies
and exchange between banks may be carried on in London, England and in
New York, New York.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, any other Credit Document or any certificate or other
document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit Document and any
certificate or other document made or delivered pursuant hereto, accounting
terms relating to the Company and its Subsidiaries not defined in subsection and
accounting terms partly defined in subsection 1.1 to the extent not defined,
shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms.
SECTION 2. TERM LOANS
2.1 TERM LOANS. Subject to the terms and conditions hereof, each Lender
severally agrees to make the term loans in Dollars (individually, a "TERM LOAN";
and collectively, the "TERM LOANS") to the Company on the Closing Date in an
aggregate principal amount not to exceed such Lender's Term Loan Commitment.
2.2 REPAYMENT OF TERM LOANS. The Company shall repay the Term Loans in
19 consecutive quarterly installments on the last day of each March, June,
September and December (each such day, a "TERM INSTALLMENT PAYMENT DATE"),
commencing on December 31, 1999, each of which installments on any such date
shall be the amount set forth opposite such date below (or such earlier date on
which the Term Loans become due and payable hereunder):
Installment Date Amount
---------------- ------
December 31, 1999 $7,500,000
March 31, 2000 7,500,000
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June 30, 2000 7,500,000
September 30, 2000 7,500,000
December 31, 2000 7,500,000
March 31, 2001 7,500,000
June 30, 2001 7,500,000
September 30, 2001 7,500,000
December 31, 2001 7,500,000
March 31, 2002 7,500,000
June 30, 2002 8,000,000
September 30, 2002 8,000,000
December 31, 2002 8,000,000
March 31, 2003 8,000,000
June 30, 2003 8,000,000
September 30, 2003 8,000,000
December 31, 2003 8,000,000
March 31, 2004 9,500,000
Revolving Credit Termination Date 9,500,000
2.3 PROCEEDS OF TERM LOANS. The Company shall use the proceeds of
the Term Loans (a) to refinance the Company's Subordinated Debentures, (b) to
refinance the obligations of the Company outstanding under the Existing
Credit Agreement, and (c) for the payment of fees and expenses in connection
with the IPO, the Refinancing and the transactions contemplated hereby and
thereby.
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
3.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Lender agrees to extend credit, in an aggregate
amount not to exceed such Lender's Revolving Credit Commitment, to the
Company from time to time on any Borrowing Date during the Commitment Period
by purchasing an L/C Participating Interest in each Letter of Credit issued
by the Issuing Lender and by making loans to the Company ("REVOLVING CREDIT
LOANS") from time to time. Notwithstanding the foregoing, in no event shall
(i) any Revolving Credit Loan or Swing Line Loan be made, or any Letter of
Credit be issued, if, after giving effect to such making or issuance and the
use of proceeds thereof as irrevocably directed by the Company, the sum of
the Aggregate Revolving Credit Extensions of Credit and the aggregate
outstanding principal amount of the Swing Line Loans would exceed the
aggregate Revolving Credit Commitments or if subsection 3.7 would be violated
thereby or (ii) any Revolving Credit Loan or Swing Line Loan be made, or any
Letter of Credit be issued, if the amount of such Loan to be made or any
Letter of Credit to be issued would, after giving effect to the use of
proceeds, if any, thereof, exceed the Available Revolving Credit Commitments.
During the Commitment Period, the Company may use the Revolving Credit
Commitments by borrowing, prepaying the Revolving Credit Loans or Swing Line
Loans in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof, and/or by having the Issuing Lenders issue Letters of
Credit, having such Letters of Credit expire undrawn upon or if drawn upon,
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reimbursing the relevant Issuing Lender for such drawing, and having the
Issuing Lenders issue new Letters of Credit.
(b) Each borrowing of Revolving Credit Loans pursuant to the Revolving
Credit Commitments shall be in an aggregate principal amount of the lesser of
(i)(A) $1,000,000, or a whole multiple of $1,000,000 in excess thereof, in the
case of ABR Loans or, as applicable, or (B) $3,000,000, or a whole multiple of
$1,000,000 in excess thereof, in the case of Eurodollar Loans and (ii) the
Available Revolving Credit Commitments, except that any borrowing of a Revolving
Credit Loan to be used solely to pay a like amount of Swing Line Loans may be in
the aggregate principal amount of such Swing Line Loans.
3.2 PROCEEDS OF REVOLVING CREDIT LOANS. The Company shall use the
proceeds of Revolving Credit Loans solely for (a) Permitted Uses of Proceeds,
(b) making payments to the Issuing Lender to reimburse the Issuing Lender for
drawings made under the Letters of Credit, (c) repaying Swing Line Loans, (d)
financing the general working capital needs of the Company or any of its
Subsidiaries, and (e) other general corporate purposes of the Company or any
of its Subsidiaries, including, without limitation, to finance the purchase
price of Permitted Acquisitions and pay related fees and expenses, all in
accordance with the terms and conditions hereof.
3.3 ISSUANCE OF LETTERS OF CREDIT. (a) The Company may from time to
time request any Issuing Lender to issue a Letter of Credit, which may be
either a Standby L/C or a Commercial L/C, by delivering to the Administrative
Agent at its address specified in subsection 11.2 and the Issuing Lender an
L/C Application completed to the satisfaction of the Issuing Lender, together
with the proposed form of the Letter of Credit (which shall comply with the
applicable requirements of paragraph (b) below) and such other certificates,
documents and other papers and information as the Issuing Lender may
reasonably request; PROVIDED that if the Issuing Lender informs the Company
that it is for any reason unable to open such Letter of Credit, the Company
may request another Lender to open such Letter of Credit upon the same terms
offered to the initial Issuing Lender and if such other Lender agrees to
issue such Letter of Credit each reference to the Issuing Lender for purposes
of the Credit Documents shall be deemed to be a reference to such Lender.
(b) Each Letter of Credit issued hereunder shall, among other things,
(i) be in such form requested by the Company as shall be acceptable to the
Issuing Lender in its sole discretion and (ii) have an expiry date, in the case
of each Standby L/C, occurring not later than the earlier of (w) 365 days after
the date of issuance of such Standby L/C (provided, however, that at the request
of the Company and upon the consent, in its sole discretion, of the Issuing
Lender issuing such Standby L/C, such date may be up to 560 days after the date
of issuance of such Standby L/C) and (x) the Revolving Credit Termination Date,
and, in the case of each Commercial L/C, occurring not later than the earlier of
(y) 180 days after the date of issuance of such Commercial L/C (provided,
however, that at the request of the Company and upon the consent, in its sole
discretion, of the Issuing Lender issuing such Commercial L/C, such date may be
up to 360 days after the date of issuance of such Commercial L/C) and (z) the
Revolving Credit Termination Date. Each L/C Application and each Letter of
Credit shall be subject to the
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Uniform Customs and, to the extent not inconsistent therewith, the laws of
the State of New York.
(c) Letters of Credit issued under the Existing Credit Agreement and
outstanding on the Closing Date shall be deemed to be Letters of Credit issued
hereunder on the Closing Date.
3.4 PARTICIPATING INTERESTS. Effective in the case of each Letter of
Credit opened by the Issuing Lender as of the date of the opening thereof, the
Issuing Lender agrees to allot and does allot, to itself and each other Lender,
and each Lender severally and irrevocably agrees to take and does take in such
Letter of Credit and the related L/C Application, an L/C Participating Interest
in a percentage equal to such Lender's Revolving Credit Commitment Percentage.
3.5 PROCEDURE FOR OPENING LETTERS OF CREDIT. Upon receipt of any L/C
Application from the Company in respect of a Letter of Credit, the Issuing
Lender will promptly notify the Administrative Agent thereof. The Issuing Lender
will process such L/C Application, and the other certificates, documents and
other papers delivered to the Issuing Lender in connection therewith, upon
receipt thereof in accordance with its customary procedures and, subject to the
terms and conditions hereof, shall promptly open such Letter of Credit by
issuing the original of such Letter of Credit to the beneficiary thereof and
by furnishing a copy thereof to the Company; PROVIDED that no such Letter of
Credit shall be issued (a) if the amount of such requested Letter of Credit,
together with the sum of (i) the aggregate unpaid amount of Revolving L/C
Obligations outstanding at the time of such request and (ii) the maximum
aggregate amount available to be drawn under all Letters of Credit
outstanding at such time, would exceed $15,000,000 or (b) if subsection 3.1
would be violated thereby.
3.6 PAYMENTS IN RESPECT OF LETTERS OF CREDIT. (a) The Company agrees
forthwith upon demand by the Issuing Lender and otherwise in accordance with the
terms of the L/C Application relating thereto (i) to reimburse the Issuing
Lender, through the Administrative Agent, for any payment made by the Issuing
Lender under any Letter of Credit and (ii) to pay interest on any unreimbursed
portion of any such payment from the date of such payment until reimbursement in
full thereof at a rate per annum equal to (A) prior to the date which is one
Business Day after the day on which the Issuing Lender demands reimbursement
from the Company for such payment, the ABR plus the Applicable Margin for
Revolving Credit Loans which are ABR Loans and (B) on such date and thereafter,
the ABR plus the Applicable Margin for Revolving Credit Loans which are ABR
Loans plus 2%.
(b) In the event that the Issuing Lender makes a payment under any
Letter of Credit and is not reimbursed in full therefor forthwith upon demand of
the Issuing Lender, and otherwise in accordance with the terms of the L/C
Application relating to such Letter of Credit, the Issuing Lender will promptly
notify each other Lender with a Revolving Credit Commitment through the
Administrative Agent. Forthwith upon its receipt of any such notice, each other
Lender with a Revolving Credit Commitment will transfer to the Issuing Lender,
through the Administrative Agent, in immediately available funds, an amount
equal to such other Lender's PRO RATA share of the Revolving L/C Obligation
arising from such unreimbursed payment. Upon its receipt from such other Lender
of such amount and a request of such Lender, the Issuing
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Lender will complete, execute and deliver to such other Lender an L/C
Participation Certificate dated the date of such receipt and in such amount.
(c) Whenever, at any time after the Issuing Lender has made a payment
under any Letter of Credit and has received from any other Lender such other
Lender's PRO RATA share of the Revolving L/C Obligation arising therefrom, the
Issuing Lender receives any reimbursement on account of such Revolving L/C
Obligation or any payment of interest on account thereof, the Issuing Lender
will distribute to such other Lender, through the Administrative Agent, its PRO
RATA share thereof in like funds as received (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Lender's participating interest was outstanding and funded); PROVIDED that, in
the event that the receipt by the Issuing Lender of such reimbursement or such
payment of interest (as the case may be) is required to be returned, such other
Lender will return to the Issuing Lender, through the Administrative Agent, any
portion thereof previously distributed by the Issuing Lender to it in like funds
as such reimbursement or payment is required to be returned by the Issuing
Lender.
3.7 SWING LINE COMMITMENT. (a) Subject to the terms and conditions
hereof, Chase agrees to make swing line loans (individually, a "SWING LINE
LOAN"; collectively, the "SWING LINE LOANS") to the Company from time to time
during the Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed $10,000,000; PROVIDED that at no time may the sum
of the aggregate outstanding principal amount of the Swing Line Loans and the
Aggregate Revolving Credit Extensions of Credit exceed the Revolving Credit
Commitments. Amounts borrowed by the Company under this subsection may be
repaid and, through but excluding the Revolving Credit Termination Date,
reborrowed. The Swing Line Loans shall be ABR Loans, and shall not be
entitled to be converted into Eurodollar Loans. The Company shall give Chase
irrevocable notice (which notice must be received by Chase prior to 12:00
Noon, New York City time) on the requested Borrowing Date specifying the
amount of each requested Swing Line Loan, which shall be in the minimum
amount of $500,000. The proceeds of each Swing Line Loan will be made
available by Chase to the Company by crediting the account of the Company at
Chase with such proceeds. The proceeds of Swing Line Loans may be used solely
for the Permitted Uses of Proceeds.
(b) Chase at any time in its sole and absolute discretion may, and on
the thirtieth day (or if such day is not a Business Day, the next Business Day)
after the Borrowing Date with respect to any Swing Line Loans shall, on behalf
of the Company (which hereby irrevocably directs Chase to act on its behalf),
request each Lender, including Chase, to make a Revolving Credit Loan (which
shall be initially an ABR Loan) in an amount equal to such Lender's Revolving
Credit Commitment Percentage of the amount of such Swing Line Loans (the
"REFUNDED SWING LINE LOANS") outstanding on the date such notice is given.
Unless any of the events described in paragraph (f) of Section 9 shall have
occurred (in which event the procedures of paragraph (c) of this subsection
shall apply), each Lender shall make the proceeds of its Revolving Credit Loan
available to Chase for the account of Chase at the office of Chase located at
270 Park Avenue, New York, New York 10017 prior to 12:00 Noon (New York City
time) in funds immediately available on the Business Day next succeeding the
date such notice is given. The proceeds of such Revolving Credit Loans shall be
immediately applied to repay the Refunded Swing Line Loans.
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(c) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (b) of this subsection one of the events described in paragraph (f)
of Section 9 shall have occurred, each Lender will, on the date such Loan
would otherwise have been made, purchase an undivided participating interest
in the Refunded Swing Line Loans in an amount equal to its Revolving Credit
Commitment Percentage of such Refunded Swing Line Loans. Each Lender will
immediately transfer to Chase, in immediately available funds, the amount of
its participation and upon receipt thereof Chase will deliver to such Lender
a Refunded Swing Line Loan Participation Certificate dated the date of
receipt of such funds and in such amount.
(d) Whenever, at any time after Chase has received from any Lender such
Lender's participating interest in a Swing Line Loan, Chase receives any payment
on account thereof, Chase will distribute to such Lender its participating
interest in such amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Lender's participating
interest was outstanding and funded) in like funds as received; PROVIDED,
HOWEVER, that in the event that such payment received by Chase is required to be
returned, such Lender will return to Chase any portion thereof previously
distributed by Chase to it in like funds as such payment is required to be
returned by Chase.
3.8 PARTICIPATIONS. Each Lender's obligation to purchase participating
interests pursuant to subsection 3.4 and clauses (b) and (c) of subsection 3.7
is absolute and unconditional as set forth in subsection 4.16.
3.9 CLOSING DATE OBLIGATIONS. The aggregate principal amount of
Revolving Credit Loans and the maximum aggregate amount available to be drawn
under the Letters of Credit issued on the Closing Date shall not exceed
$100,000,000 in the aggregate on the Closing Date.
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
4.1 PROCEDURE FOR BORROWING BY THE COMPANY. (a) The Company may
borrow under the Commitments on any Working Day, if the borrowing is of
Eurodollar Loans, or on any Business Day, if the borrowing is of ABR Loans.
With respect to the borrowings to take place on the Closing Date, the Company
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 10:00 A.M., New York City time,
on the Closing Date). With respect to any subsequent borrowings, the Company
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 12:00 Noon, New York City time,
(i) three Working Days prior to the requested Borrowing Date if all or any
part of the Loans are to be Eurodollar Loans and (ii) one Business Day prior
to the requested Borrowing Date if the borrowing is to be solely of ABR
Loans) specifying (A) the amount of the borrowing, (B) whether such Loans are
initially to be Eurodollar Loans or ABR Loans, or a combination thereof and
(C) if the borrowing is to be entirely or partly Eurodollar Loans, the length
of the Interest Period for such Eurodollar Loans. Upon receipt of such notice
the Administrative Agent shall promptly notify each Lender (which notice shall
in
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any event be delivered to each Lender by 4:00 P.M., New York City time, on
such date). Not later than 12:00 Noon, New York City time, on the Borrowing
Date specified in such notice, each Lender shall make available to the
Administrative Agent at the office of the Administrative Agent specified in
subsection 11.2 (or at such other location as the Administrative Agent may
direct) an amount in immediately available funds equal to the amount of the
Loan to be made by such Lender. Subject to subsection 3.7(b) and any
irrevocable direction of the Company pursuant to subsection 3.1(a), loan
proceeds received by the Administrative Agent hereunder shall promptly be
made available to the Company by the Administrative Agent's crediting the
account of the Company, at the office of the Administrative Agent specified
in subsection 11.2, with the aggregate amount actually received by the
Administrative Agent from the Lenders and in like funds as received by the
Administrative Agent.
(b) Any borrowing of Eurodollar Loans by the Company hereunder shall be
in such amounts and be made pursuant to such elections so that, after giving
effect thereto, (i) the aggregate principal amount of all Eurodollar Loans
having the same Interest Period shall not be less than $3,000,000, or a whole
multiple of $1,000,000 in excess thereof, and (ii) no more than ten Interest
Periods shall be in effect at any one time.
4.2 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Company hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Revolving Credit Loan of
such Lender on the Revolving Credit Termination Date (or such earlier date on
which the Revolving Credit Loans become due and payable pursuant to Section 9)
and (ii) the principal amount of the Term Loan of such Lender, in accordance
with the applicable amortization schedule set forth in subsection 2.2 (or the
then unpaid principal amount of such Term Loans, on the date that any or all
of the Term Loans become due and payable pursuant to Section 9). The Company
hereby further agrees to pay interest on the unpaid principal amount of the
Loans from time to time outstanding from the date hereof until payment in
full thereof at the rates per annum, and on the dates, set forth in
subsection 4.7.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Loan of 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.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 11.6(e), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Company to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Company and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 4.2(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Company therein recorded; PROVIDED, HOWEVER, that the
failure of any Lender or the Administrative Agent to maintain the
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Register or any such account, or any error therein, shall not in any manner
affect the obligation of the Company to repay (with applicable interest) the
Loans made to such Company by such Lender in accordance with the terms of
this Agreement.
(e) The Company agrees that, upon the request to the Company and the
Administrative Agent by any Lender, the Company will execute and deliver to such
Lender (i) a promissory note of the Company evidencing the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A-1 with appropriate
insertions as to date and principal amount (a "REVOLVING CREDIT NOTE"), (ii) a
promissory note of the Company evidencing the Swing Line Loans of such Lender,
substantially in the form of Exhibit A-2 with appropriate insertions as to date
and principal amount (a "SWING LINE NOTE") and (iii) a promissory note of the
Company evidencing the Term Loans of such Lender, substantially in the form of
Exhibit A-3 with appropriate insertions as to date and principal amount (a "TERM
NOTE").
4.3 CONVERSION OPTIONS. The Company may elect from time to time to
convert Eurodollar Loans into ABR Loans by giving the Administrative Agent
irrevocable notice of such election, to be received by the Administrative Agent
prior to 12:00 Noon, New York City time, at least three Working Days prior to
the proposed conversion date, PROVIDED that any such conversion of Eurodollar
Loans shall only be made on the last day of an Interest Period with respect
thereto. The Company may elect from time to time to convert all or a portion of
the ABR Loans (other than Swing Line Loans) then outstanding to Eurodollar Loans
by giving the Administrative Agent irrevocable notice of such election, to be
received by the Administrative Agent prior to 12:00 Noon, New York City time, at
least three Working Days prior to the proposed conversion date, specifying the
Interest Period selected therefor, and, if no Default or Event of Default has
occurred and is continuing, such conversion shall be made on the requested
conversion date or, if such requested conversion date is not a Working Day, on
the next succeeding Working Day. Upon receipt of any notice pursuant to this
subsection 4.3, the Administrative Agent shall promptly, but in any event by
4:00 P.M., New York City time, notify each Lender thereof. All or any part of
the outstanding Loans (other than Swing Line Loans) may be converted as
provided herein, PROVIDED that partial conversions of Loans shall be in the
aggregate principal amount of $1,000,000 in the case of ABR Loans and
$3,000,000 in the case of Eurodollar Loans, or a whole multiple of $1,000,000
in excess of either thereof, and the aggregate principal amount of the
resulting Eurodollar Loans outstanding in respect of any one Interest Period
shall be at least $3,000,000 or a whole multiple of $1,000,000 in excess
thereof.
4.4 CHANGES OF COMMITMENT AMOUNTS. (a) The Company shall have the right,
upon not less than three Business Days' notice to the Administrative Agent, to
terminate or, from time to time, reduce the Revolving Credit Commitments subject
to the provisions of this subsection 4.4. To the extent, if any, that the sum of
the amount of the Revolving Credit Loans, Swing Line Loans, and Revolving L/C
Obligations then outstanding and the amounts available to be drawn under
outstanding Letters of Credit exceeds the amount of the Revolving Credit
Commitments as then reduced, the Company shall be required to make a prepayment
equal to such excess amount, the proceeds of which shall be applied FIRST, to
payment of the Swing Line Loans then outstanding, SECOND, to payment of the
Revolving Credit Loans then outstanding, THIRD, to payment of any Revolving L/C
Obligations then outstanding, and LAST, to cash collateralize any outstanding
Letters of Credit on terms reasonably satisfactory to the
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Administrative Agent. Any such termination of the Revolving Credit
Commitments shall be accompanied by prepayment in full of the Revolving
Credit Loans, Swing Line Loans and Revolving L/C Obligations then outstanding
and by cash collateralization of any outstanding Letter of Credit on terms
reasonably satisfactory to the Administrative Agent. Upon termination of the
Revolving Credit Commitments, any Letter of Credit then outstanding which has
been so cash collateralized shall no longer be considered a "Letter of
Credit", as defined in subsection 1.1 and any L/C Participating Interests
heretofore granted by the Issuing Lender to the Lenders in such Letter of
Credit shall be deemed terminated (subject to automatic reinstatement in the
event that such cash collateral is returned and the Issuing Lender is not
fully reimbursed for any such L/C Obligations) but the Letter of Credit fees
payable under subsection 4.11 shall continue to accrue to the Issuing Lender
(or, in the event of any such automatic reinstatement, as provided in
subsection 4.11) with respect to such Letter of Credit until the expiry
thereof.
(b) Interest accrued on the amount of any partial prepayment pursuant to
this subsection 4.4 to the date of such partial prepayment shall be paid on the
Interest Payment Date next succeeding the date of such partial prepayment. In
the case of the termination of the Revolving Credit Commitments, interest
accrued on the amount of any prepayment relating thereto and any unpaid
commitment fee accrued hereunder shall be paid on the date of such termination.
Any such partial reduction of the Revolving Credit Commitments shall be in an
amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof, and
shall reduce permanently the Revolving Credit Commitments then in effect.
4.5 OPTIONAL PREPAYMENTS. The Company may at any time and from time to
time prepay Loans, in whole or in part, without premium or penalty, upon at
least one Business Days' irrevocable notice to the Administrative Agent in the
case of ABR Loans and two Working Days' irrevocable notice to the Administrative
Agent in the case of Eurodollar Loans and specifying the date and amount of
prepayment and whether the prepayment is of Revolving Credit Loans or Term
Loans; PROVIDED that Eurodollar Loans prepaid on other than the last day of any
Interest Period with respect thereto shall be prepaid subject to the provisions
of subsection 4.21. Upon receipt of such notice the Administrative Agent shall
promptly notify each Lender thereof. If such notice is given, the Company shall
make such prepayment, and the payment amount specified in such notice shall be
due and payable, on the date specified therein. Accrued interest on any Notes or
on the amount of any Loans paid in full pursuant to this subsection 4.5 shall be
paid on the date of such prepayment. Accrued interest on the amount of any
partial prepayment shall be paid on the Interest Payment Date next succeeding
the date of such partial prepayment (or in the case of prepayment in full of
Term Loans, on the date of such payment). Partial prepayments (i) of Term
Loans shall be in an aggregate principal amount equal to the lesser of (A)
$2,500,000 or a whole multiple of $1,000,000 in excess thereof and (B) the
aggregate unpaid principal amount of the Term Loans, as the case may be, and
(ii) of Revolving Credit Loans shall be in an aggregate principal amount
equal to the lesser of (A) $2,500,000 or a whole multiple of $1,000,000 in
excess thereof and (B) the aggregate unpaid principal amount of the Revolving
Credit Loans, as the case may be. Except as otherwise may be agreed by the
Company and the Required Lenders, any prepayment of the Term Loans pursuant
to this subsection 4.5 shall be applied, FIRST, to the installments of the
Term Loans scheduled to be paid during the next twelve months after the date
of such prepayment and SECOND the balance, if any, to the remaining
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installments of the Term Loans on a PRO RATA basis. Amounts prepaid on
account of the Term Loans pursuant to this subsection 4.5 or otherwise may not
be reborrowed.
4.6 MANDATORY PREPAYMENTS. (a) Within five days following the incurrence
of any Indebtedness by the Company or any of its Subsidiaries (other than
Indebtedness of the Company or any of its Subsidiaries permitted to be issued
under subsection 8.2), an amount equal to 100% of the Net Proceeds of such
Indebtedness shall, unless the Company and the Required Lenders otherwise agree,
be applied by the Company to prepay the Term Loans in the manner set forth in
subsection 4.6(g).
(b) Within five days following the consummation of any Asset Sale by the
Company or any of its Subsidiaries, in the case of cash proceeds, and following
receipt of cash proceeds representing payments under notes or other securities
received in connection with any non-cash consideration obtained in connection
with such Asset Sale, an amount equal to 100% of the Net Proceeds of such Asset
Sale shall, unless the Company and the Required Lenders otherwise agree, be
applied by the Company to the prepayment of the Term Loans in accordance with
subsection 4.6(g).
(c) Upon receipt by the Administrative Agent of the amounts required to
be paid pursuant to paragraph (b) above or (f) below from any Asset Sale
consisting of the sale of all of the shares of capital stock of any Subsidiary
Guarantor (or, upon receipt by the Company or its Subsidiaries of such amounts
as are permitted to be retained in accordance with clause (e) of this subsection
4.6), (1) the obligations of such Subsidiary Guarantor under its Guarantee shall
automatically be discharged and released without any further action by the
Administrative Agent or any Lender, and (2) the Administrative Agent and the
Lenders will, upon the request of the Company, execute and deliver any
instrument or other document in a form acceptable to the Administrative Agent
which may reasonably be required to evidence such discharge and release.
(d) Upon receipt by the Administrative Agent of the amounts required to
be paid pursuant to paragraph (b) above or (f) below from any Asset Sale
consisting of the sale of shares of capital stock of any Subsidiary Guarantor or
any Subsidiary of the Company (or, upon receipt by the Company or its
Subsidiaries of such amounts as are permitted to be retained in accordance with
clause (e) of this subsection 4.6), (1) the Administrative Agent shall release
to the Company, without representation, warranty or recourse, express or
implied, those of such shares of capital stock of such Subsidiary Guarantor
or Subsidiary held by it as Pledged Stock (as defined in the Company Pledge
Agreement) and (2) the Administrative Agent and the Lenders will, upon the
request of the Company, execute and deliver any instrument or other document
in a form acceptable to the Administrative Agent which may reasonably be
required to evidence such release.
(e) Notwithstanding anything to the contrary contained in this
subsection 4.6, so long as no Default or Event of Default has occurred or is
continuing or would result therefrom, the Company may elect, by notice to the
Administrative Agent, to retain, without compliance with respect thereto with
any of the provisions of this subsection 4.6, up to $10,000,000 in the
aggregate of Net Proceeds after the Closing Date which the Company would
otherwise be
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required to apply to the prepayments of the Term Loans, and the Term Loans
need not be repaid by such amount.
(f) The Company shall give the Administrative Agent (which shall
promptly notify each Lender) at least one Business Day's notice of each
prepayment pursuant to this subsection 4.6 setting forth the date and amount
thereof. Prepayments of Eurodollar Loans pursuant to this subsection 4.6, if not
on the last day of the Interest Period with respect thereto, shall, at the
Company's option, as long as no Default or Event of Default has occurred and is
continuing, be prepaid subject to the provisions of subsection 4.21 or such
prepayment (after application to any ABR Loans) shall be deposited with the
Administrative Agent as cash collateral for such Eurodollar Loans on terms
reasonably satisfactory to the Administrative Agent and thereafter shall be
applied to the prepayment of the Term Loans constituting Eurodollar Loans on the
last day of the respective Interest Periods for such Eurodollar Loans next
ending most closely to the date of receipt of such prepayment. After such
application, unless a Default or an Event of Default shall have occurred and be
continuing, any remaining interest earned on such cash collateral shall be paid
to the Company.
(g) Any prepayment of the Term Loans pursuant to this subsection 4.6
shall be applied, first, to the installments of the Term Loans scheduled to be
paid during the next twelve months after the date of such prepayment and second,
the balance, if any, to the remaining installments of the Term Loans on a PRO
RATA basis. Amounts prepaid on account of the Term Loans pursuant to this
subsection 4.6 or otherwise may not be reborrowed. Accrued interest on any Term
Loans prepaid pursuant to this subsection 4.6 shall be paid on the Interest
Payment Date next succeeding the date of any partial prepayment and on the
date of such payment or prepayment in the case of a payment or prepayment in
full of the Term Loans.
(h) Upon the Revolving Credit Termination Date the Company shall, with
respect to each then outstanding Letter of Credit, if any, either (i) cause such
Letter of Credit to be cancelled without such Letter of Credit being drawn upon
or (ii) collateralize the Revolving L/C Obligations with respect to such Letter
of Credit with a letter of credit issued by banks or a bank satisfactory to the
Administrative Agent on terms satisfactory to the Administrative Agent.
4.7 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto
on the unpaid principal amount thereof at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable
Margin.
(b) ABR Loans shall bear interest for the period from and including the
date thereof until maturity thereof on the unpaid principal amount thereof at a
rate per annum equal to the ABR plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any of the
Loans or (ii) any interest payable thereon shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall, without limiting the rights of the Lenders under Section 9,
bear interest at a rate per annum which is (x) in the case of overdue
principal, 2% above the rate that would otherwise be applicable thereto
pursuant to the foregoing
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provisions of this subsection or (y) in the case of overdue interest, 2%
above the rate described in paragraph (b) of this subsection for Revolving
Credit Loans, in each case from the date of such nonpayment until such amount
is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date;
PROVIDED that interest accruing pursuant to paragraph (c) of this subsection
shall be payable on demand by the Administrative Agent made at the request of
the Required Lenders.
4.8 COMPUTATION OF INTEREST AND FEES. (a) Interest in respect of ABR
Loans at any time the ABR is calculated based on the Prime Rate and all fees
hereunder shall be calculated on the basis of a 365 or 366, as the case may
be, day year for the actual days elapsed. Interest in respect of Eurodollar
Loans and ABR Loans at any time the ABR is not calculated based on the Prime
Rate shall be calculated on the basis of a 360 day year for the actual days
elapsed. The Administrative Agent shall as soon as practicable notify the
Company and the Lenders of each determination of a Eurodollar Rate. Any
change in the interest rate on a Loan resulting from a change in the ABR
shall become effective as of the opening of business on the day on which such
change in the ABR becomes effective. The Administrative Agent shall as soon
as practicable notify the Company and the Lenders of the effective date and
the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company and the Lenders in the absence of manifest error. The Administrative
Agent shall, at the request of the Company, deliver to the Company a statement
showing the quotations used by the Administrative Agent in determining the
Eurodollar Rate.
4.9 COMMITMENT FEES. The Company shall pay to the Administrative Agent,
for the account of each Revolving Credit Lender, a commitment fee from and
including the Closing Date but excluding the Revolving Credit Termination Date
on the average daily Available Revolving Credit Commitment of such Revolving
Credit Lender outstanding from time to time at a rate per annum equal to the
Commitment Fee Rate. The commitment fee provided for in this subsection 4.9
shall be payable quarterly in arrears on the last day of each fiscal quarter and
on the Revolving Credit Termination Date with respect to the Available Revolving
Credit Commitment.
4.10 CERTAIN FEES. The parties hereto acknowledge and agree that the
Company has agreed to pay to Chase the fees set forth in the letter agreement
dated as of April 13, 1999 between the Company, Chase and Chase Securities Inc.
The parties hereto acknowledge and agree that the Company's only obligation is
to pay such fees to Chase in accordance with the terms of such letter agreement
and the Company is not liable or otherwise obligated to the other Lenders to pay
such fees or any other fees (except those set forth in this Agreement).
4.11 LETTER OF CREDIT FEES. (a) In lieu of any letter of credit
commissions and fees provided for in any L/C Application relating to Letters
of Credit (other than standard administrative issuance, amendment and
negotiation fees), the Company agrees to pay the Administrative Agent a
Letter of Credit fee, for the account of the Issuing Lender and the
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Participating Lenders (i) with respect to each Standby L/C, on the average
outstanding amount available to be drawn under each Standby L/C at a rate per
annum equal to the Applicable Margin for Eurodollar Loans, on the last day of
each fiscal quarter of the Company and on the Revolving Credit Termination
Date and (ii) with respect to each Commercial L/C, on the date such
Commercial L/C is issued, equal to the Applicable Margin for Eurodollar Loans
of the face amount of such Commercial L/C.
In addition, the Company shall pay to the Issuing Lender, (i) with
respect to each Standby L/C, in arrears on the last day of each fiscal quarter
of the Company and on the Termination Date with respect to the Revolving Credit
Commitments, a fee equal to 1/4% per annum on the average outstanding amount
available to be drawn under such Standby L/C, solely for its own account as
Issuing Lender of such Standby L/C and not on account of its L/C Participating
Interest therein and (ii) with respect to each Commercial L/C, on the date such
Commercial L/C is issued, a fee equal to 1/4% on the aggregate face amount of
such Commercial L/C, solely for its own account as Issuing Lender of such
Commercial L/C and not on account of its L/C Participating Interest therein.
(b) In connection with any payment of fees pursuant to this
subsection 4.11, the Administrative Agent agrees to provide to the Company a
statement of any such fees so paid; PROVIDED that the failure by the
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
4.12 LETTER OF CREDIT RESERVES. (a) If any Change in Law after the
date of this Agreement shall either (i) impose, modify, deem or make
applicable any reserve, special deposit, assessment or similar requirement
against letters of credit issued by the Issuing Lender or (ii) impose on the
Issuing Lender any other condition regarding this Agreement or any Letter of
Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost to the Issuing Lender of issuing or maintaining
any Letter of Credit (which increase in cost shall be the result of the
Issuing Lender's reasonable allocation of the aggregate of such cost
increases resulting from such events), then, upon demand by the Issuing
Lender, the Company shall immediately pay to the Issuing Lender, from time to
time as specified by the Issuing Lender, additional amounts which shall be
sufficient to compensate the Issuing Lender for such increased cost, together
with interest on each such amount from the date demanded until payment in
full thereof at a rate per annum equal to the ABR plus the Applicable Margin
for Revolving Credit ABR Loans. A certificate submitted by the Issuing Lender
to the Company concurrently with any such demand by the Issuing Lender, shall
be conclusive, absent manifest error, as to the amount thereof.
(b) In the event that at any time after the date hereof any Change in
Law with respect to the Issuing Lender shall, in the opinion of the Issuing
Lender, require that any obligation under any Letter of Credit be treated as an
asset or otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by the Issuing Lender or any corporation
controlling the Issuing Lender, and such Change in Law shall have the effect of
reducing the rate of return on the Issuing Lender's or such corporation's
capital, as the case may be, as a consequence of the Issuing Lender's
obligations under such Letter of Credit to a level
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below that which the Issuing Lender or such corporation, as the case may be,
could have achieved but for such Change in Law (taking into account the
Issuing Lender's or such corporation's policies, as the case may be, with
respect to capital adequacy) by an amount deemed by the Issuing Lender to be
material, then from time to time following notice by the Issuing Lender to
the Company of such Change in Law, within 15 days after demand by the Issuing
Lender, the Company shall pay to the Issuing Lender such additional amount or
amounts as will compensate the Issuing Lender or such corporation, as the
case may be, for such reduction. If the Issuing Lender becomes entitled to
claim any additional amounts pursuant to this subsection 4.12(b), it shall
promptly notify the Company of the event by reason of which it has become so
entitled. A certificate submitted by the Issuing Lender to the Company
concurrently with any such demand by the Issuing Lender, shall be conclusive,
absent manifest error, as to the amount thereof.
(c) The Company agrees that the provisions of the foregoing paragraphs
(a) and (b) and the provisions of each L/C Application providing for
reimbursement or payment to the Issuing Lender in the event of the imposition or
implementation of, or increase in, any reserve, special deposit, capital
adequacy or similar requirement in respect of the Letter of Credit relating
thereto shall apply equally to each Participating Lender in respect of its L/C
Participating Interest in such Letter of Credit, as if the references in such
paragraphs and provisions referred to, where applicable, such Participating
Lender or any corporation controlling such Participating Lender.
4.13 FURTHER ASSURANCES. The Company hereby agrees, from time to
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Lender to effect more fully
the purposes of this Agreement and the issuance of Letters of Credit
hereunder. The Company further agrees to execute any and all instruments
reasonably requested by the Issuing Lender in connection with the obtaining
and/or maintaining of any insurance coverage applicable to any Letters of
Credit.
4.14 OBLIGATIONS ABSOLUTE. The payment obligations of the Company under
this Agreement with respect to the Letters of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
(i) the existence of any claim, set-off, defense or other right which the
Company or any of its Subsidiaries may have at any time against any
beneficiary, or any transferee, of any Letter of Credit (or any Persons
for whom any such beneficiary or any such transferee may be acting), the
Issuing Lender, the Administrative Agent or any Lender, or any other
Person, whether in connection with this Agreement, the Related
Documents, any Credit Documents, the transactions contemplated herein,
or any unrelated transaction;
(ii) any statement or any other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect
except where such payment constitutes gross negligence or wilful
misconduct on the part of the Issuing Lender;
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(iii) payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit, except where such payment constitutes
gross negligence or wilful misconduct on the part of the Issuing Lender;
or
(iv) any other circumstances or happening whatsoever, whether or not similar
to any of the foregoing, except for any such circumstances or happening
constituting gross negligence or wilful misconduct on the part of the
Issuing Lender.
4.15 ASSIGNMENTS. No Participating Lender's participation in any
Letter of Credit or any of its rights or duties hereunder shall be
subdivided, assigned or transferred (other than in connection with a transfer
of part or all of such Participating Lender's Revolving Credit Commitment in
accordance with subsection 11.6) without the prior written consent of the
Issuing Lender, which consent will not be unreasonably withheld. Such consent
may be given or withheld without the consent or agreement of any other
Participating Lender. Notwithstanding the foregoing, a Participating Lender
may subparticipate its L/C Participating Interest without obtaining the prior
written consent of the Issuing Lender.
4.16 PARTICIPATIONS. Each Lender's obligation to purchase participating
interests pursuant to subsections 3.4 and 3.7(c) shall be absolute and
unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Issuing Lender, the
Company or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default; (iii) any adverse change in
the condition (financial or otherwise) of the Company; (iv) any breach of
this Agreement by the Company or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
4.17 INABILITY TO DETERMINE INTEREST RATE FOR EURODOLLAR LOANS. In the
event that the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Company) that (a) by reason of
circumstances affecting the interbank eurodollar market generally, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for any
Interest Period with respect to (i) proposed Loans that the Company has
requested be made as Eurodollar Loans, (ii) any Eurodollar Loans that will
result from the requested conversion of all or part of ABR Loans into Eurodollar
Loans or (iii) the continuation of any Eurodollar Loan as such for an additional
Interest Period, (b) the Eurodollar Rate determined or to be determined for any
Interest Period will not adequately and fairly reflect the cost to Lenders
constituting the Required Lenders of making or maintaining their affected
Eurodollar Loans during such Interest Period by reason of circumstances
affecting the interbank eurodollar market generally or (c) dollar deposits in
the relevant amount and for the relevant period with respect to any such
Eurodollar Loan are not available to any of the Lenders in their respective
Eurodollar Lending Offices' interbank eurodollar market, the Administrative
Agent shall forthwith give notice of such determination, confirmed in writing,
to the Company and the Lenders at least one day prior to, as the case may be,
the requested Borrowing Date, the conversion date or the last day of such
Interest Period. If such notice is given, (i) any requested Eurodollar Loans
shall be
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made as ABR Loans, (ii) any ABR Loans that were to have been converted to
Eurodollar Loans shall be continued as ABR Loans, and (iii) any outstanding
Eurodollar Loans shall be converted, on the last day of the then current
Interest Period applicable thereto, into ABR Loans. Until such notice has
been withdrawn by the Administrative Agent, no further Eurodollar Loans shall
be made and no ABR Loans shall be converted to Eurodollar Loans.
4.18 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing of any Loans
(other than Swing Line Loans) by the Company from the Lenders, each payment
by the Company on account of any fee hereunder (other than as set forth in
subsections 4.9, 4.10 and 4.11), and any reduction of the Revolving Credit
Commitments of the Lenders hereunder shall be made PRO RATA according to the
relevant Commitment Percentages of the Lenders. Each payment (including each
prepayment) by the Company on account of principal of and interest on the
Loans (other than Swing Line Loans and other than as set forth in subsections
4.19, 4.20 and 4.21) shall be made PRO RATA according to the relevant
Commitment Percentages of the Lenders. All payments (including prepayments)
to be made by the Company on account of principal, interest and fees shall be
made without set-off or counterclaim and shall be made to the Administrative
Agent, for the account of the Lenders, at the Administrative Agent's office
located at 270 Park Avenue, New York, New York 10017, in lawful money of the
United States of America and in immediately available funds. The
Administrative Agent shall promptly distribute such payments ratably to each
Lender in like funds as received. If any payment hereunder (other than
payments on Eurodollar Loans) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on
a Eurodollar Loan becomes due and payable on a day other than a Working Day,
the maturity thereof shall be extended to the next succeeding Working Day
and, with respect to payments of principal, interest thereon shall be payable
at the then applicable rate during such extension unless the result of such
extension would be to extend such payment into another calendar month in
which event such payment shall be made on the immediately preceding Working Day.
(b) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to a Borrowing Date that such Lender will not make the
amount which would constitute its relevant Commitment Percentage of the
borrowing on such date available to the Administrative Agent, the Administrative
Agent may assume that such Lender has made such amount available to the
Administrative Agent on such Borrowing Date in accordance with subsection and
the Administrative Agent may, in reliance upon such assumption, make available
to the Company a corresponding amount. If such amount is made available to the
Administrative Agent by such Lender on a date after such Borrowing Date, such
Lender shall pay to the Administrative Agent on demand an amount equal to the
product of (i) the daily average Federal funds rate during such period as quoted
by the Administrative Agent, times (ii) the amount of such Lender's relevant
Commitment Percentage of such borrowing not made available on the Borrowing
Date, times (iii) a fraction the numerator of which is the number of days that
elapse from and including such Borrowing Date to the date on which such Lender's
relevant Commitment Percentage of such borrowing shall have become immediately
available to the Administrative Agent and the denominator of which is 360. A
certificate of the Administrative Agent submitted to any Lender with respect to
any amounts owing under this subsection 4.18(b)
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shall be conclusive, absent manifest error. If such Lender's relevant
Commitment Percentage of such borrowing is not in fact made available to the
Administrative Agent by such Lender within three Business Days of such
Borrowing Date, the Administrative Agent shall be entitled to recover such
amount with interest thereon at the rate per annum applicable to ABR Loans
hereunder, on demand, from the Company, without prejudice to any rights which
the Company or the Administrative Agent may have against such Lender
hereunder. Nothing contained in this subsection 4.18(b) shall relieve any
Lender which has failed to make available its ratable portion of any
borrowing hereunder from its obligation to do so in accordance with the terms
hereof.
(c) The failure of any Lender to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender on such Borrowing Date.
(d) All payments and optional prepayments (other than prepayments as set
forth in subsection with respect to increased costs) of Eurodollar Loans
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Loans with the same Interest Period shall not be less than $3,000,000
or a whole multiple of $1,000,000 in excess thereof.
(e) Each Lender, Assignee and Participant that is not a U.S. person as
defined in Section 7701(a)(30) of the Code (a "NON-U.S. LENDER") shall deliver
to the Company and the Administrative Agent , and if applicable, the assigning
Lender (or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) on or before the date on which it
becomes a party to this Agreement (or, in the case of a Participant, on or
before the date on which such Participant purchases the related participation)
two duly completed and signed copies of Internal Revenue Service Form W-8, or
successor related and applicable forms, and either Internal Revenue Service Form
1001 (relating to such Non-U.S. Lender and entitling it to a complete exemption
from withholding of U.S. Taxes on all amounts to be received by such Non-U.S.
Lender pursuant to this Agreement and the other Credit Documents) or Form 4224
(relating to such Non-U.S. Lender and entitling it to a complete exemption from
withholding of U.S. Taxes on all amounts to be received by such Non-U.S. Lender
pursuant to this Agreement and the other Credit Documents), or successor and
related applicable forms (including, in each case, any other forms or
certificates required under the Code or the regulations promulgated thereunder
to be provided in order for such Non-U.S. Lender to obtain a complete exemption
from withholding of U.S. Taxes on all amounts to be received by such Non-U.S.
Lender pursuant to this Agreement and the other Credit Documents), as the case
may be.
Further, each Non-U.S. Lender agrees (i) to deliver to the Company and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Forms 1001,
4224 or W-8, as the case may be, or successor and related applicable forms or
certificates, on or before the date that any such form or certificate, as the
case may be, expires or becomes obsolete and promptly after the occurrence of
any event requiring a change from the most recent form(s) or certificate(s)
previously delivered by it to the Company (or, in the case of a Participant, to
the Lender from which the related participation shall have been
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purchased) in accordance with applicable U.S. laws and regulations and (ii)
to notify promptly the Company and the Administrative Agent (or, in the case
of a Participant, the Lender from which the related participation shall have
been purchased) if it is no longer able to deliver, or if it is required to
withdraw or cancel, any form or certificate previously delivered by it
pursuant to this subsection 4.18(e). The Company hereby agrees that for so
long as a Non-U.S. Lender complies with this subsection 4.18(e), the Company
shall not withhold any amounts from any payments made pursuant to this
Agreement to such Non-U.S. Lender, unless the Company reasonably determines
that it is required by law to withhold or deduct any amounts from any
payments made to such Non-U.S. Lender pursuant to this Agreement.
Notwithstanding any other provision of this subsection 4.18(e), a Non-U.S.
Lender shall not be required to deliver any form, certificate or statement
pursuant to the immediately preceding sentences in this subsection 4.18(e)
that such Non-U.S. Lender is not legally able to deliver (it being understood
and agreed that the Company shall withhold or deduct such amounts from any
payments made to such Non-U.S. Lender that the Company reasonably determines
are required by law). If any Credit Party other than the Company makes any
payment to any Non-U.S. Lender under any Credit Document, the foregoing
provisions of this subsection 4.18(e) shall apply to such Non-U.S. Lender and
such Credit Party as if such Credit Party were the Company (but a Non-U.S.
Lender shall not be required to provide any form or certificate, or make any
statement to any such Credit Party, unless such Non-U.S. Lender has received
a request to do so from such Credit Party and has a reasonable time to comply
with such request).
4.19 ILLEGALITY. Notwithstanding any other provisions herein, if any
Requirement of Law or any change therein or in the interpretation or application
thereof occurring after the date that any lender becomes a Lender party to this
Agreement shall make it unlawful for such Lender to make or maintain Eurodollar
Loans as contemplated by this Agreement, the commitment of such Lender hereunder
to make Eurodollar Loans or to convert all or a portion of ABR Loans into
Eurodollar Loans shall forthwith be cancelled and such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall, if required by law and if such
Lender so requests, be converted automatically to ABR Loans on the date
specified by such Lender in such request. To the extent that such affected
Eurodollar Loans are converted into ABR Loans, all payments of principal which
would otherwise be applied to such Eurodollar Loans shall be applied instead to
such Lender's ABR Loans. The Company hereby agrees promptly to pay any Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
any costs incurred by such Lender in making any conversion in accordance with
this subsection 4.19 including, but not limited to, any interest or fees
payable by such Lender to lenders of funds obtained by it in order to make or
maintain its Eurodollar Loans hereunder (such Lender's notice of such costs,
as certified to the Company through the Administrative Agent, to be
conclusive absent manifest error).
4.20 REQUIREMENTS OF LAW. (a) In the event that, at any time after
the date hereof, the adoption of any Requirement of Law, or any change
therein or in the interpretation or application thereof or compliance by any
Lender with any request or directive (whether or not having the force of law)
from any central bank or other Governmental Authority:
(i) does or shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loans made by it,
or
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change the basis of taxation of payments to such Lender of principal,
interest or any other amount payable hereunder (except for changes in
the rate of tax on the overall net income of such Lender), it being
understood and agreed that, in the case of a Non-U.S. Lender that does
not comply with subsection 4.18(e), this clause (i) shall not apply;
(ii) does or shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds
by, any office of such Lender which are not otherwise included in the
determination of the Eurodollar Rate; or
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender
of making, converting, renewing or maintaining advances or extensions of
credit or to reduce any amount receivable hereunder, in each case, in respect
of its Eurodollar Loans, then, in any such case, the Company, shall promptly
pay such Lender, on demand, any additional amounts necessary to compensate
such Lender on an after-tax basis for such additional cost or reduced amount
receivable which such Lender deems to be material as determined by such
Lender with respect to such Eurodollar Loans together with interest on each
such amount from the date demanded until payment in full thereof at a rate
per annum equal to the ABR plus the Applicable Margin for Revolving Credit
Loans which are ABR Loans.
(b) In the event that at any time after the date hereof any Change in
Law with respect to any Lender shall, in the opinion of such Lender, require
that any Commitment of such Lender be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by such Lender or any corporation controlling such Lender, and
such Change in Law shall have the effect of reducing the rate of return on
such Lender's or such corporation's capital, as the case may be, as a
consequence of such Lender's obligations hereunder to a level below that
which such Lender or such corporation, as the case may be, could have
achieved but for such Change in Law (taking into account such Lender's or
such corporation's policies, as the case may be, with respect to capital
adequacy) by an amount deemed by such Lender to be material, then from time
to time following notice by such Lender to the Company of such Change in Law
as provided in paragraph (c) of this subsection 4.20, within 15 days after
demand by such Lender, the Company shall pay to such Lender such additional
amount or amounts as will compensate such Lender or such corporation, as the
case may be, on an after-tax basis for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection 4.20, it shall promptly notify the Company
through the Administrative Agent, of the event by reason of which it has
become so entitled. If any Lender has notified the Company through the
Administrative Agent of any increased costs pursuant to paragraph (a) of this
subsection 4.20, the Company at any time thereafter may, upon at least two
Working Days' notice to the Administrative Agent (which shall promptly notify
the Lenders thereof), and subject to subsection 4.21, prepay or convert into
ABR Loans all (but not a part) of the Eurodollar Loans
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then outstanding. Each Lender agrees that, upon the occurrence of any event
giving rise to the operation of paragraph (a) of this subsection 4.20 with
respect to such Lender, it will, if requested by the Company, and to the
extent permitted by law or by the relevant Governmental Authority, endeavor
in good faith to avoid or minimize the increase in costs or reduction in
payments resulting from such event (including, without limitation,
endeavoring to change its Eurodollar Lending Office); PROVIDED, HOWEVER, that
such avoidance or minimization can be made in such a manner that such Lender,
in its sole determination, suffers no economic, legal or regulatory
disadvantage. If any Lender has notified the Company, through the
Administrative Agent, of any increased costs pursuant to paragraph (b) of
this subsection 4.20, the Company at any time thereafter may, upon at least
three Business Days' notice to the Administrative Agent (which shall promptly
notify the Lender thereof), and subject to subsection 4.21, reduce or
terminate the Revolving Credit Commitments in accordance with subsection 4.4.
(d) A certificate submitted by such Lender, through the Administrative
Agent, to the Company shall be conclusive in the absence of manifest error. The
covenants contained in this subsection 4.20 shall survive the termination of
this Agreement and repayment of the outstanding Loans.
4.21 INDEMNITY. The Company agrees to indemnify each Lender and to hold
such Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by the Company in payment of the principal
amount of or interest on any Eurodollar Loans of such Lender, including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Loans hereunder, (b) default by the Company in making a borrowing of
Eurodollar Loans after the Company has given a notice in accordance with
subsection 4.1 or in making a conversion of ABR Loans to Eurodollar Loans
after the Company has given notice in accordance with subsection 4.3 or in
continuing Eurodollar Loans for an additional Interest Period after the
Company has given a notice in accordance with clause (b) of the definition of
Interest Period, (c) default by the Company in making any prepayment of
Eurodollar Loans after the Company has given a notice in accordance with
subsection 4.5 or (d) a payment or prepayment of a Eurodollar Loan or
conversion of any Eurodollar Loan into an ABR Loan, in either case on a day
which is not the last day of an Interest Period with respect thereto,
including, but not limited to, any such loss or expense arising from interest
or fees payable by such Lender to lenders of funds obtained by it in order to
maintain its Eurodollar Loans hereunder. This covenant shall survive
termination of this Agreement and payment of the outstanding Obligations.
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to make
the Loans and to induce the Issuing Lenders to issue, and the Participating
Lenders to participate in, the Letters of Credit, the Company hereby represents
and warrants to each Lender and the Administrative Agent, on and as of the
Closing Date (after giving effect to the Refinancing and the IPO and the
transactions contemplated thereby) and on the date of each Loan made or Letter
of Credit issued thereafter, that:
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5.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Credit Party and
its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (b)
has the corporate power and authority and the legal right to own and operate
its property, to lease the property it operates and to conduct the business
in which it is currently engaged, except to the extent that the failure to
possess such corporate power and authority and such legal right would not, in
the aggregate, have a Material Adverse Effect, (c) is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect and (d) is in compliance
with all applicable Requirements of Law (including, without limitation,
occupational safety and health, pension, the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, or any applicable federal, state, local or other statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating
to, or imposing liability or standards of conduct concerning, any Materials
of Environmental Concern), except to the extent that the failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect.
5.2 CORPORATE POWER; AUTHORIZATION. Each Credit Party has the corporate
power and authority and the legal right to make, deliver and perform the Credit
Documents to which it is a party; and the Company has the corporate power and
authority and legal right to borrow hereunder, and to have Letters of Credit
issued for its account hereunder. Each Credit Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents to which it is a party, including in case of the Company, to
authorize the borrowings hereunder and the issuance of Letters of Credit for its
account hereunder. No consent or authorization of, or filing with, any Person
(including, without limitation, any Governmental Authority) is required in
connection with the execution, delivery or performance by any Credit Party, or
the validity or enforceability against any Credit Party, of any Credit Document
to the extent that it is a party thereto, or the guarantee of the Obligations
pursuant to the Guarantees.
5.3 ENFORCEABLE OBLIGATIONS. Each of the Credit Documents has been duly
executed and delivered on behalf of each Credit Party party thereto and each of
such Credit Documents constitutes the legal, valid and binding obligation of
such Credit Party, enforceable against such Credit Party in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
5.4 NO LEGAL BAR. The performance of each Credit Document, the guarantee
of the Obligations pursuant to the Guarantees, the use of the proceeds of the
Loans and of drawings under the Letters of Credit will not violate any
Requirement of Law or any Contractual Obligation applicable to or binding upon
any Credit Party, any of its Subsidiaries or any of its properties or assets,
which violations, individually or in the aggregate, would have a material
adverse effect on the ability of such Credit Party to perform its obligations
under the Credit Documents to the extent that it is a party thereto, or which
would give rise to any liability on the part of the Administrative Agent or any
Lender, or which would have a Material Adverse Effect, and will not result in
the creation or imposition (or the obligation to create or impose) of any
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Lien (other than any Liens created pursuant to the Credit Documents) on any
of its or their respective properties or assets pursuant to any Requirement
of Law applicable to it or them, as the case may be, or any of its or their
Contractual Obligations.
5.5 NO MATERIAL LITIGATION. No litigation or investigation known to the
Company through receipt of written notice or proceeding of or by any
Governmental Authority or any other Person is pending against any Credit Party
or any of its Subsidiaries, (a) with respect to the validity, binding effect or
enforceability of any Credit Document, or with respect to the Loans made
hereunder, the use of proceeds thereof or of any drawings under a Letter of
Credit and the other transactions contemplated hereby or thereby, or (b) except
as disclosed on Schedule 5.5 hereto, which would have a Material Adverse Effect
or a material adverse effect on the validity or enforceability of this
Agreement, any of the Notes or any of the other Credit Documents or the rights
and remedies of the Administrative Agent or the Lenders hereunder or thereunder.
5.6 INVESTMENT COMPANY ACT. Neither any Credit Party nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended).
5.7 FEDERAL REGULATION. No part of the proceeds of any of the Loans or
any drawing under a Letter of Credit will be used for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation T, U
or X of the Board. Neither the Company nor any of its Subsidiaries is engaged or
will engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under said
Regulation U.
5.8 NO DEFAULT. Neither the Company nor any of its Subsidiaries is in
default in the payment or performance of any of its or their Contractual
Obligations in any respect which would have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is in default under any order, award or
decree of any Governmental Authority or arbitrator binding upon or affecting it
or them or by which any of its or their properties or assets may be bound or
affected in any respect which would have a Material Adverse Effect, and no such
order, award or decree would materially adversely affect the ability of the
Company and its Subsidiaries taken as a whole to carry on their businesses as
presently conducted or the ability of any Credit Party to perform its
obligations under any Credit Document to which it is a party.
5.9 NO BURDENSOME RESTRICTIONS. Neither the Company nor any of its
Subsidiaries is a party to or is bound by any Contractual Obligation or subject
to any Requirement of Law or other corporate restriction which would have a
Material Adverse Effect.
5.10 TAXES. Each of the Company and its Subsidiaries has filed or caused
to be filed or has timely requested an extension to file or has received an
approved extension to file all tax returns which, to the knowledge of the
Company, are required to have been filed, and has paid all taxes shown to be due
and payable on said returns or extension requests or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
those the amount
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or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided in the books of the Company or its Subsidiaries, as
the case may be or for which the Company is indemnified by a creditworthy
Person), except any such filings or taxes, fees or charges, the making of or
the payment of which, or the failure to make or pay, would not have a
Material Adverse Effect; and, to the knowledge of the Company, no claims are
being asserted with respect to any such taxes, fees or other charges (other
than those the amount or validity of which is currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided in the books of the Company or its
Subsidiaries, as the case may be, or for which the Company is indemnified by
the Seller), except as to any such taxes, fees or other charges, the payment
of which, or the failure to pay, would not have a Material Adverse Effect.
5.11 SUBSIDIARIES. The Subsidiaries of the Company listed on Schedule
5.11(a) constitute all of the Domestic Subsidiaries of the Company and the
Subsidiaries listed on Schedule 5.11(b) constitute all of the Foreign
Subsidiaries of the Company, in each case as of the Closing Date.
5.12 OWNERSHIP OF PROPERTY; LIENS. Except as set forth in the
Registration Statement, the Company and each of its Subsidiaries has good and
marketable title to, or valid and subsisting leasehold interests in, all its
respective material real property, and good title to all its respective material
other property, and none of such property is subject, except as permitted
hereunder, to any Lien (including, without limitation, and subject to subsection
hereof, Federal, state and other tax liens).
5.13 ERISA. No "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) or "accumulated funding deficiency" (as
defined in Section 302 of ERISA) or Reportable Event (other than a Reportable
Event with respect to which the 30-day notice requirement under Section 4043 of
ERISA has been waived) has occurred during the five years preceding each date on
which this representation is made or deemed made with respect to any Plan in any
case the consequences of which would have a Material Adverse Effect. The present
value of all accrued benefits under each Single Employer Plan maintained by the
Company or a Commonly Controlled Entity (based on those assumptions used to fund
such Plan) did not, as of the most recent annual valuation date in respect of
each such Plan, exceed the fair market value of the assets of the Plan
(including for these purposes accrued but unpaid contributions) allocable to
such benefits by an amount that would have a Material Adverse Effect. The
liability to which the Company or any Commonly Controlled Entity would become
subject under ERISA if the Company or any such Commonly Controlled Entity were
to withdraw completely from all Multiemployer Plans as of the valuation date
most closely preceding the date hereof would not have a Material Adverse Effect.
No Multiemployer Plan is either in Reorganization or Insolvent in any case the
consequences of which would have a Material Adverse Effect.
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5.14 ENVIRONMENTAL MATTERS. Except as disclosed in the Registration
Statement, to the Company's knowledge:
(a) The Properties do not contain any Materials of Environmental
Concern in concentrations which constitute a violation of, or would
reasonably be expected to give rise to liability under, Environmental
Laws that would have a Material Adverse Effect.
(b) The Properties and all operations at the Properties are in
compliance with all applicable Environmental Laws, except for failure to
be in compliance that would not have a Material Adverse Effect, and
there is no contamination at, under or about the Properties that would
have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has received
any written notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to the Properties that
would have a Material Adverse Effect, nor does the Company have
knowledge that any such action is being contemplated, considered or
threatened.
(d) There are no judicial proceedings or governmental or
administrative actions pending or threatened under any Environmental Law
to which the Company or any Subsidiary is or will be named as a party
with respect to the Properties that would have a Material Adverse
Effect, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders under any Environmental
Law with respect to the Properties that would have a Material Adverse
Effect.
5.15 FINANCIAL CONDITION. (a) The unaudited PRO FORMA consolidated
balance sheet of the Company and its Subsidiaries as of April 3, 1999
(including the pro forma footnotes thereto), the "PRO FORMA BALANCE SHEET"),
a copy of which has heretofore been furnished to each Lender, has been
prepared based upon the consolidated balance sheet of the Company and its
Subsidiaries as of April 3, 1999 adjusted to give effect to the IPO, the
Refinancing and the Loans hereunder and the use of the proceeds thereof and
the payment of related fees and expenses. The Pro Forma Balance Sheet
presents fairly on a PRO FORMA basis the consolidated financial position of
the Company and its Subsidiaries as of April 3, 1999 assuming that the events
and assumptions specified in the preceding sentence had actually occurred or
are true, as the case may be, on that date (except (i) for changes in such
financial position which are not materially adverse to the financial position
of the Company and its Subsidiaries, and (ii) as provided in the notes
thereto).
(b) The audited consolidated balance sheet of the Company and its
Subsidiaries at December 31, 1998 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended reported on by Deloitte & Touche LLP and which have heretofore been
furnished to each Lender, fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of
such date and the consolidated results of their operations and cash flows for
the year then ended in accordance with GAAP consistently applied (except as
noted therein).
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(c) The unaudited consolidated balance sheet of the Company and its
Subsidiaries at April 3, 1999 and the related unaudited consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
the fiscal quarter then ended which have heretofore been furnished to each
Lender, fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of such date and the
consolidated results of their operations and cash flows for the fiscal
quarter then ended in accordance with GAAP consistently applied (except as
noted therein and subject to normal year end audit adjustments). Except as
disclosed in the Registration Statement, the Company and its Subsidiaries did
not have any material obligation, contingent or otherwise, which was not
reflected therein or in the notes thereto and which would have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole.
(d) Except as disclosed in the Registration Statement, since December
31, 1998 there have not been any events or states of fact which individually
or in the aggregate would have a Material Adverse Effect.
5.16 YEAR 2000. The Company reasonably anticipates that it will on a
timely basis successfully resolve the risk that computer applications used by
the Company may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31, 1999
(the "YEAR 2000 PROBLEM") for all material computer applications. The Company,
on the basis of inquiries made, believes that each supplier, vendor and customer
of the Company that is of material importance to the financial well-being of the
Company will also successfully resolve on a timely basis the Year 2000 Problem
for all of its material computer applications.
SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO INITIAL LOANS AND LETTERS OF CREDIT. The obligation of
each Lender to make its Loans on the Closing Date and the obligation of the
Issuing Lenders to issue any Letter of Credit on the Closing Date are subject to
the satisfaction, or waiver by the Lenders (or, in the case of the conditions
specified in subsections 6.1(g), (k) and (n), waiver by the Administrative
Agent), immediately prior to or concurrently with the effectiveness of this
Agreement, the making of such Loans or the issuance of such Letter of Credit, as
the case may be, of the following conditions precedent:
(a) CONSUMMATION OF THE IPO. The Administrative Agent shall have
received evidence reasonably satisfactory to it that the IPO shall have
been consummated with net cash proceeds (i.e., gross cash proceeds net
of underwriting discount) thereof to the Borrower of not less than
$80,000,000.
(b) REPAYMENT OF SUBORDINATED DEBENTURES. The Administrative
Agent shall have received evidence reasonably satisfactory to it that,
simultaneously herewith, the Company shall have repaid the Subordinated
Debentures in full.
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(c) TERMINATION OF EXISTING CREDIT AGREEMENT. The Administrative
Agent shall have received evidence reasonably satisfactory to it that,
simultaneously herewith, all principal interest, fees and other amounts
owing by the Company under the Existing Credit Agreement shall have been
paid in full, the Existing Credit Agreement shall have been terminated
and all Liens thereunder shall have been terminated and released.
(d) HOLDINGS LIQUIDATION. The Holdings Liquidation shall have
been consummated in accordance with the Agreement and Plan of
Reorganization between Holdings and the Company.
(e) EXECUTED COUNTERPARTS. The Administrative Agent shall have
received counterparts hereof signed by each of the parties hereto (or,
in the case of any party as to which an executed counterpart shall not
have been received, receipt by the Administrative Agent in form
satisfactory to it or telecopy or other written confirmation from such
party of execution of a counterpart hereof by such party).
(f) NOTES. The Administrative Agent shall have received for each
Lender requesting the same (i) for the account of each Lender with a
Revolving Credit Commitment, a Revolving Credit Note, (ii) for the
account of each Lender with a Term Loan Commitment, a Term Note and
(iii) for the account of Chase, a Swing Line Note, in each case
conforming to the requirements hereof and executed by a duly authorized
officer of the Company.
(g) LEGAL OPINIONS. The Administrative Agent shall have
received, dated the Closing Date and addressed to the Administrative
Agent and the Lenders, an opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel to the Company, substantially in the form of Exhibit
C-1 hereto and an opinion of the General Counsel to the Company,
substantially in the form of Exhibit C-2 hereto, with such changes
thereto as may be approved by the Administrative Agent and its counsel.
Such opinions shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
shall reasonably require.
(h) CLOSING CERTIFICATE. The Administrative Agent shall have
received a Closing Certificate of the Company, dated the Closing Date,
substantially in the form of Exhibit D-1 hereto, with appropriate
insertions and attachments, reasonably satisfactory in form and
substance to the Administrative Agent and its counsel, executed by a
Vice President.
(i) EXISTING INDEBTEDNESS. The Lenders shall be reasonably
satisfied with the terms and conditions of all Indebtedness, if any, of
the Company and its Subsidiaries to remain outstanding after giving
effect to the IPO and the Refinancing (other than Indebtedness
hereunder).
(j) FEES. The Administrative Agent shall have received for the
account of the Lenders, or for its own account, as the case may be, all
fees (including the fees referred to in subsection 4.10) payable to the
Lenders and the Administrative Agent on or prior to the Closing Date.
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(k) RELATED AGREEMENTS. The Administrative Agent shall have
received each additional document, instrument or piece of information
reasonably requested by the Lenders, including, without limitation, a
copy of any debt instrument, security agreement or other material
contract to which any Credit Party or any of their Subsidiaries is a
party.
(l) APPROVALS AND CONSENTS. The Company shall have received all
necessary or required governmental and third party consents and
approvals in connection with the Refinancing, the IPO, the financings
contemplated hereby and the continuing operations of the Company and its
Subsidiaries following the Refinancing and the IPO the lack of which
would have a Material Adverse Effect, and all applicable waiting periods
shall have elapsed.
(m) ABSENCE OF OTHER DEVELOPMENTS. Except as disclosed in the
Registration Statement, there shall not have occurred any change, or
development or event involving a prospective change, which in either
case is reasonably likely to have a Material Adverse Effect or a
material adverse effect on the rights and remedies of the Administrative
Agent and the Lenders under the Credit Documents.
(n) ADDITIONAL MATTERS. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Administrative
Agent and its counsel.
6.2 CONDITIONS TO ALL LOANS AND LETTERS OF CREDIT. The obligation of
each Lender to make any Loan (other than any Revolving Credit Loan the proceeds
of which are to be used to repay Refunded Swing Line Loans) and the obligation
of each Issuing Lender to issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) REPRESENTATIONS AND WARRANTIES. If such Loan is made
(and/or Letter of Credit issued) on the Closing Date, each of the
representations and warranties made as of the Closing Date in or
pursuant to Section 5, or which are contained in any other Credit
Document or any certificate, document or financial or other statement
furnished by or on behalf of the Company or any Subsidiary thereof,
at any time under or in connection herewith, shall be true and
correct in all material respects on and as of the Closing Date as if
made on and as of the Closing Date (unless stated to relate to a
specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of
such earlier date). If such Loan is made (and/or Letter of Credit
issued) subsequent to the Closing Date, each of the representations
and warranties which are contained in Section 5 or which are in any
other Credit Document or in any certificate, document or financial or
other statement furnished by or on behalf of the Company or any
Subsidiary thereof shall be true and correct in all material respects
on and as of the date of such Loan (or such Letter of Credit) as if
made on and as of such date (unless stated to relate to a specific
earlier date, in which case, such representations and warranties
shall be true and correct in all material respects as of such earlier
date).
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(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of
Default shall have occurred and be continuing on such date or after
giving effect to the Loan to be made or the Letter of Credit to be
issued on such Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter
of Credit by each Issuing Lender hereunder shall constitute a representation and
warranty by the Company as of the date of such borrowing or issuance that the
conditions in clauses (a) and (b) of this subsection 6.2 have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect, any Loan, Note or Revolving L/C Obligation remains outstanding and
unpaid, any amount remains available to be drawn under any Letter of Credit or
any other amount is owing to any Lender, any Issuing Lender or the
Administrative Agent hereunder, it shall, and, in the case of the agreements
contained in subsections 7.3, 7.4, 7.5, 7.6, 7.7 and 7.8 cause each of its
Material Subsidiaries to:
7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (with
sufficient copies for each Lender):
(a) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its consolidated Subsidiaries as at the
end of such year and the related consolidated statements of operations,
stockholders' equity and cash flows for such year, setting forth in each
case in comparative form, other than financial statements for the year
ending on the Saturday closest to December 31, 1999, the figures for the
previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Deloitte & Touche LLP or other independent certified
public accountants of nationally recognized standing not unacceptable to
the Required Lenders;
(b) as soon as available, but in any event not later than 60
days after the end of each of the first three quarterly periods of each
fiscal year of the Company, commencing with the quarterly period ending
on the Saturday closest to June 30, 1999 the unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries as at the
end of such quarter and the related unaudited consolidated statements of
operations, stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries for such quarter and the portion of the fiscal
year through the end of such quarter, setting forth in each case in
comparative form, except in the case of any quarter ending before the
Saturday closest to June 30, 1999, the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event within 60 days after
the beginning of each fiscal year of the Company to which such budget
relates, an annual operating budget
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of the Company and its Subsidiaries, on a consolidated basis, as adopted
by the Board of Directors of the Company;
all financial statements shall be prepared in reasonable detail in accordance
with GAAP (provided that interim statements may be condensed and may exclude
detailed footnote disclosure) applied consistently throughout the periods
reflected therein and with prior periods (except as concurred in by such
accountants or officer, as the case may be, and disclosed therein and except
that interim financial statements need not be restated for changes in accounting
principles which require retroactive application, and operations which have been
discontinued (as defined in Accounting Principles Board Opinion No. 30) during
the current year need not be shown in interim financial statements as such
either for the current period or comparable prior period). In the event the
Company changes its accounting methods because of changes in GAAP, or any change
in GAAP occurs which increases or diminishes the protection and coverage
afforded to the Lenders under current GAAP accounting methods, the Company or
the Administrative Agent, as the case may be, may request of the other parties
to this Agreement an amendment of the financial covenants contained in this
Agreement to reflect such changes in GAAP and to provide the Lenders with
protection and coverage equivalent to that existing prior to such changes in
accounting methods or GAAP, and each of the Company, the Administrative Agent
and the Lenders agree to consider such request in good faith.
7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative Agent
(with sufficient copies for each Lender):
(a) concurrently with the delivery of the consolidated
financial statements referred to in subsection 7.1(a), a letter from
the independent certified public accountants reporting on such
financial statements stating that in making the examination necessary
to express their opinion on such financial statements no knowledge was
obtained of any Default or Event of Default, except as specified in
such letter;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a certificate
of the chief financial officer of the Company (i) stating that, to
the best of such officer's knowledge, each of the Company and its
Subsidiaries has observed or performed all of its covenants and other
agreements, and satisfied every applicable condition, contained in
this Agreement, the Notes and the other Credit Documents to be
observed, performed or satisfied by it, and that such officer has
obtained no knowledge of any Default or Event of Default except as
specified in such certificate, (ii) showing in detail as of the end
of the related fiscal period the figures and calculations supporting
such statement in respect of subsection 8.1, clauses (f) and (g) of
subsection 8.2, clauses (j), (k) and (l) of subsection 8.7,
subsection 8.8, clause (b) of subsection 8.9 and subsection 8.12,
(iii) if not specified in the financial statements delivered pursuant
to subsection 7.1, specifying on a consolidated basis the aggregate
amount of interest paid or accrued by the Company and its
Subsidiaries, and the aggregate amount of depreciation, depletion and
amortization charged on the books of the Company and its
Subsidiaries, during such accounting period, (iv) showing in detail
as of the end of the related fiscal period the Fixed Charge Coverage
Ratio and the Leverage Ratio of the Company and its Subsidiaries and
the calculations supporting such statement and stating
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the Applicable Margin and commitment fee payable as a result of such
Leverage Ratio and (iv) listing all Indebtedness (other than
Indebtedness hereunder) in each case incurred since the date of the
previous consolidated balance sheet of the Company delivered pursuant
to subsection 7.1(a) or (b);
(c) promptly upon receipt thereof, copies of all final reports
submitted to the Company by independent certified public accountants in
connection with each annual, interim or special audit of the books of
the Company made by such accountants, including, without limitation, any
final comment letter submitted by such accountants to management in
connection with their annual audit;
(d) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or made
available generally by the Company or any of their respective
Subsidiaries and all regular and periodic reports and all final
registration statements and final prospectuses, if any, filed by the
Company or any of their respective Subsidiaries with any securities
exchange or with the Securities and Exchange Commission or any
Governmental Authority succeeding to any of its functions;
(e) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a management
summary describing and analyzing the performance of the Company and
its Subsidiaries during the periods covered by such financial
statements; and
(f) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all of its
obligations and liabilities of whatever nature, except (a) when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Company or any of its Subsidiaries, as the case may
be, (b) for delinquent obligations which do not have a Material Adverse Effect
and (c) for trade and other accounts payable in the ordinary course of business
in accordance with customary trade terms and which are not overdue for a period
of more than 90 days (or any longer period if longer payment terms are accepted
in the ordinary course of business) or, if overdue for more than 90 days (or
such longer period), as to which a dispute exists and adequate reserves in
conformity with GAAP have been established on the books of the Company and its
Subsidiaries, as the case may be.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges, franchises,
certifications, authorizations, licenses, permits, approvals and
registrations, necessary or desirable in the normal conduct of its business
except for rights, privileges, franchises, certifications, authorizations,
licenses, permits, approvals and registrations the loss of which would not in
the aggregate have a Material Adverse Effect, and except as
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otherwise permitted by subsections 8.5, 8.6 and 8.7; and comply with all
applicable Requirements of Law and Contractual Obligations except to the
extent that the failure to comply therewith would not, in the aggregate, have
a Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property useful and
necessary in its business in good working order and condition (ordinary wear and
tear excepted); and
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and with only such
deductibles as are usually maintained by, and against at least such risks as are
usually insured against in the same general area by, companies engaged in the
same or a similar business (in any event including workers' compensation,
employers' liability, automobile liability and physical damage coverage, all
risk property, business interruption, fidelity and crime insurance); PROVIDED
that the Company may implement programs of self insurance in the ordinary course
of business and in accordance with industry standards for a company of similar
size so long as reserves are maintained in accordance with GAAP for the
liabilities associated therewith.
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities which
permit financial statements to be prepared in conformity with GAAP and all
Requirements of Law; and permit representatives of any Lender upon reasonable
notice to visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often as may
reasonably be desired upon reasonable notice, and to discuss the business,
operations, properties and financial and other condition of the Company and its
Subsidiaries with officers and employees thereof and with their independent
certified public accountants.
7.7 NOTICES. Promptly give notice to the Administrative Agent and each
Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any
instrument or other agreement, guarantee or collateral document of
the Company or any of its Subsidiaries which default or event of
default has not been waived and would have a Material Adverse Effect,
or any other default or event of default under any such instrument,
agreement, guarantee or other collateral document which, but for the
proviso to clause (e) of Section 9, would have constituted a Default
or Event of Default under this Agreement, or (ii) litigation,
investigation or proceeding which may exist at any time between the
Company or any of their respective Subsidiaries and any Governmental
Authority, or receipt of any notice of any environmental claim or
assessment against the Company or any of their respective
Subsidiaries by any Governmental Authority, which in any such case
would have a Material Adverse Effect;
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(c) of any litigation or proceeding affecting the Company or
any of its Subsidiaries (i) in which more than $10,000,000 of the
amount claimed is not covered by insurance or (ii) in which
injunctive or similar relief is sought which if obtained would have a
Material Adverse Effect;
(d) of the following events, as soon as practicable after,
and in any event within 30 days after, the Company knows thereof: (i)
the occurrence of any Reportable Event with respect to any Single
Employer Plan which Reportable Event is reasonably likely to have a
Material Adverse Effect, or (ii) the institution of proceedings or
the taking of any other action by PBGC, the Company or any Commonly
Controlled Entity to terminate, withdraw from or partially withdraw
from any Plan and, with respect to a Multiemployer Plan, the
Reorganization or Insolvency of such Plan, in each of the foregoing
cases which is reasonably likely to have a Material Adverse Effect,
and in addition to such notice, deliver to the Administrative Agent
and each Lender whichever of the following may be applicable: (A) a
certificate of the chief financial officer of the Company setting
forth details as to such Reportable Event and the action that the
Company or such Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such
Reportable Event that may be required to be filed with PBGC, or (B)
any notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated,
as the case may be; and
(e) of a material adverse change known to the Company or any
of its Subsidiaries in the business, financial condition, assets,
liabilities, net assets, properties, results of operations, value or
prospects of the Company and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection 7.7 shall be accompanied by a statement
of the chief executive officer or the chief financial officer of the Company
setting forth details of the occurrence referred to therein and (in the cases of
clauses (a) through (d)) stating what action the Company proposes to take with
respect thereto.
7.8 ADDITIONAL SUBSIDIARY GUARANTORS; PLEDGE OF STOCK OF ADDITIONAL
SUBSIDIARIES. (a) If any Subsidiary of the Company (whether presently existing
or hereafter created or acquired) is or shall become a Material Subsidiary
(including as a result of the consummation of any Permitted Acquisition), cause
such Material Subsidiary, no later than the end of the fiscal quarter in which
such Subsidiary became a Material Subsidiary, to execute and deliver a
Subsidiary Guarantee in favor of the Administrative Agent in substantially the
form of Exhibit B-2, each of which Guarantees shall be accompanied by such
resolutions, incumbency certificates and legal opinions as are reasonably
requested by the Administrative Agent and its counsel.
(b) In the event that there shall be a change in law which eliminates
the adverse tax consequences to the Company, or any of its Subsidiaries which
would have resulted on the date hereof from the guarantee by a Subsidiary,
which would be a Material Subsidiary but for the
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exception contained in clauses (i) or (ii) of the definition thereof, of the
Loans and the other obligations of the Company hereunder, promptly thereafter
cause any such Subsidiary that has not previously executed and delivered a
Guarantee because of such adverse tax consequences to deliver a Guarantee to
the Administrative Agent to the extent any such Guarantee can be so executed
and delivered without any adverse tax consequences to the Company, or any of
their Subsidiaries.
(c) Pledge the capital stock, or other equity interests and intercompany
indebtedness, owned by the Company or any of its Material Subsidiaries that is
hereafter created or acquired pursuant to the Pledge Agreements (it being
understood and agreed that, notwithstanding anything that may be to the contrary
herein, this subsection 7.8(c) shall not require the Company or any Material
Subsidiary thereof to pledge (x) more than 65% of the outstanding capital
stock of, or other equity interests in, (i) any Foreign Subsidiary thereof,
or (ii) any other Subsidiary thereof if more than 65% of the assets of such
other Subsidiary are securities of foreign Persons (such determination to be
made on the basis of fair market value) or (y) any capital stock or other
equity interests of a Foreign Subsidiary thereof which (I) is owned by a
Foreign Subsidiary thereof or (II) does not have in excess of $2,000,000 in
total assets) or (z) any Non-Significant Subsidiary).
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that it shall not, and shall not permit any of
its Subsidiaries to directly or indirectly so long as the Commitments remain in
effect or any Loan, Note or Revolving L/C Obligation remains outstanding and
unpaid, any amount remains available to be drawn under any Letter of Credit or
any other amount is owing to any Lender, the Issuing Lenders or the
Administrative Agent hereunder:
8.1 FINANCIAL COVENANTS. (a) LEVERAGE RATIO. Permit the Leverage Ratio
on the last day of any fiscal quarter during any period set forth below,
commencing with the fiscal quarter ending on the Saturday closest to September
30, 1999, to be less than the amount set forth opposite such period (it being
understood that each such period shall begin on the Saturday closest to the
first date set forth below for such period and end on the Saturday closest to
the second date set forth below for such period):
Period Ratio
------ -----
September 30, 1999 4.0:1.0
through December 31, 1999
January 1, 2000 through 3.5:1.0
December 31, 2000
January 1, 2001 through 3.0:1.0
December 31, 2001
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January 1, 2002 and 2.5:1.0
thereafter
(b) FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge Coverage
Ratio on the last day of any fiscal quarter during any period set forth
below, commencing with the fiscal quarter ending on the Saturday closest to
September 30, 1999, to be less than the amount set forth opposite such period
(it being understood that each such period shall begin on the Saturday
closest to the first date set forth below for such period and end on the
Saturday closest to the second date set forth below for such period):
Period Ratio
------ -----
September 30, 1999 2.75:1.00
through December 31, 1999
January 1, 2000 through 3.00:1.00
December 31, 2000
January 1, 2001 through 3.50:1.00
December 31, 2001
January 1, 2002 and 4.00:1.00
thereafter
8.2 INDEBTEDNESS. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness of the Company evidenced by the Notes and in
connection with the Letters of Credit and this Agreement;
(b) (i) Indebtedness of the Company to any Subsidiary and any
Subsidiary to the Company or any other Subsidiary to the extent the
Indebtedness referred to in this clause 8.2(b)(ii) evidences a loan or
advance permitted under subsection 8.7;
(c) Indebtedness in respect of foreign currency exchange
contracts permitted by subsection 8.11;
(d) Indebtedness consisting of reimbursement obligations under
surety, indemnity, performance, release and appeal bonds and guarantees
thereof and letters of credit required in the ordinary course of
business or in connection with the enforcement of rights or claims of
the Company or its Subsidiaries, in each case to the extent a Letter of
Credit supports in whole or in part the obligations of the Company and
its Subsidiaries with respect to such bonds, guarantees and letters of
credit;
(e) Indebtedness owed to a seller in a Permitted Acquisition or
to a buyer in a disposition permitted under clause (e) or (f) of
subsection 8.6 that (i) relates to customary
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post-closing adjustments with respect to accounts receivable, accounts
payable, net worth and/or similar items typically subject to post-
closing adjustments in similar transactions, and are outstanding for a
period of two (2) years or less following the creation thereof or (ii)
relates to indemnities granted to the seller or buyer in the
transaction;
(f) other Indebtedness of the Company or any of its Subsidiaries
incurred in the ordinary course of their respective businesses in an
aggregate principal amount not to exceed $15,000,000 at any time;
(g) Indebtedness of the Company or any of its Subsidiaries
listed on Schedule 8.2 hereto including any extension or renewals or
refinancing thereof, provided the principal amount thereof is not
increased;
(h) Indebtedness of the Company consisting of the lease of
corporate aircraft; and
(i) Indebtedness of the Company consisting of capitalized lease
obligations in an aggregate principal amount not to exceed $10,000,000.
8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges
not yet due and payable or which are being contested in good faith and
by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case
may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business in respect of obligations which are not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on
the books of the Company or such Subsidiary, as the case may be, in
accordance with GAAP;
(c) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(d) easements, right-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred, or leases or
subleases granted to others, in the ordinary course of business, which,
in the aggregate, are not substantial in amount, and which do not in any
case materially detract from the value of the property subject thereto
or do not interfere with or adversely affect in any material respect the
ordinary conduct of the business of the Company and its Subsidiaries
taken as a whole;
(e) Liens in favor of the Lenders pursuant to the Credit
Documents and bankers' liens arising by operation of law;
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(f) Liens on assets of entities or Persons which become
Subsidiaries of the Company after the date hereof; PROVIDED that such
Liens exist at the time such entities or Persons become Subsidiaries and
are not created in anticipation thereof;
(g) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of the Letters of Credit which are
Commercial L/Cs;
(h) Liens securing any Indebtedness permitted under subsection
8.2(f); PROVIDED that (i) the aggregate principal amount of Indebtedness
secured by such Liens shall at no time exceed $15,000,000, and (ii) no
such Liens shall encumber any capital stock or other equity interests of
the Company or any of its Subsidiaries;
(i) Liens in existence on the Closing Date and described in
Schedule 8.3 and renewals thereof in amounts not to exceed the amounts
listed on such Schedule 8.3;
(j) Liens on assets acquired in connection with a Permitted
Acquisition; PROVIDED that such Liens exist at the time of the Permitted
Acquisition in question and are not created in anticipation thereof;
(k) Liens securing arrangements permitted by the proviso
contained in subsection 8.12;
(l) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(m) Liens securing Indebtedness owing to the Company or any
Subsidiary Guarantor under subsection 8.2(b)(ii); and
(n) Liens securing Indebtedness permitted by subsection 8.2(i)
representing or incurred to finance, refinance or refund the purchase
price of property, PROVIDED that no such Lien shall extend to or cover
other property of the Company or any Subsidiary other than the
respective property so acquired, and the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the
original purchase price of such property.
8.4 LIMITATION ON CONTINGENT OBLIGATIONS. Create, incur, assume or
suffer to exist any Contingent Obligation except:
(a) guarantees by the Company and its Subsidiaries incurred
in the ordinary course of business for an aggregate amount not to
exceed $15,000,000 at any one time;
(b) Contingent Obligations existing on the Closing Date and
described in Schedule 8.4 including any extensions or renewals
thereof;
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(c) Contingent Obligations in respect of foreign currency
exchange contracts permitted by subsection 8.11;
(d) Contingent Obligations pursuant to the Subsidiary
Guarantees; and
(e) guarantees by the Company of (i) Indebtedness of its
Subsidiaries permitted under subsection 8.2(f) and (ii) other
obligations of Subsidiaries not prohibited hereunder.
8.5 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any transaction of
acquisition of, or merger or consolidation or amalgamation with, any other
Person (including any Subsidiary or Affiliate of the Company or any of its
Subsidiaries), or transfer all or substantially all of its assets to any Foreign
Subsidiary, or liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or make any material change in the present method of conducting
business or engage in any type of business other than of the same general type
now conducted by it, except for the transactions otherwise permitted pursuant to
subsections 8.6 and 8.7.
8.6 PROHIBITION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, business or assets (including,
without limitation, tax benefits, receivables and leasehold interests), whether
now owned or hereafter acquired except:
(a) for the sale or other disposition of any tangible personal
property that, in the reasonable judgment of the Company, has become
uneconomic, obsolete or worn out, and which is disposed of in the
ordinary course of business;
(b) for sales or other dispositions of inventory made in the
ordinary course of business;
(c) that any Subsidiary of the Company may sell, lease, transfer
or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or a wholly-owned Domestic
Subsidiary of the Company or make any investment permitted by subsection
8.7, and any Subsidiary of the Company may sell or otherwise dispose of,
or part with control of any or all of, the stock of any Subsidiary to a
wholly-owned Domestic Subsidiary of the Company or to any other
Subsidiary to the extent such transfer constitutes an investment
permitted by subsection 8.7; PROVIDED that in either case such transfer
shall not cause such wholly-owned Domestic Subsidiary to become a
Foreign Subsidiary and PROVIDED FURTHER that no such transaction may be
effected if it would result in the transfer of any assets of, or any
stock of, a Subsidiary to another Subsidiary whose capital stock has not
been pledged to the Administrative Agent or which has pledged a lesser
percentage of its capital stock to the Administrative Agent than was
pledged by the transferor Subsidiary unless, in any such case, after
giving effect to such transaction, the stock of such other Subsidiary is
not required to be pledged under the definition of Company Pledge
Agreement or Subsidiary Pledge Agreement or under subsection 7.8(c);
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(d) that any Foreign Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or by merger, consolidation, transfer of assets,
or otherwise) to the Company or a wholly-owned Subsidiary of the Company
and any Foreign Subsidiary of the Company may sell or otherwise dispose
of, or part control of any or all of, the capital stock of, or other
equity interests in, any Foreign Subsidiary of the Company to a
wholly-owned Subsidiary of the Company; PROVIDED that in either case
such transfer shall not cause a Domestic Subsidiary to become a Foreign
Subsidiary;
(e) for the sale or other disposition by the Company or any of
its Subsidiaries of other assets consummated after the Closing Date;
PROVIDED that (i) such sale or other disposition shall be made for fair
value on an arm's length basis, (ii) the aggregate fair market value of
all such assets sold or disposed of under this clause after the Closing
Date shall not exceed $10,000,000 and (iii) the Net Proceeds from such
sale or other disposition shall be applied in accordance with the
provisions of subsection 4.6; and
(f) the sale or other disposition in the ordinary course of
business of Classic Vehicles.
8.7 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or any assets constituting a
business unit of, or make or maintain any other investment in, any Person,
except:
(a) (i) loans or advances in respect of intercompany accounts
attributable to the operation of the Company's cash management system
and (ii) loans or advances by the Company or any of its Subsidiaries to
a Subsidiary Guarantor (or a Subsidiary that would be a Subsidiary
Guarantor but for the lapse of time until such Subsidiary is required to
be a Subsidiary Guarantor), for working capital needs evidenced by a
Pledged Note so long as such loans or advances constitute Indebtedness
of the primary obligor that is not subordinate to any other Indebtedness
of such obligor;
(b) investments in Subsidiaries of the Company that are not
Subsidiary Guarantors (or a Subsidiary that would be a Subsidiary
Guarantor but for the lapse of time until such Subsidiary is required to
be a Subsidiary Guarantor); PROVIDED that at all times the aggregate
amount of all such investments shall not exceed five percent (5%) of the
total assets of the Company and its Subsidiaries on a consolidated
basis;
(c) investments, not otherwise described in this subsection 8.7,
in Subsidiary Guarantors (or a Subsidiary that would be a Subsidiary
Guarantor but for the lapse of time until such Subsidiary is required to
be a Subsidiary Guarantor) that otherwise are not prohibited under the
terms of this Agreement.
(d) any Subsidiary of the Company may make investments in the
Company (by way of capital contribution or otherwise);
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(e) the Company and its Subsidiaries may invest in, acquire and
hold (i) Cash Equivalents and (ii) petty cash held in local bank
branches and in cash registers of the Company and its subsidiaries, in
each case under this clause (ii) in the ordinary course of business;
(f) the Company or any of its Subsidiaries may make travel and
entertainment advances and relocation loans in the ordinary course of
business to officers, employees and agents of the Company or any such
Subsidiary;
(g) the Company or any of its Subsidiaries may make payroll
advances in the ordinary course of business;
(h) the Company or any of its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary
trade terms (PROVIDED that nothing in this clause (i) shall prevent the
Company or any Subsidiary from offering such concessionary trade terms,
or from receiving such investments in connection with the bankruptcy or
reorganization of their respective suppliers or customers or the
settlement of disputes with such customers or suppliers arising in the
ordinary course of business, as management deems reasonable in the
circumstances);
(i) the Company and its Subsidiaries may make investments in
connection with asset sales permitted by subsection 8.6 or to which the
Required Lenders consent;
(j) investments of the Company existing on the Closing Date and
described in Schedule 8.8;
(k) the Company and its Subsidiaries may make Permitted
Acquisitions and may make loans or advances to, or acquisitions or
investments in, other Persons in connection with or pursuant to the
terms of Permitted Acquisitions, PROVIDED that the consideration paid by
the Company or any of its Subsidiaries in all such transactions after
the Closing Date does not exceed in the aggregate $35,000,000;
(l) the Company and its Subsidiaries may make loans or advances
to, or acquisitions or investments, in any Person not described in (a)
through (k) above in an aggregate amount not to exceed in the aggregate
$15,000,000; and
(m) loans or advances for an aggregate amount not to exceed
$1,000,000 at any time.
8.8 CAPITAL EXPENDITURES. Make or commit to make Capital Expenditures in
any fiscal year exceeding $30,000,000 during each fiscal year of the Company.
The amount of all Capital Expenditures permitted to be made during a fiscal year
pursuant to the terms hereof, if not expended in the year for which it is
permitted, may be carried over for expenditure in the following years without
limitation.
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8.9 LIMITATION ON DIVIDENDS. Declare any dividends on any shares of any
class of stock, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of any shares of any class of stock whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Company or
any of its Subsidiaries (all of the foregoing being referred to herein as
"RESTRICTED PAYMENTS"); except that:
(a) Subsidiaries may pay dividends directly or indirectly to the
Company or to Domestic Subsidiaries which are directly or indirectly
wholly-owned by the Company, and Foreign Subsidiaries may pay dividends
directly or indirectly to Foreign Subsidiaries which are directly or
indirectly wholly-owned by the Company;
(b) so long as no Default or Event of Default has occurred or
would occur after giving effect to such declaration or payment, the
Company may, from time to time, repurchase Company stock from management
employees of the Company or any of its Subsidiaries or make payments in
respect of outstanding stock appreciation rights granted to management
employees of the Company or any of its Subsidiaries in an aggregate
amount not to exceed $5,000,000 (the "REPURCHASE LIMIT"), PROVIDED that
the Repurchase Limit shall be increased by the proceeds of any
additional Company stock which is issued to any management employees of
the Company or any of its Subsidiaries after the Closing Date; and
(c) so long as no Default or Event of Default has occurred or
would occur after giving effect to such declaration or payment, the
Company may, at any time (i) the Leverage Ratio in effect is less than
or equal to 2.00:1.00 or (ii) the aggregate principal amount of Loans
and Letters of Credit then outstanding is less than $100,000,000,
declare and pay cash dividends on the common stock of the Company and
repurchase common stock of the Company, PROVIDED, that the aggregate
amount paid in respect thereof in any fiscal year of the Company
pursuant to this paragraph (c) does not exceed an amount equal to 25% of
the Consolidated Net Income for such fiscal year.
8.10 TRANSACTIONS WITH AFFILIATES. Enter into after the date hereof any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate except
(a) for transactions which are otherwise permitted under this Agreement and
which are in the ordinary course of the Company's or a Subsidiary's business and
which are upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than it would obtain in a hypothetical comparable arm's length
transaction with a Person not an Affiliate, (b) as permitted under subsections
8.2(b), subsection 8.3(m), subsection 8.4(e), subsections 8.6(c) and (d),
subsections 8.7 and subsection 8.9, (c) as set forth on Schedule 8.10 or (d) as
disclosed in the Registration Statement.
8.11 DERIVATIVE CONTRACTS. Enter into any foreign currency exchange
contracts, interest rate swap arrangements or other derivative contracts or
transactions, other than such contracts, arrangements or transactions entered
into in the ordinary course of business for the purpose of hedging (a) any asset
or obligation of the Company or any of its Subsidiaries with
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respect to their operations outside of the United States, (b) the interest
rate exposure of the Company or any of its Subsidiaries, and (c) the purchase
requirements of the Company or any of its Subsidiaries with respect to raw
materials and inventory.
8.12 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with
any Person providing for the leasing by the Company or any Subsidiary of real or
personal property which has been or is to be sold or transferred by the Company
or such Subsidiary to such Person or to any other Person to whom funds have been
or are to be advanced by such Person on the security of such property or rental
obligations of the Company or such Subsidiary, PROVIDED that the Company or any
of its Subsidiaries may enter into such arrangements covering property with an
aggregate fair market value not exceeding $10,000,000.
8.13 FISCAL YEAR. Permit the fiscal year of the Company to end on a day
other than the Saturday closest to December 31, unless the Company shall have
given at least 45 days prior written notice to the Administrative Agent.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) The Company shall fail to (i) pay any principal of any Loan
or Note when due in accordance with the terms hereof or thereof or to
reimburse the Issuing Lender in accordance with subsection 3.6 or (ii)
pay any interest on any Loan or any other amount payable hereunder
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any
Credit Party in any Credit Document or which is contained in any
certificate, guarantee, document or financial or other statement
furnished under or in connection with this Agreement shall prove to have
been incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Company shall default in the observance or performance
of any agreement contained in subsection 7.7(a) of this Agreement, the
Company shall default in the observance or performance of any agreement
contained in Section 7.8(c) of this Agreement or any Credit Party shall
default in the observance or performance of any agreement contained in
Section 2 of the Guarantee to which it is a party; or
(d) The Company or any other Credit Party shall default in the
observance or performance of any other agreement contained in any Credit
Document, and such default shall continue unremedied for a period of 30
days; or
(e) The Company or any of its Subsidiaries shall (A) default in
any payment of principal of or interest on any Indebtedness (other than
the Loans, the Revolving L/C Obligations and any intercompany debt) or
in the payment of any Contingent Obligation,
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beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness or Contingent Obligation was
created; or (B) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or
Contingent Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated
maturity, any applicable grace period having expired, or such
Contingent Obligation to become payable, any applicable grace period
having expired, PROVIDED that the aggregate principal amount of all
such Indebtedness and Contingent Obligations which would then become
due or payable as described in this Section 9(e) would equal or
exceed $5,000,000; or
(f) (i) The Company or any of their respective Subsidiaries
(other than any Subsidiary which is a Non-Significant Subsidiary
within the meaning of clause (i) of the definition thereof) shall
commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
assets, or the Company or any such Subsidiary shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Company or any such Subsidiary any case,
proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against the Company or any such Subsidiary any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Company or any such Subsidiary shall
take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Company or any such Subsidiary
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event (other than a
Reportable Event with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) shall occur with respect
to, or proceedings to have a trustee appointed shall commence with
respect to, or a trustee shall be appointed to
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administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely
to result in the termination of such Plan for purposes of Title IV of
ERISA, and, in the case of a Reportable Event, such Reportable Event
shall continue unremedied for ten days after notice of such
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is
given and, in the case of the institution of proceedings, such
proceedings shall continue for ten days after commencement thereof or
(iv) any Single Employer Plan shall terminate for purposes of Title
IV of ERISA; and in each case in clauses (i) through (iv) above, such
event or condition, together with all other such events or conditions
relating to such Plans, if any, could subject the Company or any of
its Subsidiaries to any tax, penalty or other liabilities which in
the aggregate would have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Company or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $10,000,000 or
more to the extent that all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within the
time required by the terms of such judgment; or
(i) Except as provided in subsection 11.11, any Guarantee hereof
shall cease, for any reason, to be in full force and effect or any
Credit Party shall so assert in writing; or
(j) Except as provided in subsection 11.11, any Pledgor (as
defined in the relevant Pledge Agreement) shall breach any covenant
or agreement contained in such Pledge Agreement with the effect that
such Pledge Agreement shall cease to be in full force and effect or
the Lien granted thereby shall cease to be a first priority Lien or
any Credit Party shall assert in writing that any Pledge Agreement is
no longer in full force and or effect or the Lien granted thereby is
no longer a first priority Lien; or
(k) (i) Until such time as the Leverage Ratio is 1.5 to 1.0 or
less, the FL Affiliates shall own beneficially less than 25% of the
outstanding voting stock of the Company, (ii) at any time that the FL
Affiliates owns beneficially less than a majority, but more than 25% of
the outstanding voting stock of the Company, the occurrence of any event
as a result of which event, any person or group (other than the FL
Affiliates) acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of a
percentage of the outstanding voting stock of the Company greater than
that percentage owned beneficially by the FL Affiliates, (iii) at a time
that the FL Affiliates beneficially owns less than 25% of the
outstanding voting stock of the Company, the occurrence of any event, as
a result of which event, any person or group (other than the FL
Affiliates) acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission promulgated under the
Exchange Act) of 25% or more of the outstanding voting stock of the
Company or (iv) any person or group of persons (other than the FL
Affiliates) at any time has the right to designate or elect a majority
of the board of directors of the Company);
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then, and in any such event, (a) if such event is an Event of Default with
respect to the Company specified in clause (i) or (ii) of paragraph (f) above,
automatically (i) the Commitments and the Issuing Lender's obligations to issue
Letters of Credit shall immediately terminate and the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement and
the Loans shall immediately become due and payable, and (ii) all obligations of
the Company in respect of the Letters of Credit, although contingent and
unmatured, shall become immediately due and payable and the Issuing Lender's
obligation to issue Letters of Credit shall immediately terminate and (b) if
such event is any other Event of Default, so long as any such Event of Default
shall be continuing, either or both of the following actions may be taken: (i)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Company declare the Commitments and the Issuing Lender's obligation to
issue Letters of Credit to be terminated forthwith, whereupon the Commitments
and such obligation shall immediately terminate; and (ii) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice of default to the
Company (A) declare all or a portion of the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the Loans
to be due and payable forthwith, whereupon the same shall immediately become due
and payable, and (B) declare all or a portion of the obligations of the Company
in respect of the Letters of Credit, although contingent and unmatured, to be
due and payable forthwith, whereupon the same shall immediately become due and
payable and/or demand that the Company discharge any or all of the obligations
supported by the Letters of Credit by paying or prepaying any amount due or to
become due in respect of such obligations. All payments under this Section 9 on
account of undrawn Letters of Credit shall be made by the Company directly to a
cash collateral account established by the Administrative Agent for such purpose
for application to the Company's reimbursement obligations under subsection
3.6 as drafts are presented under the Letters of Credit, with the balance, if
any, to be applied to the Company's obligations under this Agreement and the
Loans as the Administrative Agent shall determine with the approval of the
Required Lenders. Except as expressly provided above in this Section 9,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER
10.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints
Chase as the Administrative Agent under this Agreement and irrevocably
authorizes Chase as Administrative Agent for such Lender to take such action on
its behalf under the provisions of the Credit Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of the Credit Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Credit Documents or otherwise exist against the Administrative Agent.
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10.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of
its duties under this Agreement and each of the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Without limiting the
foregoing, the Administrative Agent may appoint Chase Bank Agency Services
Corporation as its agent to perform the functions of the Administrative Agent
hereunder relating to the advancing of funds to the Company and distribution of
funds to the Lenders and to perform such other related functions of the
Administrative Agent hereunder as are reasonably incidental to such functions.
The Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care, except as otherwise provided in subsection 10.3.
10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact, Affiliates or
Subsidiaries shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with the Credit Documents
(except for its or such Person's own gross negligence or willful misconduct), or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Credit Party or any
officer thereof contained in the Credit Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, the Credit Documents or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of the Credit Documents or for any failure of any Credit Party to perform its
obligations thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, any Credit
Document, or to inspect the properties, books or records of any Credit Party.
10.4 RELIANCE BY THE ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation,
counsel to the Company), independent accountants and other experts selected
by the Administrative Agent. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes unless a written
notice of assignment, negotiation or transfer thereof shall have been filed
with the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under any Credit Document
unless it shall first receive such advice or concurrence of the Required
Lenders (or, where unanimous consent of the Lenders is expressly required
hereunder, such Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under any Credit Document
in accordance with a request of the Required Lenders, and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Lenders and all future holders of the Notes.
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10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received written notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly give notice thereof to the Lenders. The Administrative
Agent shall take such action with respect to such Default or Event of Default as
shall be directed by the Required Lenders; PROVIDED that (i) the Administrative
Agent shall not be required to take any action that exposes the Administrative
Agent to liability or that is contrary to this Agreement or applicable law and
(ii) unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates has made any representations or warranties to it and that no act by
the Administrative Agent hereafter taken, including any review of the affairs of
the Credit Parties, shall be deemed to constitute any representation or warranty
by the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Credit Parties and made its own decision
to make its Loans hereunder, issue and participate in the Letters of Credit and
enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent 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 analysis, appraisals and decisions
in taking or not taking action under the Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Credit Parties. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
financial condition, assets, liabilities, net assets, properties, results of
operations, value, prospects and other condition or creditworthiness of the
Credit Parties which may come into the possession of the Administrative
Agent or any of its officers, directors, employees, agents, attorneys-in-fact,
Affiliates or Subsidiaries.
10.7 INDEMNIFICATION. The Lenders severally agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Credit Parties and without limiting the obligation of the Credit Parties to
do so), ratably according to the respective amounts of the sum of their
respective Revolving Credit Commitments (or, to the extent such Revolving Credit
Commitments have been terminated, according to the respective outstanding
principal amounts of the Revolving Credit Loans and obligations, whether as
Issuing Lender or a Participating Lender, with respect to Letters of Credit) and
Term Loans, from and
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against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any time
following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of the
Credit Documents or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing;
PROVIDED that no Lender shall be liable for the payment of any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct. The agreements
contained in this subsection 10.7 shall survive the payment of the Notes and
all other amounts payable hereunder.
10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The Administrative
Agent and its Affiliates and Subsidiaries may make loans to, accept deposits
from and generally engage in any kind of business with the Credit Parties as
though the Administrative Agent were not the Administrative Agent hereunder.
With respect to its Loans made or renewed by it, any Note issued to it and any
Letter of Credit issued by or participated in by it, the Administrative Agent
shall have the same rights and powers, duties and liabilities under the Credit
Documents as any Lender and may exercise the same as though it were not the
Administrative Agent and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacities.
10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign
as Administrative Agent upon 30 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under the Credit
Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders which successor agent shall be approved by the
Company (which approval shall not be unreasonably withheld) whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent and the term "Administrative Agent" shall mean such
successor agent effective upon its appointment, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the Notes. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under the Credit Documents.
10.10 ISSUING LENDER AS ISSUER OF LETTERS OF CREDIT. Each Lender hereby
acknowledges that the provisions of this Section 10 shall apply to the Issuing
Lender, in its capacity as issuer of any Letter of Credit, in the same manner as
such provisions are expressly stated to apply to the Administrative Agent.
10.11 OTHER AGENTS. The Syndication Agent, the Documentation Agent
and the Managing Agent shall have no rights or obligations in their
capacities as such.
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SECTION 11. MISCELLANEOUS
11.1 AMENDMENTS AND WAIVERS. No Credit Document nor any terms thereof
may be amended, supplemented, waived or modified except in accordance with
the provisions of this subsection 11.1. With the written consent of the
Required Lenders, the Administrative Agent and the respective Credit Parties
may, from time to time, enter into written amendments, supplements or
modifications to any Credit Document for the purpose of adding any provisions
to such Credit Document to which they are parties or changing in any manner
the rights of the Lenders or of any such Credit Party or any other Person
thereunder or waiving, on such terms and conditions as the Administrative
Agent may specify in such instrument, any of the requirements of any such
Credit Document or any Default or Event of Default and its consequences;
PROVIDED, HOWEVER, that:
(a) no such waiver and no such amendment, supplement or
modification shall directly or indirectly release (i) any Subsidiary
Guarantor from its obligations under its Subsidiary Guarantee, without
the written consent of the Required Lenders or (ii) release all or
substantially all of the Subsidiary Guarantees, without the written
consent of the Release Lenders, except in either case as otherwise
provided herein or in any other Credit Document;
(b) no such waiver and no such amendment, supplement or
modification shall directly or indirectly release (i) any Subsidiary
Guarantor from its obligations under the Subsidiary Pledge Agreement,
without the consent of the Required Lenders, or (ii) the Company or all
or substantially all the Subsidiaries from their obligations under the
Company Pledge Agreement or the Subsidiary Pledge Agreement,
respectively, without the written consent of the Release Lenders, except
in either case as otherwise provided herein or in any other Credit
Document;
(c) no such waiver and no such amendment, supplement or
modification shall (i) extend the scheduled maturity of any Loan or
scheduled installment of any Loan or extend the expiry date of any
Letter of Credit beyond the Revolving Credit Termination Date, or reduce
the rate or extend the time of payment of interest thereon, or change
the method of calculating interest thereon, or reduce the amount or
extend the time of payment of any fee payable to the Lenders hereunder,
or reduce the principal amount thereof, or increase the amount of any
Commitment of any Lender without the consent of each Lender directly
affected thereby, or (ii) amend, modify or waive any provision of this
subsection 11.1 or the definitions of Required Lenders or Release
Lenders or change the percentage of the Lenders required to waive a
condition precedent under Section 6 or consent to the assignment or
transfer by any Credit Party of any of its rights and obligations under
any Credit Document, in each case, without the written consent of each
Lender; and
(d) no such waiver and no such amendment, supplement or
modification shall amend, modify or waive any provision of
Section 10 without the written consent of the then Issuing Lender
and Administrative Agent.
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Any such waiver and any such amendment, supplement or modification described in
this subsection 11.1 shall apply equally to each of the Lenders and shall be
binding upon each Credit Party, the Lenders, the Administrative Agent and all
future holders of the Loans. No waiver, amendment, supplement or modification
of any Letter of Credit shall extend the expiry date thereof without the
written consent of the Participating Lenders. In the case of any waiver, the
Company, the Lenders, the Administrative Agent shall be restored to their
former position and rights hereunder and under the outstanding Loans, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.
11.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy or telex), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or three
Business Days after being deposited in the mail, postage prepaid, or, in the
case of telecopy notice, when sent, confirmation of receipt received, or, in
the case of telex notice, when sent, answerback received, addressed as
follows in the case of each Credit Party and the Administrative Agent, and as
set forth on Schedule 1 hereto in the case of any Lender, or to such other
address as may be hereafter notified by the respective parties hereto and any
future holders of the Loans:
The Company: The Yankee Candle Company, Inc.
102 Christian Lane
Whately, Massachusetts 01093
Attention: Robert R. Spellman
Telecopy: (413) 665-4171
With a copy to: Forstmann Little & Co.
767 Fifth Avenue
44th Floor
New York, New York 10153
Attention: Sandra Horbach
Telex: 497 23385LCO
Telecopy: (212) 759-9059
In the case of the Company
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel
Telex: 128173
Telecopy: (212) 859-4000
The Administrative Agent: The Chase Manhattan Bank
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270 Park Avenue
New York, New York 10017
Attention: William J. Caggiano
Telecopy: (212) 972-0009
With a copy to: Chase Securities Inc.
270 Park Avenue
New York, New York 10017
Attention: Allison Conway
Telecopy: (212) 270-1848
PROVIDED that any notice, request or demand to or upon the Administrative
Agent or the Lenders pursuant to subsections 3.3, 3.7, 4.1, 4.3, 4.4, 4.5 and
4.6 shall not be effective until received and PROVIDED, FURTHER that the
failure to provide the copies of notices to the Company provided for in this
subsection 11.2 shall not result in any liability to the Administrative Agent
or any Lender.
11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement, the Letters of Credit and the Loans.
11.5 PAYMENT OF EXPENSES AND TAXES. The Company agrees:
(a) to pay or reimburse the Administrative Agent for all of its
out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, the Credit Documents and any
other documents prepared in connection herewith, and the consummation of
the transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent;
(b) to pay or reimburse each Lender and the Administrative Agent
for all their costs and expenses incurred in connection with, and to
pay, indemnify, and hold the Administrative Agent and each Lender
harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever arising out of or in
connection with, the enforcement or preservation of any rights under any
Credit Document and any such other documents, including, without
limitation, reasonable fees
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and disbursements of counsel to the Administrative Agent and each Lender
incurred in connection with the foregoing and in connection with
advising the Administrative Agent with respect to its rights and
responsibilities under this Agreement and the documentation relating
thereto;
(c) to pay, indemnify, and to hold the Administrative Agent and
each Lender harmless from, any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other similar taxes (other than withholding
taxes), if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation of any of
the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, any
Credit Document and any such other documents; and
(d) to pay, indemnify, and hold the Administrative Agent and
each Lender and their respective officers, directors, employees and
agents harmless from and against any and all other liabilities,
obligations, losses, damages (including punitive damages), penalties,
fines, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever (including, without limitation, reasonable
experts' and consultants' fees and reasonable fees and disbursements of
counsel and third party claims for personal injury or real or personal
property damage) which may be incurred by or asserted against the
Administrative Agent or the Lenders (x) arising out of or in connection
with any investigation, litigation or proceeding related to this
Agreement, the other Credit Documents, the proceeds of the Loans, or any
of the other transactions contemplated hereby or thereby, whether or not
the Administrative Agent or any of the Lenders is a party thereto, (y)
with respect to any environmental matters, any environmental compliance
expenses and remediation expenses, to the extent required under
Environmental Laws, in connection with the presence, suspected presence,
release or suspected release of any Materials of Environmental Concern
in or into the air, soil, groundwater, surface water or improvements at,
on, about, under, or within the Properties, or any portion thereof, or
elsewhere in connection with the transportation of Materials of
Environmental Concern to or from the Properties or (z) without limiting
the generality of the foregoing, by reason of or in connection with the
execution and delivery or transfer of, or payment or failure to make
payments under, Letters of Credit (it being agreed that nothing in this
subsection 11.5(d) is intended to limit the Company's obligations
pursuant to subsection 3.6);
(all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED that
the Company shall have no obligation hereunder with respect to indemnified
liabilities of the Administrative Agent or any Lender or any of their respective
officers, directors, employees or agents arising from (i) the gross negligence
or willful misconduct of such Administrative Agent or Lender or their respective
directors, officers, employees or agents or (ii) legal proceedings commenced
against the Administrative Agent or any Lender by any security holder or
creditor thereof arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such or (iii) legal proceedings
commenced against the Administrative Agent or any such Lender by
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any Transferee (as defined in subsection 11.6). The agreements in this
subsection 11.5 shall survive repayment of the Loans and all other amounts
payable hereunder.
11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING LENDERS. (a)
This Agreement shall be binding upon and inure to the benefit of the Company,
the Lenders and the Administrative Agent, all future holders of the Loans,
and their respective successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("PARTICIPANTS") participating interests in any Loan
owing to such Lender, any participating interest of such Lender in the Letters
of Credit, any Note held by such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Credit Documents,
PROVIDED, HOWEVER, that no Lender shall sell any such participating interest to
any Participant which is a Non-U.S. Lender that is unable to deliver to such
Lender either an Internal Revenue Service Form 4224 or Form 1001 pursuant to
subsection 4.18(e) hereof). In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under
this Agreement to the other parties to this Agreement shall remain unchanged,
such Lender shall remain solely responsible for the performance thereof, such
Lender shall remain the holder of any such Loan for all purposes under this
Agreement and the other Credit Documents and the Company and the
Administrative Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Credit Documents. The Company agrees that if amounts
outstanding under this Agreement and the Loans are due and unpaid, or shall
have been declared or shall have become due and payable upon the occurrence
of an Event of Default, each Participant shall be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement and any Loan to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or any Loan; PROVIDED that such Participant shall only be entitled
to such right of setoff if it shall have agreed in the agreement pursuant to
which it shall have acquired its participating interest to share with the
Lenders the proceeds thereof, as provided in subsection 11.7. The Company
also agrees that each Participant shall be entitled to the benefits of
subsections 4.12, 4.19, 4.20 and 4.21 with respect to its participation in
the Letters of Credit and in the Commitments and the Loans outstanding from
time to time; PROVIDED that no Participant shall be entitled to receive any
greater amount pursuant to such subsections than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such
transfer occurred and each Participant shall be subject to the provisions of
paragraph (c) of subsection 4.20.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to any Lender or any Affiliate
thereof (including any Affiliate or Subsidiary of such transferor Lender) (with
"Affiliate" of any Lender including, for purposes of this subsection 11.6, any
open-end or closed-end mutual fund, or any investment partnership or account or
other investment entity, which is advised by the same or an affiliated
investment advisor, including up to a total of four) and, with the prior written
consent of the Company and
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the Administrative Agent (which in each case shall not be unreasonably
withheld), sell to one or more additional banks or financial institutions (an
"ASSIGNEE"), all or any part of its rights and obligations under this
Agreement, the Notes and the other Credit Documents and, with respect to the
Letters of Credit, such Lender's L/C Participating Interest, pursuant to an
Assignment and Acceptance executed by such Assignee, such assigning Lender
(and, in the case of an Assignee that is not then a Lender or an Affiliate
thereof, by the Company and the Administrative Agent), and delivered to the
Administrative Agent for its acceptance and recording in the Register (as
defined below); PROVIDED that (A) each such sale pursuant to this subsection
11.6(c) of less than all of a Lender's rights and Obligations (I) to a Person
which is not then a Lender or an Affiliate of a Lender shall be of
Commitments and/or Loans of $10,000,000 or more and (II) to a Person which is
then a Lender or an Affiliate of a Lender may be in any amount, (B) in the
event of a sale of less than all of such rights and obligations, such Lender
after such sale shall retain Commitments and/or Loans (without duplication)
aggregating at least $10,000,000 and (C) each Assignee which is a Non-U.S.
Lender shall comply with the provisions of subsection 4.18(e) hereof; and
PROVIDED, FURTHER that the foregoing shall not prohibit a Lender from selling
participating interests in accordance with subsection 11.6(b) in all or any
portion of its Commitments and/or Loans (without duplication). Upon such
execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with the Commitments and Loans as set forth therein, and (y) the
assigning Lender thereunder shall, to the extent of the interest transferred,
as reflected in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such assigning Lender shall
cease to be a party hereto). Such Assignment and Acceptance shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Assignee and the resulting adjustment of
Commitment Percentages arising from the purchase by such Assignee of all or a
portion of the rights and obligations of such assigning Lender under this
Agreement and the Notes. As soon as practicable after the effective date
determined pursuant to such Assignment and Acceptance, the Company, at its
own expense, shall, to the extent requested by the Assignee, execute and
deliver to the Administrative Agent, in exchange for any surrendered Notes,
new Notes to the order of such Assignee in amounts equal to the respective
Commitments and Loans assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained Commitments hereunder,
to the extent requested by the assigning Lender, new Notes to the order of
the assigning Lender in an amount equal to the Commitments and Loans retained
by it hereunder. Such new Notes shall be dated the Closing Date and shall
otherwise be in the form of the Notes replaced thereby. Any Notes surrendered
by the assigning Lender shall be returned by the Administrative Agent to the
Company marked "cancelled". Notwithstanding anything herein to the contrary
(and to the extent permitted by law), after the occurrence of an Event of
Default of the type described in section 9(f) with respect to or the
Company, any Lender may sell all or any part of its rights and obligations
under this Agreement without the consent of the Company.
(d) [Reserved]
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(e) The Administrative Agent acting on behalf of and as agent for the
Company, shall maintain at the address of the Administrative Agent referred to
in subsection 11.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "REGISTER") for the recordation of the names and
addresses of the Lenders and registered owners of the Notes and the
Commitment of, the principal amount of any Term Loans, Swing Line Loans
and/or Revolving Credit Loans owing to, and if such Lender has any Revolving
Credit Commitment, the L/C Participating Interests of, each Lender from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Administrative Agent and the Lenders
shall treat each Person whose name is recorded in the Register as the owner
of the Loans or L/C Participating Interests recorded therein for all purposes
of this Agreement, notwithstanding any notice to the contrary. The Register
shall be available for inspection by the Company or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Company and the Administrative
Agent), together with payment to the Administrative Agent of a registration and
processing fee of $4,000 if the Assignee is not a Lender or an Affiliate thereof
prior to the execution of such Assignment and Acceptance and $1,000 otherwise,
the Administrative Agent shall (i) promptly accept such Assignment and
Acceptance and (ii) on the effective date determined pursuant thereto, record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Company.
(g) The Company authorizes each Lender to disclose to any Participant or
Assignee (each, a "TRANSFEREE") and any prospective Transferee any and all
financial information in such Lender's possession concerning the Company and
their respective Subsidiaries which has been delivered to such Lender by or on
behalf of the Company pursuant to this Agreement or which has been delivered to
such Lender by or on behalf of the Company in connection with such Lender's
credit evaluation of the Company and their respective Subsidiaries and
Affiliates prior to becoming a party to this Agreement.
(h) If, pursuant to this subsection 11.6, any interest in this
Agreement or any Loan or Letter of Credit is transferred to any Transferee
which would be a Non-U.S. Lender upon the effectiveness of such transfer, the
assigning Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the assigning Lender (for
the benefit of the assigning Lender, the Administrative Agent and the
Company) that under applicable law and treaties no U.S. Taxes will be
required to be withheld by the Administrative Agent, the Company or the
assigning Lender with respect to any payments to be made to such Transferee
in respect of the Loans or L/C Participating Interests, (ii) to furnish to
the assigning Lender (and, in the case of any Assignee registered in the
Register, the Administrative Agent and the Company) such Internal Revenue
Service Forms required to be furnished pursuant to subsection 4.18(e) and
(iii) to agree (for the benefit of the assigning Lender, the Administrative
Agent and the Company) to be bound by the provisions of subsection 4.18(e).
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(i) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law; provided that any transfer of Loans or Notes
upon, or in lieu of, enforcement of or the exercise of remedies under any such
pledge shall be treated as an assignment thereof which shall not be made without
compliance with the requirements of this subsection 11.6.
11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER")
shall at any time receive any payment of all or part of any of its Term
Loans, Revolving Credit Loans (other than payment of Swing Line Loans) or L/C
Participating Interests, as the case may be, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in
clause (f) of Section 9, or otherwise) in a greater proportion than any such
payment to and collateral received by any other Lender, if any, in respect of
such other Lender's Term Loans, Revolving Credit Loans or L/C Participating
Interests, as the case may be, or interest thereon, such benefitted Lender
shall purchase for cash from the other Lenders such portion of each such
other Lender's Term Loans, Revolving Credit Loans or L/C Participating
Interests, as the case may be, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
PROVIDED, HOWEVER, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the
extent of such recovery, but without interest. The Company agrees that each
Lender so purchasing a portion of another Lender's Loans and/or L/C
Participating Interests may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as fully
as if such Lender were the direct holder of such portion. The Administrative
Agent shall promptly give the Company notice of any set-off, PROVIDED that
the failure to give such notice shall not affect the validity of such set-off.
(b) Upon the occurrence of an Event of Default specified in Section
9(a) or 9(f), the Administrative Agent and each Lender are hereby irrevocably
authorized at any time and from time to time without notice to the Company,
any such notice being hereby waived by the Company, to set off and
appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of the Company or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, on account of the liabilities
of the Company hereunder and under the other Credit Documents and claims of
every nature and description of the Administrative Agent or such Lender
against the Company in any currency, whether arising hereunder, or otherwise,
under any other Credit Document as the Administrative Agent or such Lender
may elect, whether or not the Administrative Agent or such Lender has made
any demand for payment and although such liabilities and claims may be
contingent or unmatured. The Administrative Agent and each Lender shall
notify the Company promptly of any such setoff
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made by it and the application made by it of the proceeds thereof, PROVIDED
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Administrative Agent and each
Lender under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the
Administrative Agent or such Lender may have.
11.8 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Administrative Agent. This Agreement
shall become effective with respect to the Company, the Administrative Agent and
the Lenders when the Administrative Agent shall have received copies of this
Agreement executed by the Company and the Lenders, or, in the case of any
Lender, shall have received telephonic confirmation from such Lender stating
that such Lender has executed counterparts of this Agreement or the signature
pages hereto and sent the same to the Administrative Agent.
11.9 INTEGRATION. This Agreement and the other Credit Documents
represent the entire agreement of the Credit Parties, the Administrative
Agent and the Lenders with respect to the subject matter hereof and thereof,
and there are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to the subject matter hereof or
thereof not expressly set forth or referred to herein or in the other Credit
Documents.
11.10 GOVERNING LAW; NO THIRD PARTY RIGHTS. THIS AGREEMENT AND THE LOANS
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE LOANS
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK. THIS AGREEMENT IS SOLELY FOR THE BENEFIT OF THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, AND, EXCEPT AS SET
FORTH IN SUBSECTION 11.6, NO OTHER PERSONS SHALL HAVE ANY RIGHT, BENEFIT,
PRIORITY OR INTEREST UNDER, OR BECAUSE OF THE EXISTENCE OF, THIS AGREEMENT.
11.11 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH PARTY TO THIS
AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS CREDIT AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS,
OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF,
TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
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(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY
AT ITS ADDRESS SET FORTH IN SUBSECTION 11.2 OR AT SUCH OTHER ADDRESS OF
WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO; AND
(iv) AGREES THAT NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
11.12 ACKNOWLEDGMENTS. The Company hereby acknowledges that:
(a) neither the Administrative Agent nor any Lender has any
fiduciary relationship to any Credit Party, and the relationship between
the Administrative Agent and the Lenders, on the one hand, and the
Credit Parties, on the other hand, is solely that of creditor and
debtor; and
(b) no joint venture exists among the Lenders or among any
Credit Parties and the Lenders.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
THE YANKEE CANDLE COMPANY, INC.
By:
---------------------------
Title:
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THE CHASE MANHATTAN BANK, as
Administrative Agent, Issuing Lender
and as a Lender
By:
---------------------------------
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Syndication Agent and as a Lender
By:
---------------------------------
Title:
THE BANK OF NOVA SCOTIA, as
Documentation Agent and as a Lender
By:
---------------------------------
Title:
BANKBOSTON, as Managing Agent and as
a Lender
By:
---------------------------------
Title:
<PAGE>
Schedule 1
Revolving Credit Term Loan
Lender Commitment Commitment
- ------ ---------------- ----------
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Telecopy: (212) 972-0009
Attention: William J. Caggiano
NationsBanc Montgomery Securities LLC
[Address]
Attention: ________
The Bank of Nova Scotia
[Address]
Attention: _______
BankBoston
[Address]
Attention: ________
------------ ------------
$150,000,000 $150,000,000
<PAGE>
Annex A
PRICING GRID
Leverage Eurodollar Abr Commitment
Ratio Level Applicable Margin Applicable Margin Fee Rate
- ----------- ----------------- ----------------- --------
I 1.75% 0.75% 0.375%
II 1.50% 0.50% 0.375%
III 1.25% 0.25% 0.300%
IV 1.00% 0% 0.250%
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors and Stockholders
The Yankee Candle Company, Inc. and subsidiaries
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-76397 of The Yankee Candle Company, Inc. and subsidiaries ("Company") of our
report dated March 31, 1999 relating to the financial statements of the Company
as of and for the year ending December 31, 1998, appearing in the Prospectus,
which is a part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedule of the Company for the year ended
December 31, 1998, included in Item 16(b). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 3, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 6, 1998, in Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-76397) and related Prospectus of The Yankee Candle
Company, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 3, 1999
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors and Stockholders
The Yankee Candle Company, Inc. and subsidiaries
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-76397 of The Yankee Candle Company, Inc. and subsidiaries ("Company") on
Form S-1 of our report dated March 4, 1997 relating to the financial statements
of the Company for the year ending December 31, 1996, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the heading "Experts" in such Prospectus.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statements schedule of the Company relating to the
year ending December 31, 1996, listed in Item 16(b). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Fisk, Bilton, Smith & Co., P.C.
West Springfield, Massachusetts
June 3, 1999
