<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<C> <C>
ZALE CORPORATION 5944
ZALE DELAWARE, INC. 5944
(Exact name of registrant as specified in its (Primary Standard Industrial Classification Code
charter) Number)
DELAWARE 75-0675400
DELAWARE 75-2080834
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
ALAN P. SHOR, ESQ.
ZALE CORPORATION ZALE CORPORATION
ZALE DELAWARE, INC. ZALE DELAWARE, INC.
901 W. WALNUT HILL LANE 901 W. WALNUT HILL LANE
IRVING, TEXAS 75038-1003 IRVING, TEXAS 75038-1003
(972) 580-4000 (972) 580-4000
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including telephone number, including
area code, of each registrant's principal area code, of agent for service of each
executive offices) registrant)
</TABLE>
Please send copies of all correspondence to:
THOMAS J. HARTLAND, JR.
TROUTMAN SANDERS LLP
600 PEACHTREE STREET, N.E., SUITE 5200
ATLANTA, GEORGIA 30308
(404) 885-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exchange Notes, principal amount $1,000
per Original Note of Zale Corporation... $100,000,000 100% $100,000,000 $30,304
- ---------------------------------------------------------------------------------------------------------------------
Zale Delaware, Inc. Exchange Notes
Guarantee(2)............................ -- -- -- --
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Total(3).................................. $100,000,000 100% $100,000,000 $30,304
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</TABLE>
(1) Estimated for the sole purpose of computing the registration fee. Pursuant
to Rule 547(n) under the Securities Act, no separate fee is payable with
respect to the Exchange Notes Guarantee (the "Exchange Notes Guarantee").
(2) No separate consideration will be received for the Exchange Notes Guarantee.
(3) Such amount represents the principal amount of the Zale Corporation Exchange
Notes to be exchanged hereunder.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1997
PROSPECTUS
ZALE CORPORATION
[ZALE CORPORATION LOGO]
OFFER TO EXCHANGE ITS
8 1/2% SERIES B SENIOR NOTES DUE 2007
(PRINCIPAL AMOUNT $1,000 PER EXCHANGE NOTE)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8 1/2% SERIES A SENIOR NOTES DUE 2007
(PRINCIPAL AMOUNT $1,000 PER ORIGINAL NOTE)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER , 1997, UNLESS EXTENDED.
Zale Corporation, a corporation formed under the laws of the State of
Delaware (the "Company"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to $100,000,000 aggregate principal amount of its 8 1/2% Series B Senior Notes
(the "Exchange Notes") which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for a like
principal amount of its outstanding 8 1/2% Series A Senior Notes (the "Original
Notes"), of which $100,000,000 aggregate principal amount are issued and
outstanding. Pursuant to the Exchange Offer, Zale Delaware, Inc., a Delaware
corporation ("ZDel" or the "Guarantor"), is also offering to exchange its
guarantee of the obligations of the Company under the Original Notes (the
"Original Notes Guarantee") for a like guarantee in respect of the Exchange
Notes (the "Exchange Notes Guarantee"), which Exchange Notes Guarantee also has
been registered under the Securities Act. The Original Notes and the Original
Notes Guarantee are collectively referred to herein as the "Original Securities"
and the Exchange Notes and the Exchange Notes Guarantee are collectively
referred to herein as the "Exchange Securities."
(continued on following page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO
TENDER ORIGINAL NOTES IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1997.
<PAGE> 3
(continued from previous page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Original Notes on November , 1997.
The terms of the Exchange Notes are identical in all respects to the
respective terms of the Original Notes, except that (i) the Exchange Notes have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Original Notes and (ii)
interest on the Exchange Notes shall accrue from the most recent date to which
interest has been paid on the Notes (as hereinafter defined), or, if no such
interest has been paid, from the date of issuance of the Original Notes. The
Exchange Notes are being offered for exchange in order to satisfy certain
obligations of the Company and the Guarantor under the Registration Rights
Agreement dated as of September 30, 1997 among the Company, the Guarantor and
the Initial Purchasers (as defined therein) (the "Registration Rights
Agreement").
The Exchange Notes are redeemable for cash at any time on or after October
1, 2002, at the option of the Company, in whole or in part, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to October 1, 2000,
the Company may, at its option, use the net proceeds of one or more Public
Equity Offerings to redeem up to an aggregate of 30% of the aggregate principal
amount of Exchange Notes originally issued under the Indenture at a redemption
price equal to 108.5% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the redemption date; provided that at
least 70% of the aggregate principal amount of Exchange Notes originally issued
under the Indenture remains outstanding immediately after the occurrence of such
redemption. See "Description of Notes -- Optional Redemption."
Upon the occurrence of a Change of Control Triggering Event, each holder of
the Exchange Notes may require the Company to purchase all or a portion of such
holder's Notes at a cash purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. See "Description of the Notes -- Change of Control Triggering Event."
The Exchange Notes will be unsecured senior obligations of the Company and,
as such, will rank pari passu in right of payment with all other existing and
future senior indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. The Exchange Notes
will be guaranteed on a senior basis by the Guarantor. The Exchange Guarantee
will be an unsecured senior obligation of the Guarantor and will rank pari passu
with all existing and future senior indebtedness of the Company and the
Guarantor. The Exchange Notes and the Exchange Guarantee will also be
effectively subordinated to secured indebtedness of the Company and the
Guarantor.
The net proceeds from the sale of the Original Notes (the "Original
Offering" or the "Offering") were used by the Company to repay outstanding
indebtedness under its Revolving Credit Agreement and for general corporate
purposes.
Except as described herein, the Exchange Notes initially will be
represented by a global certificate or certificates registered in the name of
The Depository Trust Company ("DTC") or its nominee. Beneficial interests in
such Exchange Notes will be shown on, and transfers thereof will be effected
only through, records maintained by Participants (as defined herein) in DTC.
Except as described herein, Exchange Notes in certificated form will not be
issued in exchange for the global certificates. See "Description of the Exchange
Notes -- Book-Entry, Delivery and Form."
The Company is making the Exchange Offer of the Exchange Notes in reliance
on the position of the staff of the Division of Corporation Finance of the
Securities and Exchange Commission (the "Commission") as set forth in certain
interpretive letters addressed to third parties in other transactions. However,
neither the Company nor the Guarantor has sought its own interpretive letter and
there can be no assurance that the staff of the Division of Corporation Finance
of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties. Based on
these interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, the Company
and the Guarantor believe that Exchange Notes issued pursuant to this Exchange
Offer in exchange for Original Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder of Original Notes who is an
"affiliate" of the Company or the Guarantor or who intends to participate in the
Exchange Offer for the purpose of distributing Exchange Notes, or any
broker-dealer who purchased Original Notes from the Company to resell pursuant
to Rule 144A under
<PAGE> 4
(continued from previous page)
the Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Original Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Original Notes acquired for its own
account as a result of market-making or other trading activities and exchanges
such Original Notes for Exchange Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such Exchange Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an "affiliate" of the Company or the Guarantor, (ii) any Exchange Notes
to be received by it are being acquired in the ordinary course of its business,
(iii) it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such Exchange Notes,
and (iv) if such holder is not a broker-dealer, such holder is not engaged in,
and does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Notes. In addition, the Company and the
Guarantor may require such holder, as a condition to such holder's eligibility
to participate in the Exchange Offer, to furnish to the Company and the
Guarantor (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) on behalf of whom such
holder holds the Original Notes to be exchanged in the Exchange Offer. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Original Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company and the Guarantor believe that broker-dealers who
acquired Original Notes for their own accounts, as a result of market-making
activities or other trading activities ("Participating Broker-Dealers"), may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes received upon exchange of such Original Notes with a prospectus meeting
the requirements of the Securities Act, which may be the prospectus prepared for
an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Notes. Accordingly,
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes acquired by such broker-dealer as a result of
market-making activities or other trading activities. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Notes received in exchange for Original Notes pursuant to the
Exchange Offer must notify the Company or the Guarantor, or cause the Company or
the Guarantor to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate"
of the Company or the Guarantor may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of Exchange Notes."
In that regard, each Participating Broker-Dealer who surrenders Original
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal or delivery of an Agent's Message (as defined
herein), that upon receipt of notice from the Company or the Guarantor of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of
Exchange Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer, or the Company or the Guarantor has given notice that the sale of
the Exchange Notes may be resumed, as the case may be.
<PAGE> 5
(continued from previous page)
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Original Notes. The Exchange Notes will be a new
issue of Securities for which there currently is no market. Although Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and BancBoston
Securities Inc., the initial purchasers of the Original Notes (the "Initial
Purchasers"), have informed the Company and the Guarantor that they each
currently intend to make a market in the Exchange Notes, they are not obligated
to do so, and any such market making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The Company and the Guarantor
currently do not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through the NASD Automated Quotation
System.
Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Original Notes will
continue to be subject to all of the existing restrictions upon transfer thereof
and neither the Company nor the Guarantor will have any further obligation to
such holders (other than under certain limited circumstances) to provide for
registration under the Securities Act of the Original Notes held by them. To the
extent that Original Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Original Notes could be adversely affected.
See "Risk Factors -- Consequences of a Failure to Exchange Original Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
Original Notes may be tendered for exchange on or prior to 5:00 p.m., New
York City time, on , 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). Tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Original Notes being
tendered for exchange. However, the Exchange Offer is subject to certain events
and conditions which may be waived by the Company or the Guarantor and to the
terms and provisions of the Registration Rights Agreement. Original Notes may be
tendered in whole or in part in any integral multiple of $1,000. The Company and
the Guarantor have agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer -- Fees and Expenses." Holders of Original Notes whose Original
Notes are accepted for exchange will not receive accrued interest on such
Original Notes for any period from and after the last Interest Payment Date to
which interest has been paid or duly provided for on such Original notes prior
to the original issue date of the Exchange Notes or, if no such interest has
been paid or duly provided for, will not receive any accrued interest on such
Original Notes, and the undersigned waives the right to receive any interest on
such Original Notes accrued from and after such Interest Payment Date or, if no
such interest has been paid or duly provided for, from and after September 30,
1997. See "The Exchange Offer -- Interest on Exchange Notes."
Neither the Company nor the Guarantor will receive any cash proceeds from
the issuance of the Exchange Notes offered hereby. No dealer-manager is being
used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files periodic reports,
proxy and information statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements, and other information filed by the Company with the Commission may
be inspected at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements regarding registrants, such as the
Company, that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not include all the information set forth in the
Registration Statement and the exhibits thereto, to which reference is made for
further information with respect to the Company. Copies of the Registration
Statement and the exhibits thereto are on file at the office of the Commission
and may be obtained from the Commission upon payment of prescribed rates or may
be examined without charge at the public reference facilities of the Commission
as prescribed above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are incorporated herein by reference and made a
part of this Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1997; and
(b) the Company's Report on Form 8-K dated September 12, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated herein by reference and made a part of this Prospectus from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN THE
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE). SUCH REQUESTS SHOULD BE DIRECTED TO MR. ALAN P. SHOR, ESQ., ZALE
CORPORATION, 901 W. WALNUT HILL LANE, IRVING, TEXAS 75038-1003, TELEPHONE: (972)
580-4000.
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<PAGE> 7
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, including statements
regarding, among other items, (i) expected capital expenditures to be made in
the future, (ii) expected significant upgrades to the Company's management
information systems over the next several years, (iii) the addition of new
locations through new store openings, (iv) the renovation and remodeling of the
Company's existing store locations, (v) the Company's effort to reduce costs,
(vi) the adequacy of the Company's sources of cash to finance its current and
future operations, (vii) the terms of renewal of the Company's store leases and
(viii) resolution of litigation without material adverse effect on the Company.
These forward-looking statements involve a number of risks and uncertainties.
Among others, factors that could cause actual results to differ materially are
the following: development of trends in the general economy; competition in the
fragmental retail jewelry business; the variability of quarterly results and
seasonality of the retail business; the ability to improve productivity in
existing stores and to increase comparable store sales; the availability of
alternate sources of merchandise supply during the three month period leading up
to the Christmas season; the dependence on key personnel who have been hired or
retained by the Company; the changes in regulatory requirements which are
applicable to the Company's business; management's decisions to pursue new
distribution channels which may involve additional costs; and the risk factors
listed herein and from time to time in the Company's Securities and Exchange
Commission reports, including but not limited to, its Annual Reports on Form
10-K.
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<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. The following summary information is qualified in its entirety
by reference to, and should be read in conjunction with, the more detailed
information and Consolidated Financial Statements (including the notes thereto)
included elsewhere in this Prospectus or incorporated by reference in this
Prospectus. Unless otherwise indicated, (i) the "Company" refers to Zale
Corporation and its subsidiaries and (ii) financial information provided herein
includes the Diamond Park Division, whose assets the Company agreed to sell
effective October 6, 1997.
THE COMPANY
The Company is the largest specialty retailer of fine jewelry in the United
States. At July 31, 1997, the Company operated 1,065 retail jewelry stores
(excluding 186 Diamond Park stores) located primarily in shopping malls
throughout the United States, Guam and Puerto Rico. The Company operates three
well-differentiated operating divisions: Zales(R) (638 stores), Gordon's(SM)
(310 stores) and Bailey, Banks and Biddle(R) (113 stores). The Zales Division is
a nationally recognized chain which provides more traditional, moderately priced
jewelry to a broad range of customers. The Gordon's Division is a regional
jeweler which offers contemporary merchandise targeted to regional preferences
at somewhat higher price points than Zales. The Bailey, Banks and Biddle
Division operates upscale jewelry stores which are considered among the pre-
eminent jewelry stores in their markets. In addition, the Company operates four
outlet stores in three states. During the fiscal year ended July 31, 1997, the
Company generated $1.3 billion and $130.0 million of net sales and EBITDA,
respectively.
The Company is well-positioned to compete in the approximately $37 billion,
highly fragmented retail jewelry industry due to its established brand names,
economies of scale and geographic and demographic diversity. The Company enjoys
significant brand name recognition as a result of its long-standing presence in
the industry and its regional and national advertising campaigns. Zales has been
in existence since 1924 and is supported by national television advertising
campaigns while Gordon's and Bailey, Banks and Biddle have been in existence
since 1905 and 1832, respectively, and are supported by regional advertising
campaigns. The Company believes that name recognition is an important advantage
in jewelry retailing as products are generally unbranded and consumers must
trust in a retailer's reliability and credibility. In addition, as the largest
specialty retailer of fine jewelry in the United States, the Company believes it
realizes economies of scale in purchasing and distribution, real estate,
advertising and administrative costs. The Company also believes that the
geographic diversity of its retail distribution network through all 50 states
and the demographic breadth of its target customer groups may serve to mitigate
earnings volatility typically associated with local or regional economic
conditions or poor weather conditions.
BUSINESS INITIATIVES
In April 1994, Robert J. DiNicola joined the Company as Chairman and Chief
Executive Officer and began recruiting other experienced retailing executives to
build a new management team. The new team revitalized the Company by
strengthening its merchandise and customer focus and instituting a highly
disciplined approach to the execution of the Company's merchandising strategy.
Under the leadership of the new management team, the Company has realized
dramatic improvements in profitability. EBITDA increased from $58.5 million, or
6.3% of net sales, in fiscal 1994 to $130.0 million, or 10.4% of net sales, in
fiscal 1997, a 30.5% compound annual increase. These profitability gains were
achieved through significant improvements in store productivity levels combined
with a tight control over expense levels. Average annual store sales (excluding
the Diamond Park Division) increased from $773,000 in fiscal 1994 to $1,073,000
in fiscal 1997, while the Company's total selling, general and administrative
expense as a percentage of net sales decreased from 43.7% in fiscal 1994 to
38.3% in fiscal 1997. The Company believes that the following initiatives were
the primary contributors to the Company's improved operating performance since
1994:
Reestablished Brand Identities. The Company, through separate divisional
management and buying teams, has created and implemented individualized
merchandising and marketing strategies to reestablish and
5
<PAGE> 9
promote distinct brand identities for its three divisions. Target markets have
been reemphasized for the Zales, Gordon's and Bailey, Banks & Biddle Divisions.
Refocused Merchandising. The Company has refocused and strengthened its
merchandising efforts. Management has developed a large selection of key items
from among the best selling products in the retail jewelry industry, such as
tennis bracelets, bridal sets and diamond stud earrings, and made certain that
these items are available in an appropriate variety of styles at a range of
competitive price points. At the same time, the Company has adopted an
aggressive approach to inventory management to keep key items in stock and
inventories more current. This is achieved through enhancements to the
merchandise system which provides regular reporting to the Company's merchandise
buyers on in stock position and slow moving merchandise. Since 1994, the Company
has employed a consistent methodology which provides better inventory turnover
and profitability information to identify slow moving merchandise and determine
appropriate merchandising actions on a more timely basis. Under this
methodology, inventory the Company considers to be slow moving decreased over
50% since fiscal 1994.
Initiated Product and Event-Focused Marketing. The Company's marketing
efforts have become more product and event-focused. Television, radio, newspaper
inserts, and direct mail advertising now feature selected key items at a variety
of price points. The Company has also broadened its marketing efforts beyond the
Christmas season to tie in with other gift-giving holidays, such as Valentine's
Day and Mother's Day. In addition, advertising and in-store promotions have been
synchronized with mall marketing efforts to take advantage of other periods of
high mall traffic, such as Labor Day, which are typically not considered jewelry
oriented holidays.
Strengthened Buying Organization. The Company has recruited experienced
buyers, centralized purchasing at a divisional level and eliminated store-level
buying to ensure consistency of quality and cost. In addition, management
believes that the Company is now leveraging its size to achieve better prices,
payment terms, return privileges and cooperative advertising arrangements with
its suppliers for certain products.
Enhanced Price-Competitive Image. The Company's image as a provider of fine
jewelry at competitive prices has been enhanced by establishing price points for
merchandise that are perceived by customers as good values. Certain items are
labeled "Brilliant Buys," "Gordon's Gems" and "Best Buys" in the Zales, Gordon's
and Bailey, Banks & Biddle stores, respectively. These items are prominently
displayed along with their prices throughout the store, a practice that is
uncommon in the U.S. jewelry retailing industry and one that the Company
believes enhances its reputation for pricing integrity.
Improved Store Environment and Management. Over the last three years,
nearly 50% of the Company's store base has been either refurbished or remodeled.
Sales for refurbished or remodeled stores have historically increased by over
10% in the year following refurbishment or remodeling. The Company has taken
steps to provide upgraded sales and product training to sales personnel
company-wide through employee and manager training programs. Staffing schedules
are now coordinated to better allocate employees during peak periods.
Strengthened Management Team. The Company continues to act to strengthen
and retain its senior management in an effort to achieve its growth and
strategic objectives. In August 1996, the Company entered into a five-year
employment agreement with Robert J. DiNicola, its Chairman and Chief Executive
Officer since 1994. Among other recent appointments, the Company also named
Louis J. Grabowsky as Executive Vice President and Chief Financial Officer,
Beryl B. Raff as Executive Vice President and Chief Operating Officer, Alan P.
Shor as Executive Vice President and Chief Administrative Officer, Pamela Romano
as Senior Vice President and President of the Zales Division and Stephen C.
Massanelli as Senior Vice President and Treasurer. The Company's Chief Executive
Officer, Chief Operating Officer and Presidents of the Zales, Gordon's and
Bailey, Banks and Biddle Divisions have an average of more than 20 years of
specialty retailing experience.
6
<PAGE> 10
BUSINESS STRATEGY
The Company's business objective is to maximize profit and shareholder
value by expanding its core business through improved store productivity, new
store openings and operating margin expansion while maintaining disciplined
credit policies and a strong capital structure. The Company believes that
further improvement in operating performance can be achieved by pursuing the
strategies described below.
Further Improve Store Productivity. The Company's strategy is to continue
to increase store productivity and profitability at all divisions by: (i)
focusing on the core categories of bridal, fashion and watches; (ii) using key
item merchandise to drive volume; (iii) remodeling and renovating all existing
stores; (iv) enhancing merchandising systems to assist buyer decision making;
(v) executing tailored staffing and training programs for store personnel; (vi)
focusing advertising on brand building and product distinction; and (vii)
providing exclusive products to develop brand distinction.
Strengthen and Expand Store Base. The Company plans to open approximately
220 new stores, principally in the Zales Division, for which it will incur
approximately $50 million in capital expenditures during the combined fiscal
years 1998 and 1999. These stores will solidify the Company's core mall business
by further penetrating markets where the Company is underrepresented. The
Company targets premier regional mall locations throughout the country and
selects sites based on a variety of well-defined demographic and store expense
characteristics. The Company has identified the specific malls for this planned
expansion which satisfy the Company's real estate strategy. The Company also
plans to refurbish, remodel or relocate approximately 300 stores at a cost of
approximately $50 million during the same period.
Cost Effectiveness Initiatives. As increases in store productivity, an
expanding store base and new distribution channels increase sales, the Company
expects to leverage expenses, such as administrative, general corporate and
advertising expenses over a larger sales base, resulting in higher operating
profit margins. The Company has instituted a focused effort to reduce selling,
general and administrative expenses by eliminating duplicative areas,
streamlining processes and leveraging technology where possible. Initiatives
include: (i) improving the return on credit operations, including establishing a
credit card bank which will allow greater flexibility in establishing finance
charge rates to customers and will simplify the regulatory requirements under
which the Company operates; (ii) outsourcing certain non-strategic functions,
including certain aspects of MIS operations, credit card remittance processing,
and the internal audit department among other areas; and (iii) streamlining
corporate operations through review and improvement of current processes and
application of new technology in areas such as merchandising, credit, store
point of sale and financial systems.
Disciplined Credit Policies. The Company continues to apply a disciplined
approach to its credit policies, which are controlled centrally for all
divisions. Behavioral scoring models, which are reevaluated quarterly, are
utilized to assess risk in making credit granting decisions. The Company has
tightened credit standards, particularly in the Gordon's Division, where
standards were increased in 1995 in connection with its repositioning as a more
upscale regional brand. Delinquency as a percentage of accounts receivable has
declined from 10.1% to 9.1% from fiscal 1994 to fiscal 1997. Private label
credit cards are used in approximately 50% of the Company's net sales (excluding
the Diamond Park Division).
Maintain Strong Capital Structure. The Company intends to maintain a strong
balance sheet to support its growth objective. The Company believes that future
cash flows from operations (supplemented by borrowings under its senior credit
facility and amounts available under its receivables securitization facility)
will be sufficient to fund the Company's current operations, debt service and
capital expenditure requirements for the foreseeable future.
7
<PAGE> 11
RECENT DEVELOPMENT
On September 3, 1997, the Company signed a purchase agreement to sell the
majority of the assets of its Diamond Park Division (the "Diamond Park Asset
Sale"). The Diamond Park Division, which manages leased fine jewelry departments
in major department store chains including Marshall Field's, Dillard's,
Mercantile and Parisian, had net sales and EBITDA of $125.3 million and
approximately $6.0 million after certain corporate allocations, respectively, in
fiscal 1997. At July 31, 1997, inventory and net property and equipment of the
Diamond Park Division were $54.5 million and $4.0 million, respectively. In
connection with the Diamond Park Asset Sale, the Company will receive cash
consideration totaling approximately $63 million. The Company will continue to
operate in Dillard's stores through January 1998, the end of the current license
period, at which time the remaining inventory of such operations will be sold to
the purchaser. Net proceeds from the Diamond Park Asset Sale were reinvested
into the Company's operations. The closing of the Diamond Park Asset Sale
occurred on October 6, 1997.
8
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Offer......... Up to $100,000,000 aggregate principal amount of
Exchange Notes are being offered in exchange for a
like principal amount of Original Notes. The terms
of the Exchange Notes and the Original Notes are
substantially identical. Original Notes may be
tendered for exchange in whole or in part in any
integral multiple of $1,000. The Company and the
Guarantor are making the Exchange Offer in order to
satisfy their obligations under the Registration
Rights Agreement relating to the Original Notes.
For a description of the procedures for tendering
the Original Notes, see "The Exchange
Offer -- Procedures for Tendering Notes."
Expiration Date............ 5:00 p.m., New York City time, November , 1997,
unless the Exchange Offer is extended by the
Company (in which case the Expiration Date will be
the latest date and time to which the Exchange
Offer is extended). See "The Exchange
Offer -- Terms of the Exchange Offer."
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company in its sole discretion. The Exchange Offer
is not conditioned upon any minimum principal
amount of Original Notes being tendered. See "The
Exchange Offer -- Conditions to Exchange Offer."
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at
any time and from time to time, (i) to delay the
acceptance of the Original Notes for exchange, (ii)
to terminate the Exchange Offer if certain
specified conditions have not been satisfied, (iii)
to extend the Expiration Date of the Exchange Offer
and retain all Original Notes tendered pursuant to
the Exchange Offer, subject, however, to the right
of holders of Original Notes to withdraw their
tendered Original Notes, or (iv) to waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Original Notes may be withdrawn at any
time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
the Exchange Agent in conformity with certain
procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
Procedures for Tendering
Original Notes........... Tendering holders of Original Notes must complete
and sign a Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Original Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Original
Notes. Certain brokers, dealers, commercial banks,
trust companies and other nominees may also effect
tenders by book-entry transfer. Holders of Original
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Original Notes pursuant to the Exchange
Offer. See "The Exchange Offer -- Procedures for
Tendering Original Notes."
Letters of Transmittal and certificates
representing Original Notes should not be sent to
the Company or the Guarantor. Such documents should
only be sent to the Exchange Agent.
9
<PAGE> 13
Resales of Exchange
Notes...................... The Company is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the Commission
as set forth in certain interpretive letters
addressed to third parties in other transactions.
However, neither the Company nor the Guarantor has
sought its own interpretive letter and there can be
no assurance that the staff of the Division of
Corporation Finance of the Commission would make a
similar determination with respect to the Exchange
Offer as it has in such interpretive letters to
third parties. Based on these interpretations by
the staff of the Division of Corporation Finance of
the Commission, and subject to the two immediately
following sentences, the Company and the Guarantor
believe that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Original Notes may
be offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the meaning
of the Securities Act) of such Exchange Notes.
However, any holder of Original Notes who is an
"affiliate" of the Company or the Guarantor or who
intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes, or
any broker-dealer who purchased the Original Notes
from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities
Act, (a) will not be able to rely on the
interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such
Original Notes in the Exchange Offer and (c) must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of such
Original Notes unless such sale is made pursuant to
an exemption from such requirements. In addition,
as described below, if any broker-dealer holds
Original Notes acquired for its own account as a
result of market-making or other trading activities
and exchanges such Original Notes for Exchange
Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales of
such Exchange Notes. See "Plan of Distribution."
Each holder of Original Notes who wishes to
exchange Original Notes for Exchange Notes in the
Exchange Offer will be required to represent that
(i) it is not an "affiliate" of the Company or the
Guarantor, (ii) any Exchange Notes to be received
by it are being acquired in the ordinary course of
its business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such Exchange Notes, and (iv) if such
holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities
Act) of such Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Original Notes must acknowledge that
such Original Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities and must
agree that it will deliver a prospectus in
connection with any resale of such
10
<PAGE> 14
Exchange Notes. See "Plan of Distribution." The
Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the
staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to
above, the Company and the Guarantor believe that
Participating Broker-Dealers who acquired Original
Notes for their own accounts as a result of
market-making activities or other trading
activities may fulfill their prospectus delivery
requirements with respect to the Exchange Notes
received upon exchange of such Original Notes
(other than Original Notes which represent an
unsold allotment from the initial sale of the
Original Notes) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such
Exchange Notes. Accordingly, this Prospectus, as it
may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received
in exchange for Original Notes where such Original
Notes were acquired by such Participating
Broker-Dealer for its own account as a result of
market-making or other trading activities, subject
to certain provisions set forth in the Registration
Rights Agreement and to the limitations described
below under "The Exchange Offer -- Resales of
Exchange Notes." Any Participating Broker-Dealer
who is an "affiliate" of the Company or the
Guarantor may not rely on such interpretive letters
and must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction. See
"The Exchange Offer -- Resales of Exchange Notes."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is Bank One, N.A. (the "Exchange Agent"). The
addresses, and telephone and facsimile numbers, of
the Exchange Agent are set forth in "The Exchange
Offer -- The Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds............ Neither the Company nor the Guarantor will receive
any cash proceeds from the issuance of the Exchange
Notes offered hereby. See "Use of Proceeds."
Certain Federal Income Tax
Considerations........... Holders of Original Notes should review the
information set forth under "Certain Federal Income
Tax Considerations" prior to tendering Original
Notes in the Exchange Offer.
11
<PAGE> 15
TERMS OF EXCHANGE NOTES
Securities Offered......... $100 million aggregate principal amount of 8 1/2%
Series B Senior Notes due 2007.
Maturity................... October 1, 2007.
Interest Payment Dates..... Interest on the Exchange Notes will be payable
semi-annually in arrears on April 1 and October 1
of each year, commencing April 1, 1998.
Ranking.................... The Exchange Notes will be unsecured obligations of
the Company and, as such, will rank pari passu in
right of payment with all other existing and future
senior indebtedness of the Company. The Exchange
Notes will be guaranteed on a senior basis by the
Guarantor. The Exchange Notes Guarantee will be an
unsecured senior obligation of the Guarantor and
will rank pari passu with all existing and future
senior indebtedness of the Company and the
Guarantor. The Exchange Notes and the Exchange
Notes Guarantee will also be effectively
subordinated to secured indebtedness of the Company
and the Guarantor. As of July 31, 1997, on a pro
forma basis after giving effect to the Offering and
the application of the estimated net proceeds
therefrom, the Company and the Guarantor would have
had $381.1 million in aggregate principal amount of
Indebtedness outstanding which ranked pari passu in
right of payment with the Exchange Notes and the
Exchange Notes Guarantee (all of which would have
been secured) and no Indebtedness outstanding which
ranked subordinate in right of payment to the
Exchange Notes and the Exchange Notes Guarantee.
Optional Redemption........ The Exchange Notes are redeemable for cash at any
time on or after October 1, 2002, at the option of
the Company, in whole or in part, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
In addition, at any time on or prior to October 1,
2000, the Company may, at its option, use the net
proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 30% of the aggregate
principal amount of Exchange Notes originally
issued under the Indenture at a redemption price
equal to 108.5% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon,
if any, to the redemption date; provided that at
least 70% of the aggregate principal amount of
Exchange Notes originally issued under the
Indenture remains outstanding immediately after the
occurrence of such redemption. See "Description of
the Notes -- Optional Redemption."
Change of Control
Triggering Event........... Upon the occurrence of a Change of Control
Triggering Event, each holder of the Exchange Notes
may require the Company to purchase all or a
portion of such holder's Exchange Notes at a cash
purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See
"Description of the Notes -- Change of Control
Triggering Event."
Certain Covenants.......... The indenture relating to the Exchange Notes (the
"Indenture") will contain certain restrictive
covenants, including, but not limited to, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on
issuances of guarantees by
12
<PAGE> 16
subsidiaries; (viii) limitation on designations of
unrestricted subsidiaries; (ix) limitation on the
issuance of preferred stock of subsidiaries; and
(x) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets
of the Company. These covenants are subject to
important exceptions and qualifications. The
Indenture will provide that after the Exchange
Notes achieve an investment grade rating from both
the Standard and Poor's Ratings Group and Moody's
Investors Service, Inc., the Company's and the
Guarantor's obligation to comply with certain of
the restrictive covenants described herein will be
terminated, regardless of whether the Company
maintains such investment grade rating. See
"Description of the Notes -- Certain Covenants."
13
<PAGE> 17
SUMMARY FINANCIAL AND OPERATING DATA
The following information for the years ended July 31, 1997, 1996, 1995 and
1994 should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's audited Consolidated Financial Statements and the
Notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $1,253,818 $1,137,377 $1,036,149 $920,307
Cost of sales............................................. 643,318 576,764 524,010 460,060
---------- ---------- ---------- ----------
Gross margin.............................................. 610,500 560,613 512,139 460,247
Selling, general and administrative expenses.............. 480,522 457,371 434,101 401,744
Depreciation and amortization expense (credit)............ 14,022 7,538 381 (4,385)
Operating earnings........................................ 115,956 100,190 77,657 62,888
Interest expense, net..................................... 36,098 30,102 29,837 28,142
Earnings before income taxes & extraordinary items........ 79,858 70,088 47,820 34,746
Net earnings.............................................. 50,553 43,898 31,470 21,557
BALANCE SHEET DATA:
Cash and cash equivalents................................. $41,636 $50,046 $154,905 $153,700
Customer receivables, net................................. 454,270 419,877 396,380 397,886
Merchandise inventories................................... 511,702 457,862 375,413 401,034
Property and equipment, net............................... 138,011 108,254 71,487 37,211
Total assets.............................................. 1,281,206 1,163,811 1,110,708 1,112,647
Total debt................................................ 451,787 404,354 443,624 447,478
Stockholders' investment.................................. 541,574 476,258 391,890 342,740
OTHER FINANCIAL DATA:
EBITDAR(a)................................................ $231,324 $196,086 $165,434 $139,391
Rental expense............................................ 101,346 92,844 87,396 80,888
---------- ---------- ---------- ----------
EBITDA(a)................................................. $129,978 $103,242 $78,038 $58,503
========== ========== ========== ==========
Capital expenditures...................................... $54,025 $48,790 $42,295 $27,838
Ratio of EBITDA to interest expense....................... 3.5x 3.1x 2.1x 1.9x
Ratio of total debt to EBITDA............................. 3.5x 3.9x 5.7x 7.6x
Gross margin %............................................ 48.7% 49.3% 49.4% 50.0%
S,G&A as % of net sales................................... 38.3% 40.2% 41.9% 43.7%
EBITDA as % of net sales.................................. 10.4% 9.1% 7.5% 6.3%
SELECTED STORE DATA:
Average Sales per Store
Zales................................................... $1,013 $974 $850 $719
Gordon's................................................ 888 803 711 629
Bailey, Banks & Biddle.................................. 1,990 1,755 1,556 1,408
Total(b)................................................ 1,073 1,010 886 773
Stores
Beginning of period..................................... 1,195 1,181 1,231 1,265
Opened.................................................. 117 137 35 29
Closed.................................................. 61 123 85 63
---------- ---------- ---------- ----------
End of period....................................... 1,251 1,195 1,181 1,231
</TABLE>
- ---------------
(a) "EBITDA" represents, for any period, income (loss) before interest expense,
income taxes, depreciation and amortization and unusual items. "EBITDAR"
represents, for any period, income (loss) before interest expense, income
taxes, depreciation and amortization, rent expense and unusual items.
EBITDA and EBITDAR are presented because they are accepted financial
indicators of a company's ability to service and/or incur indebtedness and
management believes that their presentation is helpful to investors.
However, these measures should not be considered as alternatives to net
income as a measure of the Company's operating results or to cash flows as
a measure of liquidity. In addition, although the EBITDA and EBITDAR
measures of performance are not recognized under generally accepted
accounting principles, they are widely used by companies as a general
measure of a company's operating performance because they assist in
comparing performance on a relatively consistent basis across companies
without regard to depreciation and amortization, which can vary
significantly depending on accounting methods or non-operating factors such
as historical cost bases. Because EBITDA and EBITDAR are not calculated
identically by all companies, the presentation herein may not be comparable
to other similarly titled measures of other companies.
(b) Based on sales per store open a full twelve months during the respective
fiscal year. Data for the Diamond Park Division is excluded in all years.
14
<PAGE> 18
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Exchange Notes offered hereby. In addition to
the historical and pro forma information contained herein, the discussion in
this Prospectus contains forward-looking statements with respect to the Company
that involve risks and uncertainties. The actual performance and results of the
Company could differ materially from those discussed in this Prospectus. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors" below, as well as those discussed
elsewhere in this Prospectus.
INDEBTEDNESS OF THE COMPANY; RANKING
As of July 31, 1997, after giving effect to the Offering and the
application of the estimated net proceeds therefrom, the Company would have had
approximately $481.1 million of long-term debt (which would have represented
approximately 47.0% of its total capitalization) and would have had $225.0
million available for borrowing under its Revolving Credit Agreement. The
Company also has significant operating lease obligations related to its stores.
In addition, the Indenture and the Company's other debt instruments will allow
the Company to incur certain additional indebtedness, including secured
indebtedness. See "Capitalization," "Description of Certain Indebtedness,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Lease Commitments" in Notes to Consolidated Financial
Statements.
The Indenture and the instruments governing the Company's other
indebtedness, including the Revolving Credit Agreement, contain certain
covenants limiting, among other things, the incurrence of additional
indebtedness, the payment of dividends, the making of certain investments, the
creation of liens and asset sales and certain mergers and consolidations. The
degree of the Company's indebtedness and the restrictions included in the
Company's debt instruments could impair the Company's ability to obtain
additional financing, reduce the funds available to the Company for its
operations, expose the Company to the risk of greater interest rates, place the
Company at a relative competitive disadvantage and make the Company more
vulnerable to changing economic conditions. See "Description of the
Notes -- Certain Covenants" and "Description of Certain Indebtedness."
The Exchange Notes are senior obligations of the Company. As of the date
hereof, virtually all of the consolidated assets of the Company are held by the
Guarantor. Therefore, the Company's ability to service its debt is dependent
upon the receipt of funds from the Guarantor. The Guarantor is a co-obligor
under the Revolving Credit Agreement and will provide a full and unconditional
senior guarantee of the Company's obligations under the Exchange Notes. The
Exchange Notes Guarantee may be subject to review under relevant federal and
state fraudulent conveyance law or otherwise. In addition, the Notes Exchange
and the Exchange Notes Guarantee will be effectively subordinated to all
indebtedness of subsidiaries of the Company and the Guarantor and to all secured
indebtedness of the Company and the Guarantor to the extent of the value of the
assets securing such indebtedness. After any realization upon the collateral or
a dissolution, liquidation, reorganization or similar proceeding involving the
Company or the Guarantor, there can be no assurance that there will be
sufficient available proceeds or other assets for holders of the Exchange Notes
to recover all or any portion of their claims under the Exchange Notes and the
Indenture.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Exchange Notes will contain
certain covenants limiting, subject to certain exceptions, the incurrence of
additional indebtedness, the payment of dividends, the redemption of capital
stock, the making of certain investments, the issuance of stock of subsidiaries,
the creation of liens and other restrictions affecting the Company's
subsidiaries, the issuance of guarantees, transactions with affiliates, asset
sales and certain mergers and consolidations. A breach of any of these covenants
could result in an event of default under the Indenture. In addition, the
Revolving Credit Agreement and the instruments governing the Company's other
indebtedness (the "Other Indebtedness") contain other restrictive covenants
which require the Company to satisfy certain financial tests and which could
result in an event of default under the Indenture. The Company's ability to
comply with such covenants and to satisfy such financial tests may be
15
<PAGE> 19
affected by events beyond its control. A breach of any of these covenants could
result in an event of default under the Revolving Credit Agreement or Other
Indebtedness. In the event of a default under the Revolving Credit Agreement or
Other Indebtedness, the lenders thereunder could elect to declare all amounts
borrowed, together with accrued interest, to be immediately due and payable, and
the lenders under the Revolving Credit Agreement could terminate all commitments
thereunder. In addition, a default under the Revolving Credit Agreement or Other
Indebtedness could constitute a cross-default under the Indenture and any
instruments governing the Other Indebtedness, and a default under the Indenture
could constitute a cross-default under the Revolving Credit Agreement and any
Other Indebtedness. See "Description of the Notes -- Certain Covenants" and
"Description of Certain Indebtedness."
IMPACT OF GENERAL ECONOMIC CONDITIONS
Jewelry purchases are discretionary for consumers and may be particularly
affected by adverse trends in the general economy. The success of the Company's
operations depends to a significant extent upon a number of factors relating to
discretionary consumer spending, including economic conditions (and perceptions
of such conditions by consumers) affecting disposable consumer income such as
employment, wages and salaries, business conditions, interest rates,
availability of credit and taxation, for the economy as a whole and in regional
and local markets where the Company operates. In addition, the Company is
dependent upon the continued popularity of malls as a shopping destination and
the ability of malls, their tenants and other mall attractions to generate
customer traffic for its stores. There can be no assurance that consumer
spending will not be adversely affected by general economic conditions or that
mall traffic will not decrease, either of which could negatively impact the
Company's results of operations or financial condition.
Any significant deterioration in general economic conditions or increases
in interest rates may inhibit consumers' use of credit and cause a material
adverse effect on the Company's net sales and profitability. In addition,
approximately 50% of the Company's net sales (excluding the Diamond Park
Division) are made on private label credit cards. Furthermore, any downturn in
general or local economic conditions in the markets in which it operates could
materially adversely affect its collection of outstanding customer accounts
receivables.
COMPETITION
The retail jewelry industry is highly competitive and fragmented. The
Company competes with a large number of independent regional and local jewelry
retailers, as well as with nationally recognized jewelry chains. The Company
also competes with other types of retailers who sell jewelry and gift items,
such as department stores, catalog showrooms, discounters, direct mail suppliers
and television home shopping networks. Certain of the Company's competitors are
non-specialty jewelry retailers, which are larger and have greater financial
resources than the Company. Competition may increase in the future as various
additional forms of direct access shopping (with lower built-in costs) become
available through developments in technology. Management believes that the
primary competitive factors affecting its operations are reputation and
branding, breadth and depth of merchandise offered, store location and
atmosphere, marketing, pricing, quality of sales personnel and customer service,
and ability to offer private label credit. The Company also believes that it
competes for consumers' discretionary spending dollars with retailers that offer
merchandise other than jewelry. In addition, the Company competes with jewelry
and other retailers for desirable locations and qualified personnel. If the
Company falls behind competitors with respect to one or more of these factors,
the Company's results of operations or financial condition could be materially
adversely affected. See "Business -- Competition."
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company's business is highly seasonal, with a significant portion of
its net sales and the majority of its operating earnings generated during the
second fiscal quarter ending January 31, which includes the Christmas season.
Net sales in the second quarters of fiscal 1997 and 1996 accounted for 40.3% and
39.7%, respectively, of annual net sales for such fiscal years. Operating
earnings for the second quarters of fiscal 1997 and 1996 accounted for 78.3% and
79.6%, respectively, of annual operating earnings for such fiscal years. The
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Company has historically experienced net losses or nominal net earnings and
lower net sales in each of its first, third and fourth fiscal quarters. The
Company expects to continue to experience this seasonal fluctuation in its net
sales and net earnings. Because a significant percentage of the Company's net
sales and net earnings for a fiscal year results from operations in the second
quarter, the Company has limited ability to compensate for shortfalls in second
quarter sales or earnings by changes in its operations or strategies in other
quarters. A significant shortfall in results for the second quarter of any
fiscal year can thus be expected to have a material adverse effect on the
Company's annual results of operations. The Company's quarterly results of
operations also may fluctuate significantly as a result of a variety of factors,
including the timing of new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, timing of certain holidays,
negative publicity regarding litigation or other matters, changes in the
Company's merchandise, general economic, industry and weather conditions that
affect consumer spending and actions of competitors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MERCHANDISE SUPPLY AND INVENTORY
During fiscal 1997 and fiscal 1996, the Company purchased approximately 27%
and 29%, respectively, of its merchandise from its top five vendors, including
more than 10% from its top vendor. Although the Company believes that alternate
sources of supply are available, the abrupt loss of any significant supplier
during the three month period leading up to the Christmas season could result in
a material adverse effect on the Company's business. The retail jewelry industry
generally is affected by fluctuations in the prices of gold and diamonds and, to
a lesser extent, other precious and semi-precious metals and stones. The Company
does not hedge against fluctuations in the cost of diamonds or gold. A
significant increase in prices or decrease in the availability of gold or
diamonds could have a material adverse effect on the Company's business. The
supply and price of diamonds in the principal world markets are significantly
influenced by a single entity, the Central Selling Organization (the "CSO"), a
marketing arm of DeBeers Consolidated Mines Ltd. of South Africa. The CSO has
traditionally controlled the marketing of a substantial majority of the world's
supply of diamonds and sells rough diamonds to worldwide diamond cutters from
its London office in quantities and at prices determined in its sole discretion.
The availability of diamonds to the CSO and the Company's suppliers is to some
extent dependent on the political situation in diamond producing countries, such
as South Africa, Botswana, Zaire, the former Soviet republics and Australia, and
on the continuation of the prevailing supply and marketing arrangements for raw
diamonds. Until alternate sources could be developed, any sustained interruption
in the supply of diamonds from the significant producing countries could
adversely affect the Company and the retail jewelry industry as a whole. See
"Business -- Purchasing and Inventory."
A portion of the Company's inventory represents slow moving merchandise.
The Company has a methodology that it believes results in timely identification
and valuation of this merchandise. In addition, it believes that the disposition
of this merchandise can continue to be carried out without materially affecting
the Company's merchandising and pricing strategies. However, there can be no
assurance that slow moving inventory or other merchandising difficulties will
not adversely affect the Company's business or financial results.
DEPENDENCE ON KEY PERSONNEL
Since 1994, the Company has hired Robert J. DiNicola, its Chairman,
President and Chief Executive Officer, and has retained or recruited a number of
other senior executives and other key employees. The Company is dependent on
these personnel, who have been instrumental in designing and implementing the
Company's recent initiatives and are involved in the strategies for the
Company's future growth and profitability. The loss of services of Mr. DiNicola
or other key members of management could have a material adverse effect on the
Company's results of operations and financial condition. Mr. DiNicola and the
Company have entered into an employment agreement that will expire on August 1,
2001, unless terminated earlier. See "Management." There can be no assurance
that the Company will be able to attract and retain additional qualified
personnel as needed in the future. The Company does not maintain key-man life
insurance on its senior executives or other key employees.
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<PAGE> 21
REGULATION
The Company's operations are affected by numerous federal and state laws
that impose disclosure and other requirements upon the origination, servicing
and enforcement of credit accounts and limitations on the maximum amount of
finance charges that may be charged by a credit provider. In addition to the
Company's private label credit cards, credit to the Company's customers is
provided primarily through bank cards such as Visa, MasterCard, and Discover,
without recourse to the Company based upon a customer's failure to pay. Any
change in the regulation of credit which would materially limit the availability
of credit to the Company's traditional customer base could adversely affect the
Company's results of operations or financial condition.
The sale of insurance products by the Company is also highly regulated.
State laws currently impose disclosure obligations with respect to the Company's
sale of credit and other insurance. The Company's and its competitors' practices
are also subject to review in the ordinary course of business by the Federal
Trade Commission, and the Company's and other retail company credit card banks
will be subject to regulation by the Office of the Comptroller of the Currency
(the "OCC"). The Company believes that it is currently in material compliance
with all applicable state and federal regulations. However, there can be no
assurance that a failure to comply with applicable regulations will not have a
material adverse effect on the Company.
A substantial amount of merchandise in the retail jewelry industry is
commonly sold at a discount to the "regular" or "original" price. A number of
states in which the Company operates have regulations which require that the
retailers offering merchandise at discounted prices must offer the merchandise
at the regular or original prices for stated periods of time. The Company
believes that it is in compliance with all applicable federal and state laws
with respect to such practices.
EXPANSION PROGRAM
The growth of the Company's net sales and net earnings will depend, to some
extent, on the Company's ability to expand its operations through the opening of
new stores in existing and new markets and to operate those stores profitably.
The Company operated 1,065 stores (excluding the Diamond Park Division) in all
50 states, Puerto Rico and Guam at July 31, 1997 and plans to open approximately
220 new stores during the combined fiscal years 1998 and 1999. Achieving the
Company's expansion goals will depend on a number of factors, including the
Company's ability to identify and secure suitable locations on acceptable terms,
open new stores in a timely manner, hire and train additional store and
supervisory personnel, integrate new stores into its operations on a profitable
basis and modify its management information systems. Furthermore, the Company
will continually need to evaluate the adequacy of its store management and
systems to manage its planned expansion. The Company anticipates that there will
continue to be significant competition among specialty retailers for desirable
store sites and qualified personnel. There can be no assurance that the Company
will be able to achieve its expansion goals on a timely or profitable basis. See
"Business -- Business Strategy."
Management believes that cash flow from operating activities, borrowings
under the Company's Revolving Credit Agreement and Receivables Securitization
Facility (as defined herein) and proceeds from the Offering and the Diamond Park
Asset Sale will provide adequate funds to finance the Company's expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." However, if these sources of
funds are inadequate to finance the Company's expansion, it may require capital
from additional sources. There can be no assurance as to the future availability
of additional financing or the terms thereof, and failure to obtain such
financing on acceptable terms could require the Company to alter its expansion
plans or otherwise adversely affect the Company.
RISK FACTORS RELATED TO EXCHANGE OFFER
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption
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<PAGE> 22
therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Original Notes which
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Original Notes which remain
outstanding will not be entitled to any rights to have such Original Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions). The
Company does not intend to register under the Securities Act any Original Notes
which remain outstanding after consummation of the Exchange Offer (subject to
such limited exceptions, if applicable). To the extent that Original Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes could be adversely affected. The Original Notes
provide, among other things, that, if a registration statement relating to the
Exchange Offer has not been filed and declared effective within certain
specified periods, the interest rate borne by the Original Notes will increase
by 0.25% each 90-day period that such additional interest rate continues to
accrue under any such circumstance, up to an aggregate maximum increase equal to
1% per annum, until such registration statement has been filed or declared
effective, as the case may be. Upon consummation of the Exchange Offer, holders
of Original Notes will not be entitled to any increase in the interest rate
thereon or any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Description of the Notes."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Original Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Exchange
Agent of such Original Notes, a properly completed and duly executed Letter of
Transmittal or Agent's Message in lieu thereof and all other required documents.
Therefore, holders of the Original Notes desiring to tender such Original Notes
in exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Original Notes for exchange.
LACK OF ESTABLISHED TRADING MARKET FOR EXCHANGE NOTES
The Original Notes were issued to, and the Company believes such securities
are currently owned by, a relatively small number of beneficial owners. The
Original Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability if they are not exchanged for the
Exchange Notes. Although the Exchange Notes may be resold or otherwise
transferred by the holders (who are not affiliates of the Company) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
The Company has been advised by the Initial Purchasers that the Initial
Purchasers presently intend to make a market in the Exchange Notes. However, the
Initial Purchasers are not obligated to do so and any market-making activity
with respect to the Exchange Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or the Original Notes, or as to
the liquidity of or the trading market for the Exchange Notes or the Original
Notes. If an active public market does not develop, the market price and
liquidity of the Exchange Notes may be adversely affected. If a public trading
market develops for the Exchange Notes, future trading prices will depend on
many factors, including, among other things, prevailing interest rates, the
financial condition of the Company and the market for similar securities.
Depending on these and other factors, the Exchange Notes may trade at a
discount. Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company may publicly offer for sale or resell the Exchange Notes
only in compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
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<PAGE> 23
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Notes, the Company and the
Guarantor entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Guarantor agreed to use their
reasonable best efforts to file and to cause to become effective with the
Commission a registration statement with respect to the exchange of the Original
Notes for Notes with terms identical in all material respects to the terms of
the Original Notes except as described herein. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Exchange Offer is being made to satisfy the
contractual obligations of the Company under the Registration Rights Agreement.
The form and terms of the Exchange Notes are the same as the form and terms of
the Original Notes except that the Exchange Notes have been registered under the
Securities Act and will not be subject to certain restrictions on transfer
applicable to the Original Notes. In that regard, the Original Notes provide,
among other things, that, if a registration statement relating to the Exchange
Offer has not been filed and declared effective within certain specified
periods, the interest rate borne by the Original Notes will increase by 0.25%
per annum each 90-day period that such additional interest rate continues to
accrue under any such circumstance, up to an aggregate maximum increase equal to
1% per annum, until such registration statement is filed or declared effective,
as the case may be. Upon consummation of the Exchange Offer, holders of Original
Notes will not be entitled to any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Original Notes" and
"Description of the Notes." The Exchange Offer is not being made to holders of
Original Notes in any jurisdiction in which the Exchange Offer or the acceptance
thereof would not be in compliance with the securities or blue sky laws of such
jurisdiction. Unless the context requires otherwise, the term "holder" with
respect to the Exchange Offer means any person who has obtained a properly
completed bond power from the registered holder, or any person whose Original
Notes are held of record by DTC who desires to deliver such Original Notes by
book-entry transfer at DTC. Pursuant to the Exchange Offer, the Company will
exchange as soon as practicable after the Expiration Date the Original Notes for
a like aggregate principal amount of the Exchange Notes and the Guarantor will
exchange as soon as practicable after the date hereof the Original Notes
Guarantee for the Exchange Notes Guarantee, which have also been registered
under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate principal amount of Exchange Notes for a
like aggregate principal amount of Original Notes properly tendered on or prior
to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $100,000,000 of Exchange
Notes in exchange for a like principal amount of outstanding Original Notes
tendered and accepted in connection with the Exchange Offer. Holders may tender
their Original Notes in whole or in part in any integral multiple of $1,000
principal amount. The Exchange Offer is not conditioned upon any minimum
principal amount of Original Notes being tendered. As of the date of this
Prospectus, $100,000,000 aggregate principal amount of the Original Notes is
outstanding. Holders of Original Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Original Notes which are not
tendered for or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the Indenture,
but will not be entitled to any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Original Notes" and
"Description of the Original Notes." If any tendered Original Notes are not
accepted for exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, appropriate book-entry transfer will
be made, without expense, to the tendering holder thereof promptly after the
Expiration Date. Holders who tender Original Notes in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Original Notes in connection with the
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<PAGE> 24
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "-- Fees and Expenses."
NEITHER THE COMPANY NOR THE BOARD OF DIRECTORS OF THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISIONS WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL NOTES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITIONS AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on November
, 1997, unless the Exchange Offer is extended by the Company (in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended). The Company expressly reserves the right in its
sole and absolute discretion, subject to applicable law, at any time and from
time to time, (i) to delay the acceptance of the Original Notes for exchange,
(ii) to terminate the Exchange Offer (whether or not any Original Notes have
theretofore been accepted for exchange) if the Company determines, in its sole
and absolute discretion, that any of the events or conditions referred to under
"-- Conditions to the Exchange Offer" have occurred or exist or have not been
satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain
all Original Notes tendered pursuant to the Exchange Offer, subject, however, to
the right of holders of Original Notes to withdraw their tendered Original Notes
as described under "-- Withdrawal Rights," and (iv) to waive any condition or
otherwise amend the terms of the Exchange Offer in any respect. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, or if the Company waives a material condition of the Exchange Offer, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Notes, and the Company will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act. Any such delay in acceptance, extension,
termination or amendment will be followed promptly by oral or written notice
thereof to the Exchange Agent and by making a public announcement thereof, and
such announcement in the case of an extension will be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company may
choose to make any public announcement and, subject to applicable law, the
Company shall have no obligation to publish, advertise or otherwise communicate
any such public announcement other than by issuing a release to an appropriate
news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes for
Original Notes validly tendered and not withdrawn promptly after the Expiration
Date. In all cases, delivery of Exchange Notes in exchange for Original Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Original Notes or a
book-entry confirmation of a book-entry transfer of Original Notes into the
Exchange Agent's account at DTC, including an Agent's Message (as defined below)
if the tendering holder has not delivered a Letter of Transmittal, (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees or (in the case of a book-entry
transfer) an Agent's Message in lieu of the Letter of Transmittal, and (iii) any
other documents required by the Letter of Transmittal. The term "book-entry
confirmation" means a timely confirmation of a book-entry transfer of Original
Notes into the Exchange Agent's account at DTC. The term "Agent's Message" means
a message, transmitted by DTC to and received by the Exchange Agent and forming
a part of a book-entry confirmation, which states that DTC has received an
express acknowledgment from the tendering DTC participant, which acknowledgment
states that such participant has received and agrees to be bound by the Letter
of Transmittal and that the Company may enforce such Letter of Transmittal
against
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<PAGE> 25
such participant. Subject to the terms and conditions of the Exchange Offer, the
Company will be deemed to have accepted for exchange, and thereby exchanged,
Original Notes validly tendered and not withdrawn as, if and when the Company
gives oral or written notice to the Exchange Agent of the Company's acceptance
of such Original Notes for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Company for the purpose of receiving tenders of
Original Notes, Letters of Transmittal and related documents, and as agent for
tendering holders for the purpose of receiving Original Notes, Letters of
Transmittal and related documents and transmitting Exchange Notes to validly
tendering holders. Such exchange will be made promptly after the Expiration
Date. If for any reason whatsoever, acceptance for exchange or the exchange of
any Original Notes tendered pursuant to the Exchange Offer is delayed (whether
before or after the Company's acceptance for exchange of Original Notes) or the
Company extends the Exchange Offer or is unable to accept for exchange or
exchange Original Notes tendered pursuant to the Exchange Offer, then, without
prejudice to the Company's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Original Notes and such Original Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights." Pursuant to the Letter of
Transmittal or Agent's Message in lieu thereof, a holder of Original Notes will
warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Original Notes, that
the Company will acquire good, marketable and unencumbered title to the tendered
Original Notes, free and clear of all liens, restrictions, charges and
encumbrances, and the Original Notes tendered for exchange are not subject to
any adverse claims or proxies. The holder also will warrant and agree that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment, and transfer of the Original Notes tendered pursuant
to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL NOTES
Valid Tender. Except as set forth below, in order for Original Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or (in the case of a book-entry tender) an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must be
received by the Exchange Agent at one of its addresses set forth under
"-- Exchange Agent," and either (i) tendered Original Notes must be received by
the Exchange Agent, or (ii) such Original Notes must be tendered pursuant to the
procedures for book-entry transfer set forth below and a book-entry
confirmation, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal, must be received by the Exchange Agent, in
each case on or prior to the Expiration Date, or (iii) the guaranteed delivery
procedures set forth below must be complied with. If less than all of the
Original Notes are tendered, a tendering holder should fill in the amount of
Original Notes being tendered in the appropriate box on the Letter of
Transmittal. The entire amount of Original Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Original Notes at DTC for purposes of the Exchange Offer within
two business days after the date of this Prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Original Notes by causing DTC to transfer such
Original Notes into the Exchange Agent's account at DTC in accordance with DTC's
procedures for transfers. However, although delivery of Original Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature
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<PAGE> 26
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must in any case be delivered to and received by the
Exchange Agent at its address set forth under "-- Exchange Agent" on or prior to
the Expiration Date, or the guaranteed delivery procedure set forth below must
be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Original Notes need not be
endorsed and signature guarantees on the Letter of Transmittal are unnecessary
unless (a) a certificate for the Original Notes is registered in a name other
than that of the person surrendering the certificate or (b) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the Letter of Transmittal. In the case of (a) or (b) above,
such certificates for Original Notes must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the Letter of Transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Original Notes pursuant
to the Exchange Offer and the certificates for such Original Notes are not
immediately available or time will not permit all required documents to reach
the Exchange Agent on or prior to the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Original Notes
may nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with: (a) such tenders are made by or through
an Eligible Institution; (b) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, is received by the Exchange Agent, as provided below, on or prior
to the Expiration Date; and (c) the certificates (or a book-entry confirmation)
representing all tendered Original Notes, in proper form for transfer, together
with a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Notes in
exchange for Original Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Original Notes, or of a book-entry confirmation with respect
to such Original Notes, and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of Exchange Notes might not be made to all tendering holders at the same time,
and will depend upon when Original Notes, book-entry confirmations with respect
to Original Notes and other required documents are received by the Exchange
Agent. The Company's acceptance for exchange of Original Notes tendered pursuant
to any of the procedures described above will constitute a binding agreement
between the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Original Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by them not to be in proper form or the
acceptance of which, or exchange for, may, in the opinion of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "-- Conditions to the Exchange Offer" or any condition or
23
<PAGE> 27
irregularity in any tender of Original Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders. The interpretation by the Company of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Original Notes will be deemed
to have been validly made until all irregularities with respect to such tender
have been cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification. If any Letter of Transmittal,
endorsement, bond power, power of attorney, or any other document required by
the Letter of Transmittal is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by the Company, proper evidence satisfactory to the
Company, in its sole discretion, of such person's authority to so act must be
submitted. A beneficial owner of Original Notes that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE NOTES
The Company is making the Exchange Offer for the Exchange Notes in reliance
on the position of the staff of the Division of Corporation Finance of the
Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company did not seek its own
interpretive letter and there can be no assurance that the staff of the Division
of Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Company believes that Exchange Notes issued pursuant to
this Exchange Offer in exchange for Original Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder of Original Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing Exchange Notes, or any broker-dealer who
purchased Original Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (a) will not be able to rely
on the interpretations of the staff of the Division of Corporation Finance of
the Commission set forth in the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such Original Notes in the Exchange Offer
and (c) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or other transfer of such
Original Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds
Original Notes acquired for its own account as a result of market-making or
other trading activities and exchanges such Original Notes for Exchange Notes,
then such broker-dealer must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of such Exchange Notes. Each
holder of Original Notes who wishes to exchange Original Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" the Company, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes, and (iv) if such holder
is not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such
Exchange Notes. In addition, the Company may require such holder, as a condition
to such holder's eligibility to participate in the Exchange Offer, to furnish to
the Company (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Original Notes to be exchanged in the
Exchange Offer. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it acquired the
Original Notes for its own account as the result of market-making activities or
other trading activities and must agree that it will
24
<PAGE> 28
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that Participating Broker-Dealers who acquired
Original Notes for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements with
respect to the Exchange Notes received upon exchange of such Original Notes
(other than Original Notes which represent an unsold allotment from the initial
sale of the Original Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange Notes received in exchange
for Original Notes where such Original Notes were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or other trading
activities. See "Plan of Distribution." However, a Participating Broker-Dealer
who intends to use this Prospectus in connection with the resale of Exchange
Notes received in exchange for Original Notes pursuant to the Exchange Offer
must notify the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "-- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate"
of the Company may not rely on such interpretive letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In that regard, each Participating
Broker-Dealer who surrenders Original Notes pursuant to the Exchange Offer will
be deemed to have agreed, by execution of the Letter of Transmittal or delivery
of an Agent's Message in lieu thereof, that upon receipt of notice from the
Company of the occurrence of any event or the discovery of (i) any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or (ii) any fact which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading, or (iii) of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to
this Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer, or the Company has
given notice that the sale of the Exchange Notes may be resumed, as the case may
be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at its address set forth under "-- Exchange Agent" on or prior to
the Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Original Notes to be withdrawn, the aggregate principal
amount of Original Notes to be withdrawn, and (if certificates for such Original
Notes have been tendered) the name of the registered holder of the Original
Notes as set forth on the Original Notes, if different from that of the person
who tendered such Original Notes. If Original Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Original Notes, the tendering holder must submit the serial numbers
shown on the particular Original Notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Original Notes tendered for the account of an Eligible Institution.
For Original Notes tendered pursuant to the procedures for book-entry transfer
set forth in "-- Procedures for Tendering Original Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Original Notes, in which case a notice of withdrawal will
be effective if delivered to the Exchange Agent by written, telegraphic, telex
or facsimile transmission. Withdrawals of tenders of Original Notes may not be
rescinded. Original Notes properly withdrawn will not be deemed validly tendered
for purposes of the
25
<PAGE> 29
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"-- Procedures for Tendering Original Notes." All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices will
be determined by the Company, in its sole discretion, whose determination shall
be final and binding on all parties. Neither the Company, any affiliates or
assigns of the Company, the Exchange Agent nor any other person shall be under
any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification. Any
Original Notes which have been tendered but which are withdrawn will be returned
to the holder thereof promptly after withdrawal.
INTEREST ON EXCHANGE NOTES
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive accrued interest on such Original Notes for any period from and
after the last Interest Payment Date to which interest has been paid or duly
provided for on such Original notes prior to the original issue date of the
Exchange Notes or, if no such interest has been paid or duly provided for, will
not receive any accrued interest on such Original Notes, and the undersigned
waives the right to receive any interest on such Original Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after September 30, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Original Notes for any Exchange Notes, and, as
described below, may terminate the Exchange Offer (whether or not any Original
Notes have theretofore been accepted for exchange) or may waive any conditions
to or amend the Exchange Offer, if any of the following conditions has occurred
or exists or has not been satisfied: (a) there shall occur a change in the
current interpretation by the staff of the Commission which permits the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Original Notes to be
offered for resale, resold and otherwise transferred by holders thereof (other
than broker-dealers and any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes; or (b) any
law, statute, rule or regulation shall have been adopted or enacted which, in
the judgment of the Company, would reasonably be expected to impair its ability
to proceed with the Exchange Offer; or (c) a stop order shall have been issued
by the Commission or any state securities authority suspending the effectiveness
of the Registration Statement, or proceedings shall have been initiated or, to
the knowledge of the Company, threatened for that purpose, or any governmental
approval has not been obtained, which approval the Company shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby; or (d) the Company shall receive an opinion of counsel
experienced in such matters to the effect that there is more than an
insubstantial risk that consummation of the Exchange Offer would result in
interest payable to the Company on the Exchange Notes being not deductible by
the Company for United States income tax purposes. If the Company determines in
its sole and absolute discretion that any of the foregoing events or conditions
has occurred or exists or has not been satisfied, it may, subject to applicable
law, terminate the Exchange Offer (whether or not any Original Notes have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Notes and will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
26
<PAGE> 30
EXCHANGE AGENT
Bank One, N.A. has been appointed as Exchange Agent for the Exchange Offer.
Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
Bank One, N.A.
<TABLE>
<C> <C>
By Registered or Certified Mail By Overnight or Hand Delivery
Bank One, N.A. Bank One, N.A.
Corporate Trust Operations Corporate Trust Operations
235 West Schrock Road 235 West Schrock Road
Columbus, Ohio 43271-0184 Westerville, Ohio 43081
</TABLE>
By Facsimile Transmission (for Eligible Institutions only)
Fax (614) 248-7234
Attention: Lora Marsch
(For Information by Telephone or Telephone Confirmation)
(800) 346-5153
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Original Notes, and in handling or tendering for
their customers. Holders who tender their Original Notes for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Original Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Original Notes
in connection with the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder. The Company will not make any payment to brokers, dealers or other
nominees soliciting acceptances of the Exchange Offer.
USE OF PROCEEDS
The Company will not receive any cash proceeds or incur additional
indebtedness from the issuance of the Exchange Notes offered hereby. The
Original Notes surrendered in exchange for the Exchange Notes will be retired
and canceled. All of the proceeds from the sale of the Original Notes were used
by the Company to repay outstanding indebtedness under its Revolving Credit
Agreement and for general corporate purposes.
27
<PAGE> 31
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1997 (i) on an actual basis and (ii) as adjusted to give effect to the
Offering and the application of the net proceeds therefrom. See "Use of
Proceeds" and the Company's Consolidated Financial Statements and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1997(A)
-----------------------
ACTUAL ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (b):
Revolving Credit Agreement (c)............................ $ 70,700 $ --
Receivables Securitization Facility (d)................... 380,677 380,677
Notes offered hereby...................................... -- 100,000
Other..................................................... 410 410
-------- ----------
Total long-term debt................................... 451,787 481,087
Stockholders' investment.................................... 541,574 541,574
-------- ----------
Total capitalization................................... $993,361 $1,022,661
======== ==========
</TABLE>
- ---------------
(a) The Diamond Park Asset Sale and the estimated net proceeds
therefrom are not reflected herein as the net proceeds from the Diamond
Park Asset Sale is being reinvested into the Company's operations. Any
gain is expected to be immaterial.
(b) Includes current maturities of long-term debt.
(c) The Company has $225.0 million available under the Revolving Credit
Agreement after giving effect to the Offering. See "Description of Certain
Indebtedness."
(d) Indebtedness under the Receivables Securitization Facility is secured
by all of the Company's current and future accounts receivable and is
non-recourse to the Company and the Guarantor.
28
<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information is qualified in
its entirety by the Consolidated Financial Statements of the Company (and the
related Notes thereto) contained elsewhere in this Prospectus and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The income statement and balance sheet data for each
of the years ended July 31, 1997, 1996, 1995 and 1994, the four months ended
July 31, 1993 and the year ended March 31, 1993 have been derived from the
Company's audited Consolidated Financial Statements. The information for the
predecessor pro forma year ended July 31, 1993 is derived from the Company's
unaudited Consolidated Financial Statements which, in the opinion of the
Company, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such information. The results of operations
for the four months ended July 31, 1993 are not necessarily indicative of the
results of operations that may be expected for the full year due to the seasonal
nature of the Company's business. Also, as a result of the adoption of
fresh-start financial reporting upon emergence from bankruptcy in July 1993, the
Company's results of operations subsequent to July 31, 1993 are not comparable
to results of operations for the prior periods. Fresh-start reporting resulted
in a revaluation of the Company's assets and liabilities as of July 30, 1993 to
reflect allocation of the reorganization value based upon the estimated fair
market values of those assets and liabilities. The most significant effects of
fresh-start reporting on results of operations are the reduction in amortization
and depreciation expense from the write-off of substantially all the Company's
fixed assets and the amortization of the excess of revalued net assets over
stockholders' investment.
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
PRO FORMA(A)
------------ FOUR MONTHS YEAR
YEAR ENDED JULY 31, YEAR ENDED ENDED ENDED
------------------------------------------------- JULY 31, JULY 31, MARCH 31,
1997 1996 1995 1994 1993 1993 1993
---------- ---------- ---------- ---------- ------------ ----------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $1,253,818 $1,137,377 $1,036,149 $920,307 $956,447 $244,539 $980,832
Cost of sales..................... 643,318 576,764 524,010 460,060 533,080 127,484 534,420
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin...................... 610,500 560,613 512,139 460,247 423,367 117,055 446,412
Selling, general and
administrative expenses......... 480,522 457,371 434,101 401,744 402,116 119,786 418,133
Depreciation and amortization
expense (credit)................ 14,022 7,538 381 (4,385) 26,459 8,973 26,316
Unusual items(b).................. -- (4,486) -- -- 20,200 -- 20,200
Reorganization and restructure
costs........................... -- -- -- -- 143,690 47,879 137,937
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating earnings (loss)......... 115,956 100,190 77,657 62,888 (169,098) (59,583) (156,174)
Interest expense, net............. 36,098 30,102 29,837 28,142 23,508 6,623 24,829
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before fresh-start
revaluation, income taxes,
extraordinary items and
cumulative effect of accounting
charge.......................... 79,858 70,088 47,820 34,746 (192,606) (66,206) (181,003)
Fresh-start revaluation........... -- -- -- -- (246,236) (246,236) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes, extraordinary items and
cumulative effect of accounting
change.......................... 79,858 70,088 47,820 34,746 (438,842) (312,442) (181,003)
Income taxes...................... 29,305 25,094 16,350 11,621 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
extraordinary items and
cumulative effect of accounting
change.......................... $50,553 $44,994 $31,470 $23,125 $(438,842) $(312,442) $(181,003)
========== ========== ========== ========== ========== ========== ==========
Net earnings (loss)............... $50,553 $43,898 $31,470 $21,557 $664,991 $791,391 $(181,003)
========== ========== ========== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE (c):
Primary:
Earnings before extraordinary
item.......................... $1.38 $1.23 $0.88 $0.66
Net earnings.................... 1.38 1.20 0.88 0.62
Assuming full dilution:
Earnings before extraordinary
item.......................... 1.37 1.23 0.86 0.66
Net earnings.................... 1.37 1.20 0.86 0.62
Weighted average number of common
shares outstanding (c):
Primary......................... 36,632 36,465 35,465 34,965
Assuming full dilution.......... 36,853 36,618 36,565 34,965
BALANCE SHEET DATA:
Working capital................... $877,130 $775,500 $781,802 $763,216 $676,677 $676,677 $961,671
Total assets...................... 1,281,206 1,163,811 1,110,708 1,112,647 1,013,523 1,013,523 1,252,448
Total debt........................ 451,787 404,354 443,624 447,478 355,125 355,125 284,554
Total stockholders' investment
(deficit)....................... 541,574 476,258 391,890 342,740 311,070 311,070 (791,391)
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
PRO FORMA(A)
------------ FOUR MONTHS YEAR
YEAR ENDED JULY 31, YEAR ENDED ENDED ENDED
------------------------------------------------- JULY 31, JULY 31, MARCH 31,
1997 1996 1995 1994 1993 1993 1993
---------- ---------- ---------- ---------- ------------ ----------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDAR(d)........................ $231,324 $196,086 $165,434 $139,391
Rental expense.................... 101,346 92,844 87,396 80,888
---------- ---------- ---------- ----------
EBITDA(d)......................... $129,978 $103,242 $78,038 $58,503
========== ========== ========== ==========
Capital expenditures.............. $54,025 $48,790 $42,295 $27,838
Gross margin %.................... 48.7% 49.3% 49.4% 50.0%
S,G&A as % of sales............... 38.3% 40.2% 41.9% 43.7%
EBITDA as % of sales.............. 10.4% 9.1% 7.5% 6.3%
Ratio of EBITDA to interest
expense......................... 3.5x 3.1x 2.1x 1.9x
Ratio of total debt to EBITDA..... 3.5x 3.9x 5.7x 7.6x
Ratio of earnings to fixed
charges(e)...................... 3.2x 3.1x 2.3x 2.1x
SELECTED STORE DATA:
Stores
Beginning of Period............. 1,195 1,181 1,231 1,265
Opened.......................... 117 137 35 29
Closed.......................... 61 123 85 63
---------- ---------- ---------- ----------
End of Period............... 1,251 1,195 1,181 1,231
</TABLE>
- ---------------
(a) Income statement data in this column represents historical income statement
data for the twelve months ended July 31, 1993, which includes the four
month period ended July 31, 1993 and the eight month period ended March 31,
1993. On December 13, 1993, the Company changed its fiscal year end to July
31, effective as of April 1, 1994.
(b) Unusual items consist of reorganization recoveries of ($4.5 million) for the
year ended July 31, 1996 and provisions for valuation of assets of $20.2
million as of the pro forma year ended July 31, 1993 and for the year ended
March 31, 1993.
(c) Earnings (loss) per share is not presented in the "Predecessor" columns
because such presentation would not be meaningful. The old stock, which was
not publicly traded, was canceled under the Plan of Reorganization and the
new stock was not issued until July 30, 1993 (the "Effective Date").
(d) "EBITDA" represents, for any period, income (loss) before interest expense,
income taxes, depreciation and amortization and unusual items. "EBITDAR"
represents, for any period, income (loss) before interest expense, income
taxes, depreciation and amortization, rent expense and unusual items. EBITDA
and EBITDAR are presented because they are accepted financial indicators of
a company's ability to service and/or incur indebtedness and management
believes that their presentation is helpful to investors. However, these
measures should not be considered as alternatives to net income as a measure
of the Company's operating results or to cash flows as a measure of
liquidity. In addition, although the EBITDA and EBITDAR measures of
performance are not recognized under generally accepted accounting
principles, they are widely used by companies as a general measure of a
company's operating performance because they assist in comparing performance
on a relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods or non-operating factors such as historical cost bases.
Because EBITDA and EBITDAR are not calculated identically by all companies,
the presentation herein may not be comparable to other similarly titled
measures of other companies.
(e) For purposes of computing the ratios, earnings represent income before
income taxes, extraordinary items plus fixed charges. Fixed charges include
interest on indebtedness and amortization of deferred financing fees.
30
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial information from the
Company's audited consolidated statements of operations expressed as a
percentage of net sales and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Sales............................................... 100.0% 100.0% 100.0%
Cost of Sales........................................... 51.3 50.7 50.6
------ ------ ------
Gross Margin............................................ 48.7 49.3 49.4
Selling, General and Administrative Expenses............ 38.3 40.2 41.9
Depreciation and Amortization Expense................... 1.2 0.7 --
Unusual Items -- Reorganization Recoveries.............. -- (0.4) --
------ ------ ------
Operating Earnings...................................... 9.2 8.8 7.5
Interest Expense, Net................................... 2.9 2.6 2.9
------ ------ ------
Earnings Before Income Taxes and Extraordinary Items.... 6.3 6.2 4.6
Income Taxes............................................ 2.3 2.2 1.6
------ ------ ------
Earnings Before Extraordinary Items..................... 4.0 4.0 3.0
Extraordinary Items:
Loss on Early Extinguishment of Debt, Net of Income
Taxes.............................................. -- (0.1) --
------ ------ ------
Net Earnings............................................ 4.0% 3.9% 3.0%
====== ====== ======
</TABLE>
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
Net Sales. Net Sales for the year ended July 31, 1997 increased by $116.4
million to $1,253.8 million, a 10.2% increase compared to the previous year. The
sales increase primarily resulted from a 5.5% increase in stores open for
comparable periods as well as sales from 117 new stores added during the year,
which was partially offset by 61 stores closed during the year. The Company
believes that the sales growth was influenced by enhanced merchandise
assortments, successful product promotions and strong store level execution.
Gross Margin. Gross Margin as a percentage of net sales was 48.7% for the
year ended July 31, 1997 compared to 49.3% for the year ended July 31, 1996, a
decrease of 0.6%. This decrease was primarily due to the Company's more
competitive stance with regard to pricing as well as the ongoing transition to a
higher priced, lower margin product mix at the Gordon's Division in connection
with its repositioning as a more upscale and contemporary retailer. The LIFO
provision was $3.7 million and $2.4 million for the years ended July 31, 1997
and 1996, respectively, having the effect of reducing gross margin by 0.1%.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses decreased to 38.3% of sales for the year ended July 31,
1997 from 40.2% for the year ended July 31, 1996, or 1.9% as a percentage of net
sales. Store expenses as a percentage of sales decreased by 0.6% principally due
to productivity improvement as a result of store payroll increasing at a lower
rate than sales. Corporate expenses decreased by 0.7% of net sales principally
as a result of lower costs for payroll. The current year demonstrated the
Company's ability to leverage its fixed store and corporate operating expenses
while increasing sales in the stores.
Earnings Before Interest, Taxes, Depreciation and Amortization Expense,
Extraordinary Item and Unusual Items. Earnings Before Interest, Taxes,
Depreciation and Amortization Expense, Extraordinary Item and Unusual Items were
$130.0 million and $103.2 million for the years ended July 31, 1997 and 1996,
respectively, an increase of 26.0%.
31
<PAGE> 35
Depreciation and Amortization Expense. Depreciation and Amortization
Expense increased by $6.5 million, primarily as a result of the purchase of new
assets, principally for new store openings, renovation and refurbishment, since
the fresh start reporting write-off of substantially all fixed assets of the
Company effective July 31, 1993.
Interest Expense, Net. Interest Expense, Net was $36.1 million and $30.1
million for the years ended July 31, 1997 and 1996, respectively. The increase
in interest expense was primarily due to higher borrowings under the Revolving
Credit Agreement to fund new store growth, inventory, and remodels and
renovations and a reduction in interest income resulting from lower average
balances in short term investments.
Income Taxes. The income tax expense for the years ended July 31, 1997 and
1996 was $29.3 million and $24.5 million, respectively, reflecting an effective
tax rate of 36.7% and 35.8%, respectively. As a result of guidelines regarding
accounting for income taxes of companies utilizing fresh-start reporting, the
Company reports earnings on a fully-taxed basis even though it does not expect
to pay any significant income taxes for the near future. The Company will
realize a cash benefit from utilization of tax net operating loss carryforwards
("NOL") (after limitations) against current and future tax liabilities. As of
July 31, 1997, the Company had a remaining NOL (after limitations) of
approximately $254.2 million.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Net Sales. Net Sales for the year ended July 31, 1996 increased by $101.2
million to $1,137.4 million, a 9.8% increase compared to the previous year.
Sales for stores open for comparable periods increased by 9.9%. The sales
increase primarily resulted from improved merchandise assortments, successful
product promotions during the holiday and non-holiday periods and strong store
level execution.
Gross Margin. Gross Margin as a percentage of net sales was 49.3% for the
year ended July 31, 1996 compared to 49.4% for the year ended July 31, 1995, a
decrease of 0.1%. The Company achieved this result while adhering to its
merchandise strategy which included a transition in sales mix to more key item
merchandise as well as reducing slow moving merchandise inventory during the
current year. Key item merchandise produces higher sales volumes but has a
slightly lower gross margin rate, on average, than other merchandise. The LIFO
provision was $2.4 million and $2.8 million for the years ended July 31, 1996
and 1995, respectively.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses decreased to 40.2% of sales for the year ended July 31,
1996 from 41.9% for the year ended July 31, 1995, or 1.7% as a percentage of net
sales. Store payroll expense as a percentage of net sales decreased 1.0% as a
result of focused productivity measures. Other store expenses decreased by 0.9%
of net sales principally related to store occupancy costs, which increased at a
lower rate than net sales. Corporate expenses decreased by 0.9% of net sales
principally as a result of lower costs for payroll, outside services and
insurance. These improvements were partially offset by an increased provision
for chargeoffs of customer accounts resulting from general economic conditions.
Earnings Before Interest, Taxes, Depreciation and Amortization Expense,
Extraordinary Item and Unusual Items. Earnings Before Interest, Taxes,
Depreciation and Amortization Expense, Extraordinary Item and Unusual Items were
$103.2 million and $78.0 million for the years ended July 31, 1996 and 1995,
respectively, an increase of 32.3%.
Depreciation and Amortization Expense. Depreciation and Amortization
Expense increased by $7.2 million, primarily as a result of the purchase of new
assets in connection with the Company's store expansion and remodeling plan.
Unusual Items -- Reorganization Recoveries. Unusual Items -- Reorganization
Recoveries were $4.5 million for the year ended July 31, 1996. See "Unusual
Items -- Reorganization Recoveries" in Notes to the Consolidated Financial
Statements.
Interest Expense, Net. Interest Expense, Net was $30.1 million and $29.8
million for the years ended July 31, 1996 and 1995, respectively. Interest
expense primarily remained constant due to the early redemption of the $60.0
million 11.0% Second Priority Senior Secured Notes on September 11, 1995,
partially offset by the increase in interest expense due to higher borrowings
under the Revolving Credit Agreement and
32
<PAGE> 36
a reduction in interest income due to lower average balances in short-term
investments. Also, the prior year included $1.2 million of interest income on
funds escrowed for previous bankruptcy matters.
Income Taxes. The income tax expense for the years ended July 31, 1996 and
1995 was $24.5 million and $16.4 million, respectively, reflecting an effective
tax rate of 35.8% and 34.2%, respectively. As a result of guidelines regarding
accounting for income taxes of companies utilizing fresh-start reporting, the
Company reports earnings on a fully-taxed basis even though it does not expect
to pay any significant income taxes for the near future. The Company will
realize a cash benefit from utilization of NOLs (after limitations) against
current and future tax liabilities.
Extraordinary Item. The extraordinary charge of $1.1 million, net of an
income tax benefit of $0.6 million, for the year ended July 31, 1996 was the
result of the early redemption of the $60.0 million 11.0% Second Priority Senior
Secured Notes. See "Long-Term Debt" in Notes to the Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of funding inventory
and receivables growth, capital expenditures primarily for new store growth and
renovations, upgrading its management information systems and debt service. As
of July 31, 1997, the Company had cash and cash equivalents of $41.6 million,
including $9.0 million restricted primarily by the collateral requirements under
the Receivables Securitization Facility established by the Company in July 1994
(the "Receivables Securitization Facility"). The retail jewelry business is
highly seasonal, with a significant proportion of sales and operating income
being generated in November and December of each year. Approximately 40.3% and
39.7% of the Company's annual sales were made during the three months ended
January 31, 1997 and 1996, respectively, which includes the Christmas selling
season. The Company's working capital requirements fluctuate during the year,
increasing substantially during the fall season as a result of higher planned
seasonal inventory levels.
Set forth below is certain summary information with respect to the
Company's operations for the most recent eight fiscal quarters.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
------------------------------------------------ ------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31, JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1997 1997 1997 1996 1996 1996 1996 1995
-------- --------- ----------- ----------- -------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $273,580 $244,376 $505,083 $230,779 $248,858 $222,283 $451,962 $214,274
Gross margin................ 132,271 119,182 248,312 110,735 122,760 107,797 225,952 104,104
Operating earnings.......... 11,613 7,381 90,756 6,206 7,851 3,823 79,770 8,746
Net earnings (loss)......... 1,620 (1,444) 51,515 (1,138) 12 (2,439) 46,234 91
</TABLE>
Net cash used in operating activities was $6.0 million in fiscal 1997 and
$1.4 million in fiscal 1996. In fiscal 1997 and 1996, net earnings, depreciation
and amortization charges and the non-cash charge in lieu of tax expense were
offset by additional working capital needs, principally for accounts receivable
and inventory growth. In fiscal 1995, net cash provided by operations was $45.9
million principally from the non-cash charge in lieu of tax expense and a
reduction in working capital needs.
Net cash used in investing activities was $49.1 million in fiscal 1997,
$50.8 million in fiscal 1996 and $40.5 million in 1995 principally related to
capital expenditures for new store growth and existing store remodeling and
refurbishment.
Net cash provided from financing activities was $46.8 million in fiscal
1997, principally for borrowings under the Company's Revolving Credit Agreement.
Net cash used for financing activities for fiscal 1996 was $52.6 million,
principally related to payments of long term debt retired during that year. Net
cash used in financing activities for fiscal 1995 was $4.2 million, principally
related to scheduled payments of long-term debt.
The Company, through Zale Funding Trust ("ZFT"), a limited purpose Delaware
business trust wholly owned by ZDel and formed to finance customer accounts
receivable, has approximately $380.6 million, net of discount, aggregate
principal amount of Receivables Backed Notes ("ZFT Receivables Notes") issued
and outstanding at July 31, 1997 pursuant to the Receivables Securitization
Facility. The ZFT Receivables Notes
33
<PAGE> 37
are secured by a lien on all customer accounts receivable and may be optionally
redeemed by ZFT in July 1999.
In order to support the Company's growth plans, the Company and ZDel (the
"Borrowers") entered into a new three year unsecured revolving credit agreement
(the "Revolving Credit Agreement") with a group of banks on March 31, 1997. The
Revolving Credit Agreement provides for revolving credit loans in an aggregate
amount of up to $225.0 million, including a $30.0 million sublimit for letters
of credit. The Revolving Credit Agreement replaced a prior secured commitment
totaling $150.0 million.
The revolving credit loans bear interest at floating rates, currently (i)
LIBOR plus 1.5% or (ii) the agent bank's adjusted base rate or the Federal Funds
Rate plus 0.5%, at the Borrowers' option. The interest rate based on LIBOR and
letter of credit commission rates can be reduced or increased based on certain
future performance levels attained by the Borrowers. The Company pays a
commitment fee of 0.375% per annum (subject to reduction based on future
performance) on the preceding month's unused Revolving Credit Agreement
commitment. The Borrowers may repay the revolving credit loans at any time
without penalty prior to the maturity date. The interest rates and commitment
fee will also be reduced if the Company obtains an investment grade rating. The
Revolving Credit Agreement may be extended by the Borrowers for one year upon
obtaining appropriate consent. At July 31, 1997, there were $70.7 million in
loans outstanding under the Revolving Credit Agreement at a weighted-average
interest rate of 7.20%. In addition, letters of credit in the amount of
approximately $0.6 million were outstanding at July 31, 1997. The Company is
currently in compliance with all of its covenant obligations under the Revolving
Credit Agreement and the instruments governing its other indebtedness. Prior to
the consummation of the Offering, the Company expects to amend the Revolving
Credit Agreement in order to incorporate certain of the covenants in the
Indenture governing the Notes into the Revolving Credit Agreement. In addition,
prior to selling any Additional Notes, the Company must amend the Revolving
Credit Agreement in order to permit the incurrence of such indebtedness. There
can be no assurance the Company could obtain such amendment. See "Description of
Certain Indebtedness."
During the year ended July 31, 1997, the Company made approximately $54.0
million in capital expenditures, a significant portion of which was used to open
117 new stores. Under its continued growth strategy, the Company plans to open
approximately 220 new stores for which it will incur approximately $50 million
in capital expenditures during the combined fiscal years 1998 and 1999. These
stores are expected to solidify the Company's core mall business by further
penetrating markets where the Company is underrepresented. Since fiscal 1994,
the Company remodeled or refurbished nearly 50% of its store base. During the
combined fiscal years 1998 and 1999, the Company anticipates spending
approximately $50 million to remodel and refurbish approximately 300 additional
stores. The Company also estimates it will make capital expenditures of
approximately $25 million to $30 million during the combined fiscal years 1998
and 1999 for enhancements to its management information systems. In total, the
Company anticipates spending approximately $160.0 million on capital
expenditures during the combined fiscal years 1998 and 1999. The Revolving
Credit Agreement limits the Company's capital expenditures to $80.0 million in
each of fiscal years 1998 and 1999.
There has been an increase of approximately $53.8 million, or 11.8%, in
owned merchandise inventories at July 31, 1997 compared to the balance at July
31, 1996. The increase in inventory levels is principally the result of new
store growth as well as improvements in the depth and breadth of merchandise
available in the stores to accommodate increasing sales. As a result of the
inventory position and increased capital expenditures, the Company had
outstanding borrowings of $70.7 million under the Revolving Credit Agreement at
July 31, 1997, compared to $23.6 million at July 31, 1996. The Offering is part
of a plan to improve the Company's capital structure by (i) allowing more
flexibility for seasonal financing needs and (ii) extending the average maturity
of the Company's indebtedness. The Company will apply the net proceeds from the
issuance of the Notes to repay outstanding borrowings under the Revolving Credit
Agreement, which amounts may be reborrowed from time to time.
On September 3, 1997, the Company signed a purchase agreement relating to
the Diamond Park Asset Sale. The Diamond Park Division, which manages leased
fine jewelry departments in major department store chains including Marshall
Field's, Dillard's, Mercantile and Parisian, had annual sales and EBITDA of
34
<PAGE> 38
$125.3 million and approximately $6.0 million after certain corporate
allocations, respectively, in fiscal 1997. At July 31, 1997, inventories and net
property and equipment of the Diamond Park Division were $54.5 million and $4.0
million, respectively. In connection with Diamond Park Asset Sale, the Company
received consideration totaling approximately $63 million in cash. The Company
will continue to operate in the Dillard's stores through January 1998, the end
of the current license period, at which time the remaining inventory of such
operations will be sold to the purchaser. Net proceeds from the Diamond Park
Asset Sale were reinvested into the Company's operations. The closing of the
Diamond Park Asset Sale occurred on October 6, 1997.
Future liquidity will be enhanced to the extent that the Company is able to
realize the cash benefit from utilization of its NOL against current and future
tax liabilities. The cash benefit realized in fiscal year 1997 was approximately
$28 million. Guidelines regarding accounting for income taxes of companies
utilizing fresh-start reporting require the Company to report earnings on a
fully-taxed basis even though it does not expect to pay any significant income
taxes for the current year. As of July 31, 1997, the Company had a NOL (after
limitations) of approximately $254 million, which represents up to $99 million
in future tax benefits. The utilization of this asset is subject to limitations.
The most restrictive is the Internal Revenue Code Section 382 annual limitation.
The NOL will begin to expire in fiscal year 2002 but can be utilized through
2009.
Management believes that operating cash flow, amounts available under the
Revolving Credit Agreement, the Receivables Securitization Facility, net
proceeds from the Offering and the sale of the Additional Notes, if any, and net
proceeds from the Diamond Park Asset Sale should be sufficient to fund the
Company's current operations, debt service and currently anticipated capital
expenditure requirements for the foreseeable future.
INFLATION
In management's opinion, changes in net sales and net earnings that have
resulted from inflation and changing prices have not been material during the
periods presented. There is no assurance, however, that inflation will not
materially affect the Company in the future.
NEW ACCOUNTING PRONOUNCEMENTS
Effective March 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share" ("EPS"). In accordance with the
provisions of SFAS No. 128, basic earnings per common share will be computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per common share will be
computed by dividing net income by the weighted average of common stock and
common stock equivalents outstanding during the period. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997 with footnote disclosure of pro forma EPS amounts
permitted prior to that date. The Company will adopt SFAS No. 128 in the quarter
ended January 31, 1998, and in accordance with SFAS No. 128, will restate all
prior-period EPS data.
Effective July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 requires the Company to report comprehensive
income in the financial statements. SFAS No. 131 requires the Company to
disclose revenues, profits and loss, and assets for certain business segments.
These statements are effective for fiscal years beginning after December 15,
1997, with earlier adoption permitted. The Company has not yet determined the
impact of these statements on its financial disclosures.
35
<PAGE> 39
BUSINESS
The Company is the largest specialty retailer of fine jewelry in the United
States. At July 31, 1997, the Company operated 1,065 retail jewelry stores
(excluding 186 Diamond Park stores) located primarily in shopping malls
throughout the United States, Guam and Puerto Rico. The Company operates three
well-differentiated operating divisions: Zales(R) (638 stores), Gordon's(SM)
(310 stores) and Bailey, Banks and Biddle(R) (113 stores). The Zales Division is
a nationally recognized chain which provides more traditional, moderately priced
jewelry to a broad range of customers. The Gordon's Division is a regional
jeweler which offers contemporary merchandise targeted to regional preferences
at somewhat higher price points than Zales. The Bailey, Banks and Biddle
Division operates upscale jewelry stores which are considered among the pre-
eminent jewelry stores in their markets. In addition, the Company operates four
outlet stores in three states. During the fiscal year ended July 31, 1997, the
Company generated $1.3 billion and $130.0 million of net sales and EBITDA,
respectively.
The Company is well-positioned to compete in the approximately $37 billion,
highly fragmented retail jewelry industry due to its established brand names,
economies of scale and geographic and demographic diversity. The Company enjoys
significant brand name recognition as a result of its long-standing presence in
the industry and its regional and national advertising campaigns. Zales has been
in existence since 1924 and is supported by national television advertising
campaigns while Gordon's and Bailey, Banks and Biddle have been in existence
since 1905 and 1832, respectively, and are supported by regional advertising
campaigns. The Company believes that name recognition is an important advantage
in jewelry retailing as products are generally unbranded and consumers must
trust in a retailer's reliability and credibility. In addition, as the largest
specialty retailer of fine jewelry in the United States, the Company believes it
realizes economies of scale in purchasing and distribution, real estate,
advertising and administrative costs. The Company also believes that the
geographic diversity of its retail distribution network through all 50 states
and the demographic breadth of its target customer groups may serve to mitigate
earnings volatility typically associated with local or regional economic
conditions or poor weather conditions.
The Company is incorporated in Delaware. On January 23, 1992, the Company
filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy
Code. The Company emerged from bankruptcy on July 30, 1993. Its principal
executive offices are located at 901 W. Walnut Hill Lane, Irving, TX 75038-1003,
and its telephone number at that address is (972) 580-4000.
INDUSTRY
The U.S. retail jewelry industry's sales exceeded $37 billion in 1996.
Specialty jewelry stores (such as the Company) account for almost half of the
industry, according to publicly available data. Historically, the retail jewelry
store sales have exhibited only limited effects of cyclicality. According to the
U.S. Bureau of the Census, retail jewelry store sales have increased every year
for the past 13 years with the exception of 1991 which included both the Persian
Gulf War and the introduction of the luxury tax. Other significant segments of
the industry include national chain department stores (such as J.C. Penney
Company, Inc. and Sears, Roebuck and Co.), mass merchant discount stores (such
as Wal-Mart Stores, Inc.), other general merchandise stores and apparel and
accessory stores. The remainder of the retail jewelry industry is composed
primarily of catalog and mail order houses, direct-selling establishments, TV
home shopping (such as QVC, Inc.) and computer on-line shopping.
The U.S. retail jewelry industry is highly fragmented with the 10 largest
companies accounting for less than 25% of the market. The largest jewelry
retailer is believed to be Wal-Mart Stores, Inc., followed by the Company and
Service Merchandise Company, Inc. The Company is the largest specialty jewelry
retail chain in the U.S., with approximately 3.4% of market share based on the
National Jeweler's estimate of 1996 U.S. Retail Jewelry and Watch Sales. Only
one other specialty jewelry retailer had greater than 2% market share.
36
<PAGE> 40
DIVISIONAL OPERATIONS
The Company operates principally under the three divisions. The following
table presents net sales for the Zales, Gordon's and Bailey, Banks & Biddle
Divisions of the Company.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Zales Division................................. $607,677 $525,384 $428,794
Gordon's Division.............................. 282,271 264,298 262,540
Bailey, Banks & Biddle Division................ 226,323 205,418 197,267
Other(a)....................................... 12,232 8,814 9,361
---------- ---------- ----------
Subtotal..................................... 1,128,503 1,003,914 897,962
Diamond Park Division(b)....................... 125,315 133,463 138,187
---------- ---------- ----------
Total Net Sales.............................. $1,253,818 $1,137,377 $1,036,149
========== ========== ==========
</TABLE>
- ---------------
(a) Other net sales (i) includes sales from the Company's Outlet
stores which are being used to sell overstocked and other
merchandise no longer sold in the regular retail locations and
(ii) in 1997 includes sales from its direct mail operation.
(b) Net sales for the Diamond Park Division have been broken out to
reflect the Diamond Park Asset Sale.
Zales Division
The Zales Division is positioned as the Company's national flagship and is
a leading brand name in jewelry retailing in the United States. At July 31,
1997, the Zales Division had 638 stores in 49 states and Puerto Rico. Average
store size is approximately 1,400 square feet and the average selling price per
unit sold is $246. Zales accounted for approximately 48% of the Company's net
sales in fiscal 1997.
Zales' merchandise selection is generally standardized across the nation
and targeted at customers representing a cross-section of mainstream America. In
fiscal 1997, bridal merchandise represented 36.1% of the Division's merchandise
sales, while fashion jewelry and watches comprised most of the remaining 63.9%.
The bridal merchandise category consists of solitaire engagement rings, various
bridal sets and diamond and gold anniversary bands. Fashion jewelry consists
generally of cocktail rings, earrings, chains, watches and various other items.
The Company believes that the prominence of diamond jewelry in its product
selection fosters an image of quality and trust among consumers. While
maintaining a strong focus on the bridal segment of the business, added emphasis
is being placed on the non-bridal merchandise and gift-giving aspects of the
business. New product lines, including Blue Lagoon cultured pearls by Mikimoto,
and Movado watches, have been added. The combination of Zales' national presence
and centralized merchandise selection allows it to use television advertising
across the nation as its primary advertising medium, supplemented by newspaper
inserts and direct mail.
Zales has recently entered the direct fulfillment business through its
direct mail catalog operations and Internet web site. These operations currently
account for less than 1% of the Company's sales.
The following table sets forth the number of stores and average sales per
store for the Zales Division for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Average sales per store(a)........................ $1,013,000 $974,000 $850,000
Stores opened during period....................... 65 89(b) 8
Stores closed during period....................... 9 6 30
Total stores...................................... 638 582 499
</TABLE>
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<PAGE> 41
- ---------------
(a) Based on sales per store open a full twelve months during the
respective fiscal year.
(b) Includes 40 stores transferred from the Gordon's Division during fiscal
1996 and 20 Karten's stores acquired in January 1996.
Gordon's Division
Since 1994, the Company has repositioned Gordon's as a major regional brand
with an upgraded product offering. At July 31, 1997, the Gordon's Division had
310 stores in 37 states and Puerto Rico, substantially all of which operate
under the trade name Gordon's Jewelers. Average store size is approximately
1,400 square feet and the average selling price per unit sold is $274, which
represents a 22% increase from the average selling price per unit sold two years
ago. Gordon's accounted for approximately 23% of the Company's net sales in
fiscal 1997.
Gordon's distinguishes itself from Zales by providing a more upscale,
contemporary product mix and tailoring a portion of store inventory to regional
tastes. A substantial portion of the remaining merchandise sold by stores in the
Gordon's Division overlaps the Zales Division product line. Regional television
advertising that emphasizes key items was introduced for Gordon's in fiscal
1997, complementing the Division's radio campaigns and printed inserts.
The Gordon's Division will continue to emphasize its new image to match its
customer base and will further tailor key items to customer's regional
preferences. Steps to upgrade Gordon's have included store remodeling, a more
distinctive and fashion-oriented product assortment, improved displays, a
reduced degree of promotional pricing and the application of more stringent
credit-approval standards.
The following table sets forth the number of stores and average sales per
store for the Gordon's Division for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Average sales per store(a)......................... $888,000 $803,000 $711,000
Stores opened during period........................ 9 13 5
Stores closed during period........................ 22 57(b) 13
Total stores....................................... 310 323 367
</TABLE>
- ---------------
(a) Based on sales per store open a full twelve months during the
respective fiscal year.
(b) Includes 40 stores transferred to the Zales Division during fiscal
1996.
Bailey, Banks & Biddle Division
Since 1832, the Bailey, Banks & Biddle Division has offered high-end
merchandise, exclusive designs and a prestigious shopping environment for the
upscale customer. The Division operates principally under the trade name Bailey,
Banks & Biddle, but also utilizes other trade names, including Corrigan's(R),
Sweeney's(R), Stifft's(R), Dobbins(R), Linz(R), and Zell Bros.(R) The Division's
stores are among the pre-eminent stores in their markets and carry exclusive
items to appeal to the more affluent customer. The Bailey, Banks & Biddle
merchandise selection emphasizes the classic and traditional look and focuses on
diamond, precious stone and gold jewelry, as well as watches and giftware. At
July 31, 1997, the Bailey, Banks & Biddle Division operated 113 upscale jewelry
stores in 28 states and Guam. The Division has an average selling price per unit
sold of $484, an average store size of approximately 3,000 square feet and
accounted for approximately 18% of the Company's net sales in fiscal 1997.
Bailey, Banks & Biddle Division stores rely heavily on upscale direct-mail
catalogs, enabling the stores to focus on specific products for specific
customers. In fiscal year 1997, the Bailey, Banks & Biddle Division expanded its
customer base in cross-promotional campaigns using upscale customer lists from
such companies as American Express Company, First USA, Inc. and American
Airlines, Inc. This initiative will help the Bailey, Banks & Biddle Division to
more accurately target prospective customers in a cost-efficient manner.
38
<PAGE> 42
The following table sets forth the number of stores and average sales per
store for the Bailey, Banks & Biddle Division for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Average sales per store(a)..................... $1,990,000 $1,755,000 $1,556,000
Stores opened during period.................... 16 1 4
Stores closed during period.................... 15 12 11
Total stores................................... 113 112 123
</TABLE>
- ---------------
(a) Based on sales per store open a full twelve months during the
respective fiscal year.
STORE OPERATIONS
The Company's stores are designed and managed to create an attractive
environment, maximize operating efficiencies and make shopping convenient and
enjoyable. The Company pays careful attention to store layout, particularly in
areas such as lighting, choice of materials and arrangement of display cases.
Promotional displays are changed periodically to provide variety, to reflect
seasonal events or to complement a particular mall's promotions.
Each of the Company's stores is operated under a store manager who is
responsible for certain store-level operations, including sales and personnel
matters. The Company has consolidated most non-sales administrative matters,
including purchasing, credit operations and payroll, at the divisional level in
an effort to maintain low operating costs at the store level. Each of the
Company's divisions also offers standard warranties and return policies as well
as providing extended warranty coverage which may be purchased at the customer's
option.
The Company has implemented inventory control systems, extensive security
systems and loss prevention procedures to maintain low inventory losses. The
Company screens employment applicants and provides all of its store personnel
with training in loss prevention. Despite such precautions, the Company
experiences losses from theft from time to time and maintains insurance to cover
such losses.
The Company believes it is important to provide knowledgeable and
responsive customer service. The Company has implemented employee training
programs, including training in sales techniques for new employees, on-the-job
training and manager training for store managers.
PURCHASING AND INVENTORY
The Company purchases substantially all of its merchandise in finished form
from a network of established suppliers and manufacturers located primarily in
the United States, Southeast Asia, and Italy. All purchasing is done through
divisional buying offices at the corporate headquarters. The Company either
purchases merchandise from its vendors or obtains merchandise on consignment.
The Company had approximately $135.0 million and $78.9 million of consignment
inventory on hand at July 31, 1997 and 1996, respectively. The increase in
consignment inventory results principally from further development of certain
watch lines carried on consignment, testing of new products, expansion of higher
risk fashion and solitaire product categories and other opportunities. The
Company historically has not engaged in any substantial amount of hedging
activities with respect to merchandise held in inventory, since the Company has
been able to adjust retail prices to reflect price fluctuations in the
commodities that are used in the merchandise it sells. The Company is not
subject to substantial currency fluctuations because most purchases are dollar
denominated. During fiscal 1997 and fiscal 1996, the Company purchased
approximately 27% and 29%, respectively, of its merchandise from its top five
vendors, including more than 10% from its top vendor. See "Risk
Factors -- Merchandise Supply and Inventory."
CREDIT OPERATIONS
The Company believes that its credit programs help facilitate the sale of
merchandise to customers who wish to finance their purchases rather than use
cash or available credit limits on their major credit cards. The Company offers
and grants credit through its private label credit card program. Approximately
50% of the
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<PAGE> 43
Company's net sales (excluding the Diamond Park Division) were generated by
credit sales on the private label credit cards in fiscal 1997. The Company
believes that opening a credit account allows its sales personnel to build
relationships with customers that generate customer loyalty and facilitate
repeat purchases.
Credit extension, customer service, payment processing and collections for
all the accounts are performed by Jewelers Financial Services, Inc. ("JFS"), a
wholly owned subsidiary of ZDel, at credit centers located in Tempe, Arizona;
Clearwater, Florida; San Marcos, Texas; and San Juan, Puerto Rico. JFS has
credit approval, customer service and collection systems that management
considers to be sophisticated. The Company uses a behavioral point scoring model
to assess risk in extending credit to customers. All credit decisions are made
centrally at the Company's credit centers. The Company has tightened credit
standards, particularly in the Gordon's Division, where standards were increased
in 1995 in connection with its re-positioning as a more upscale regional brand.
The Company has enhanced the approval process for its private label credit
cards, whereby those customers with a satisfactory prior credit history can be
approved rapidly. Flexible payment arrangements are extended to credit
customers. As of July 31, 1997, the Company has 1.9 million promotable customer
names on file. The Company uses many of these customer names in its targeted
marketing programs.
The Company diligently follows up on delinquent accounts. Collectors are
trained with state of the art Computer Based Training programs ("CBT"). These
CBT programs are developed in-house by the credit organization. Collection
accounts are scored on a behavioral model at monthly billing. The statistical
analysis allows for optimum collection follow-up on delinquent accounts starting
at 15 days past due. Based on the behavioral score, the account is put into
priority queuing for letter or personal phone call follow-up. Early stage
delinquencies are handled with an approach which is sensitive to customer
goodwill. If accounts progress in delinquency, more assertive action is taken.
The Company expects that a downturn in general economic conditions may adversely
affect credit accounts receivable performance.
The Company is in the process of establishing a national bank for the
granting of credit under its private label credit cards. Preliminary approval
has been received from the OCC. The creation of a national bank will allow the
Company greater flexibility in establishing rates charged to customers and will
simplify the regulatory requirements under which the Company operates.
The following table presents certain data concerning sales, credit sales
and accounts receivable for the past three fiscal years, excluding the Diamond
Park Division, outlet operations and direct mail operations:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Net sales (thousands)............................. $1,116,271 $995,100 $888,601
Net credit sales (thousands)...................... $ 556,771 $500,215 $458,664
Credit sales as percentage of net sales........... 49.9% 50.3% 51.6%
Average number of active customer accounts........ 715,000 678,000 689,000
Average balance per customer account.............. $719 $687 $668
Customer receivables (thousands).................. $ 508,885 $468,331 $436,336
Average monthly collection percentage............. 9.2% 9.2% 9.1%
Bad debt expense as a percentage of net credit
sales........................................... 10.0% 10.7% 9.1%
Accounts receivable greater than 90 days past
due............................................. 9.1% 9.1% 9.9%
</TABLE>
Credit sales have decreased as a percentage of net sales, in part because
of an upgrading in minimum credit standards at the Gordon's Division and
increased competition from issuers of major credit cards. Accounts are
automatically charged off when no full scheduled payment is made for a period of
seven consecutive billing cycles. Additionally, accounts are charged off if 12
contracted payments are missed.
INSURANCE AFFILIATES
The Company, through Zale Indemnity Company, Zale Life Insurance Company
and Jewel Re-Insurance Ltd., provides various types of insurance coverage, which
typically are marketed to the
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<PAGE> 44
Company's private label credit card customers. Additionally, the Company
promotes the sale of credit insurance products to customers who use the private
label credit card program. In fiscal 1997, over 50% of the Company's private
label credit card purchasers purchased some form of credit insurance. The three
companies, which are wholly owned subsidiaries of ZDel, are the insurers (either
through direct written or reinsurance contracts) of the Company's customer
credit insurance coverages. In addition to providing replacement property
coverage for certain perils, such as theft, credit insurance coverage provides
protection to the creditor and cardholder for losses associated with the
disability, involuntary unemployment or death of the cardholder. Zale Life
Insurance Company also provides group life insurance coverage for eligible
employees of the Company. Zale Indemnity Company, in addition to writing direct
credit insurance contracts, also has certain discontinued business that it
continues to run off. Credit insurance operations are dependent on the Company's
retail sales on its private label credit cards and are not significant on a
stand-alone basis.
EMPLOYEES
As of July 31, 1997, the Company had approximately 10,000 employees, less
than 1% of whom were represented by unions. The Company usually hires a limited
number of temporary employees during each Christmas season. The Company
considers its relations with its employees to be good.
PRINCIPAL PROPERTIES
The Company leases a 430,000 square foot corporate headquarters facility,
which lease extends through September 2008. The facility is located on a 17-acre
tract in Las Colinas, a planned business development in Irving, Texas, near the
Dallas/Fort Worth International Airport. The Company also owns 33 acres of land
surrounding the corporate headquarters facility and a 120,000 square foot
warehouse in Dallas, Texas.
The Company leases three credit centers located in Clearwater, Florida
(30,000 square feet), Tempe, Arizona (24,200 square feet), and San Juan, Puerto
Rico (2,900 square feet) and one national collections center located in San
Marcos, Texas (9,000 square feet).
The Company rents most of its retail spaces under leases that generally
range from five to ten years and may contain minimum rent escalations. Most of
the store leases provide for the payment of base rentals plus real estate taxes,
insurance, common area maintenance fees and merchants association dues, as well
as percentage rents based on the stores' gross sales.
The following table indicates the expiration dates of the current terms of
the Company's leases as of July 31, 1997:
<TABLE>
<CAPTION>
ZALES GORDON'S BB&B PERCENTAGE
TERM EXPIRES DIVISION DIVISION DIVISION TOTAL OF TOTAL
------------ -------- -------- -------- ----- ----------
<S> <C> <C> <C> <C> <C>
1998 and prior...................... 127 65 19 211 20%
1999................................ 69 39 15 123 12%
2000................................ 46 23 10 79 7%
2001................................ 65 22 16 103 10%
2002 and thereafter................. 331 161 53 545 51%
--- --- --- ----- ----
Total number of leases.............. 638 310 113 1,061 100%
=== === === ===== ====
</TABLE>
Management believes substantially all of the store leases expiring in
fiscal 1998 that it wishes to renew (including leases which expired earlier and
are on month-to-month extensions) will be renewed on terms not materially less
favorable to the Company than the terms of the expiring leases.
COMPETITION
The retailing industry is highly competitive. The industry is fragmented,
and the Company competes with a large number of independent regional and local
jewelry retailers, as well as national jewelry chains. The Company also competes
with other types of retailers who sell jewelry and gift items, such as
department
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<PAGE> 45
stores, catalog showrooms, discounters, direct mail suppliers and television
home shopping programs. Certain of the Company's competitors are non-speciality
retailers which are larger and have greater financial resources than the
Company. The malls where the Company's stores are located typically contain
competing national chains, independent jewelry stores or department store
jewelry departments. The Company believes that it is also competing for
consumers' discretionary spending dollars and, therefore, competes with
retailers who offer merchandise other than jewelry or giftware.
Notwithstanding the national or regional reputation of its competition, the
Company believes that it must compete on a mall-by-mall basis with other
retailers of jewelry as well as with retailers of other types of discretionary
items. Therefore, the Company competes primarily on the basis of reputation for
high quality products, brand recognition, store location, distinctive and
value-priced merchandise, personalized customer service and its ability to offer
private label credit card programs to customers wishing to finance their
purchases. The Company's success is also dependent on its ability to react to
and create customer demand for specific merchandise categories. See "Risk
Factors -- Competition."
The Company holds no material patents, licenses (other than its licenses to
operate its Diamond Park leased locations, which are being assigned to a third
party in connection with the Diamond Park Asset Sale), franchises or
concessions; however, the established trade names for stores and products in the
Zales, Gordon's and Bailey, Banks & Biddle Divisions are important to the
Company in maintaining its competitive position in the jewelry retailing
industry.
MANAGEMENT INFORMATION SYSTEMS
The Company's information systems provide information necessary for: (i)
management operating decisions; (ii) sales and margin management; (iii)
inventory control; (iv) profitability monitoring by many measures (merchandise
category, buyer, store, division); (v) and cost reduction programs. Data
processing systems include point-of-sale reporting, purchase order management,
receiving, merchandise planning and control, payroll, general ledger, credit
card administration, and accounts payable. Bar code ticketing is used, and
scanning is utilized at all point-of-sale terminals to ensure timely sales and
margin data compilation and to provide for inventory control monitoring.
Information is made available on-line to merchandising staff on a timely basis,
thereby reducing the need for paper reports. The Company uses electronic data
interchange ("EDI") with certain of its vendors to facilitate timely merchandise
replenishment. The Company believes that the further use of EDI with its vendors
will lower the administrative costs associated with invoice processing and
settlement.
The Company's information systems allow management to monitor and control
the Company's credit operations, generating reports on a daily, monthly and
annual basis for each store and transaction. Senior management can therefore
review and analyze credit activity by store, amount of sale, terms of sale or
employees who approved the sale. The entire credit extension and collection
process is automated and the system maintains all customer data to facilitate
future credit transactions.
The information systems also facilitate repeat business by maintaining a
detailed file of all credit transactions with each customer. This enables credit
transactions with existing customers to be completed rapidly and allows sales
personnel to process a greater number of credit transactions. The Company's
customer database also includes historical purchasing patterns and demographic
data, allowing the Company to specifically segment customers receiving direct
marketing promotions.
The Company has entered into a five-year agreement with a third party for
the management of the Company's mainframe processing operations, client server
systems, LAN operations and desktop support. The Company believes that by
outsourcing this portion of its management information systems it will be able
to achieve additional efficiencies and allow the Company to focus its internal
information technology efforts on developing new systems to enhance the
performance of its core business.
The Company has historically upgraded, and expects to continue to upgrade,
its information systems to improve operations and support future growth. The
Company estimates it will make capital expenditures of approximately $25 million
to $30 million over the next two years for enhancements to its management
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<PAGE> 46
information systems. A portion of these expenditures will assist the Company in
maintaining Year 2000-compliant systems.
REGULATION
The Company's operations are affected by numerous federal and state laws
that impose disclosure and other requirements upon the origination, servicing
and enforcement of credit accounts and limitations on the maximum amount of
finance charges that may be charged by a credit provider. In addition to the
Company's private label credit cards, credit to the Company's customers is
provided primarily through bank cards such as Visa, MasterCard, and Discover,
without recourse to the Company based upon a customer's failure to pay. Any
change in the regulation of credit which would materially limit the availability
of credit to the Company's traditional customer base could adversely affect the
Company's results of operations or financial condition.
The sale of insurance products by the Company is also highly regulated.
State laws currently impose disclosure obligations with respect to the Company's
sale of credit and other insurance. The Company's and its competitors' practices
are also subject to review in the ordinary course of business by the Federal
Trade Commission, and the Company's and other retail company's credit cards will
be subject to regulation by the OCC. The Company believes that it is currently
in material compliance with all applicable state and federal regulations.
However there can by no assurance that a failure to comply with all of the
applicable regulations will not have a material adverse effect on the Company.
A substantial amount of merchandise in the retail jewelry industry is
commonly sold at a discount to the "regular" or "original" price. A number of
states in which the Company operates have regulations which require that
retailers offering merchandise at discounted prices must offer the merchandise
at regular or original prices for stated periods of time. The Company believes
that it is in compliance with all applicable federal and state laws with respect
to such practices. See "Risk Factors -- Regulation."
LITIGATION
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. The Company believes that such litigation and
claims, both individually and in the aggregate, will be resolved without
material effect on the Company's financial position or results of operations.
See "Unusual Items -- Reorganization Recoveries" in Notes to Consolidated
Financial Statements.
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<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME(A) AGE POSITION
------- --- --------
<S> <C> <C>
Robert J. DiNicola................... 49 Chairman of the Board, Chief Executive Officer
and Director
Louis J. Grabowsky................... 45 Executive Vice President and Chief Financial
Officer
Beryl B. Raff........................ 46 Executive Vice President, Chief Operating
Officer
Alan P. Shor......................... 38 Executive Vice President, Chief Administrative
Officer
Mary L. Forte........................ 46 Senior Vice President and President, Gordon's
Division
Paul G. Leonard...................... 42 Senior Vice President and President, Bailey,
Banks & Biddle Division
Tom A. Carroll....................... 48 Senior Vice President, Real Estate
Sue E. Gove.......................... 39 Senior Vice President, Corporate Planning and
Analysis
David L. Holmberg.................... 38 Senior Vice President, Store Operations, Zales
Division
Gregory Humenesky.................... 46 Senior Vice President, Human Resources
Paul D. Kanneman..................... 40 Senior Vice President and Chief Information
Officer
Stephen C. Massanelli................ 41 Senior Vice President and Treasurer
Ervin G. Polze....................... 45 Senior Vice President, Support Operations
Glen Adams........................... 58 Director
A. David Brown....................... 55 Director
Peter P. Copses...................... 39 Director
Andrea Jung.......................... 38 Director
Richard C. Marcus.................... 58 Director
Charles H. Pistor, Jr................ 67 Director
Andrew H. Tisch...................... 48 Director
</TABLE>
- ---------------
(a) Ms. Pamela Romano has been appointed Senior Vice President and President of
the Zales Division. Prior to joining the Company, Ms. Romano spent the past
15 years with the Macy's organization, most recently as the Vice President
and Divisional Merchandising Manager with responsibility for fashion, bridge
and fine jewelry for Macy's East.
The following is a brief description of the business experience of the
directors and executive officers of the Company for at least the past five
years.
Mr. Robert J. DiNicola has served as Chairman of the Board, Chief Executive
Officer and a director of the Company since April 18, 1994. For the three years
prior to joining the Company, Mr. DiNicola was a senior executive officer of The
Bon Marche Division of Federated Department Stores, Inc., having served as
Chairman and Chief Executive Officer of that Division from 1992 to 1994 and as
its President and Chief Operating Officer from 1991 to 1992. From 1989 to 1991,
Mr. DiNicola was a Senior Vice President of Rich's Department Store Division of
Federated. For 17 years, prior to joining the Federated organization, Mr.
DiNicola was associated with Macy's, where he held various executive, management
and merchandising positions, except for a one-year period while he held a
division officer position with The May Department Stores Company, Inc.
Mr. Louis J. Grabowsky joined the Company on March 1, 1997 as Executive
Vice President and Chief Financial Officer. From 1991 to 1997, Mr. Grabowsky
served as the partner in charge of the Audit and
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<PAGE> 48
Business Advisory Practice for Arthur Andersen LLP's Dallas/Fort Worth Office.
For 18 years prior to that, Mr. Grabowsky held numerous positions with Arthur
Andersen where he concentrated on the retail/ distribution industry, working
almost exclusively with retailers.
Ms. Beryl B. Raff was appointed Executive Vice President and Chief
Operating Officer on July 23, 1997. From November 21, 1994 to July 1997, she
served as President of the Zales Division. From March 1991 through October 1994,
Ms. Raff served as Senior Vice President of Macy's East with responsibilities
for its jewelry business in a 12 state region. From April 1988 to March 1991,
Ms. Raff served as Group Vice President of Macy's South/Bullocks. Prior to 1988,
Ms. Raff had 17 years of retailing and merchandising experience with the
Emporium and Macy's department stores.
Mr. Alan P. Shor was appointed Executive Vice President and Chief
Administrative Officer on May 1, 1997 while retaining his position as General
Counsel and Secretary. From June 5, 1995 to May 1997, Mr. Shor served as Senior
Vice President, General Counsel and Secretary. For two years prior to joining
the Company, Mr. Shor was the managing partner of the Washington, D.C. office of
the Troutman Sanders law firm, whose principal office is based in Atlanta,
Georgia. Mr. Shor, a member of Troutman Sanders since 1983, was a partner of the
firm from 1990 to 1995.
Ms. Mary L. Forte joined the Company on July 18, 1994 as President of the
Gordon's Division. From January 1994 to July 1994, Ms. Forte served as Senior
Vice President of QVC - Home Shopping Network. From July 1991 through January
1994, Ms. Forte served as Senior Vice President of the Bon Marche, Home Division
of the Federated Department Store. From July 1989 to July 1991, Ms. Forte was
Vice President of Rich's Department Store, Housewares Division. In addition to
the above, Ms. Forte has an additional 13 years of retailing and merchandising
experience with Macy's, The May Department Stores Company, Inc. and Federated
Department Stores.
Mr. Paul G. Leonard was appointed President of the Company's Bailey, Banks
& Biddle Division on January 27, 1995. From October 1994 to January 1995, Mr.
Leonard served as President of Corporate Merchandising for the Company. For
three years prior to joining the Company, Mr. Leonard held positions as General
Manager of Jewelry and then Senior Vice President of Soft Lines for Ames
Department Store. Prior to that, Mr. Leonard was a Merchandise Vice President
with The May Department Stores Company, Inc. Mr. Leonard has more than 20 years
of retailing and merchandising experience with an emphasis on jewelry.
Mr. Tom A. Carroll joined the Company on April 1, 1997 as Senior Vice
President, Real Estate. From August 1992 to March 1997, Mr. Carroll was Vice
President of Real Estate with the Brookstone Company. From 1990 to 1992, he was
associated with Norsouth Corporation, a real estate development company, as
Executive Vice President. From 1978 to 1990, he held various positions with
Federated Department Stores, serving as Vice President, Operations of the
Rich's/Goldsmith's Division from August 1986 until February 1990.
Ms. Sue E. Gove was appointed Senior Vice President, Corporate Planning and
Analysis on January 17, 1996. From February 1989 through January 1996, she
served as Vice President, Corporate Planning and Analysis. Ms. Gove joined the
Company in 1980 and served in numerous assignments until her appointment to Vice
President in 1989.
Mr. David L. Holmberg joined the Company on May 2, 1994 as Senior Vice
President of Store Operations for the Zales Division. Prior to joining the
Company, Mr. Holmberg served as Vice President and head of store operations for
Reeds Jewelers from 1989 to 1995. Mr. Holmberg held numerous store operations
positions with Kay Jewelers and J.B. Robinson's Jewelers during the preceding 10
years.
Mr. Gregory Humenesky was appointed Senior Vice President, Human Resources
on April 15, 1996. From January 1995 to April 1996 he held the position of Vice
President, Personnel Development and Staffing for the Company. For eight years
prior to joining the Company, Mr. Humenesky was Senior Vice President, Human
Resources for Macy's West. From June 1973 to February 1987, Mr. Humenesky held
senior level Human Resources positions within the Macy's organization.
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<PAGE> 49
Mr. Paul D. Kanneman joined the Company on November 14, 1994 as Senior Vice
President and Chief Information Officer. From July 1993 to November 1994, Mr.
Kanneman was an Associate Partner with Andersen Consulting LLP. Mr. Kanneman was
a Principal from August 1991 to July 1993, and a Senior Associate from August
1989 to July 1991 with Booz, Allen & Hamilton, Inc.
Mr. Stephen C. Massanelli joined the Company on June 10, 1997 as Senior
Vice President and Treasurer. From 1993 to 1997, Mr. Massanelli was a principal
and member of the Board of Directors of The Treadstone Group, Inc., a private
merchant banking organization in Dallas. Mr. Massanelli has more than 20 years
of financial and investment experience and has held positions with AMRESCO, Inc.
and NationsBank of Texas.
Mr. Ervin G. Polze was appointed Senior Vice President, Support Operations
on January 17, 1996. From February 1995 through January 1996, he served as Vice
President, Support Operations. He held the position of Vice President,
Controller from March 1988 through February 1995. Mr. Polze joined the Company
in January 1983 and served in several assignments until his appointment to Vice
President in March 1988.
Mr. Glen Adams has served as a director of the Company since July 21, 1993.
From August 1990 to August 1996, Mr. Adams served as Chairman, President and
Chief Executive Officer of Southmark Corporation in Dallas, Texas. From 1986 to
1989, he served as Chairman, President and Chief Executive Officer of The Great
Western Sugar Company. Mr. Adams is also a director of U.S. Home Corporation,
Marvel Entertainment Group, Inc., Toy Biz, Inc. and Search Financial Services,
Inc.
Mr. A. David Brown joined the board as a director on March 4, 1997. Mr.
Brown became Managing Director for the New York office of Pendleton James
Associates as of May 15, 1997. Prior to joining Pendleton James Associates, Mr.
Brown served as Managing Vice President of the Worldwide Retail/Fashion
Specialty Practice at Korn/Ferry International from June 1, 1994 to May 14,
1997. Prior to joining Korn/Ferry, Mr. Brown held numerous positions with R.H.
Macy & Co., Inc., including Senior Vice President of Human Resources, a position
he held from 1983 to 1994. Mr. Brown is also a director of Selective Insurance
Group, Inc.
Mr. Peter P. Copses served from September 9, 1993 to September 9, 1996 as a
director of the Company and returned to serve on the board on February 4, 1997.
Since 1990, Mr. Copses has been a principal of Apollo Advisors, L.P., which,
together with an affiliate, acts as the managing general partner of Apollo
Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P.,
private securities investment funds and of Lion Advisors, L.P., which acts as a
financial advisor to and representative for certain institutional investors with
respect to securities investments. Mr. Copses is a director of Family
Restaurants Inc., Dominick's Finer Foods, Inc. and Food 4 Less Holdings, Inc.
Ms. Andrea Jung joined the board as a director on June 6, 1996. Ms. Jung is
President of Global Marketing and New Business for Avon Products, Inc. Prior to
joining Avon, Ms. Jung served as an Executive Vice President at Neiman Marcus
from 1991 to 1994. From 1987 to 1991, she served as Senior Vice President,
General Merchandising Manager for I. Magnin. Ms. Jung served as General
Merchandising Manager at J.W. Robinson's from 1985 to 1987 and was with
Bloomingdales from 1979 to 1985, her latest position being Vice President and
Merchandising Manager. Ms. Jung also serves as a director of the American
Management Association and as a trustee of the Fashion Institute of Technology.
Mr. Richard C. Marcus has served as a director of the Company since July
21, 1993. Mr. Marcus is a private investor and cofounder of InterSolve Group, a
management services firm which was established in 1991. Since January 1997, Mr.
Marcus has served as an advisor to Peter J. Solomon Company, a New York
investment banking firm. From December 1994 through December 1995, Mr. Marcus
served as CEO of the Plaid Clothing Group and as a director of that company from
December 1994 through December 1996. In July 1995, Plaid Clothing Group filed a
petition of reorganization under Chapter 11 of the U.S. Bankruptcy Code and was
subsequently sold to Hartmarx in December 1996. From 1988 to 1991, Mr. Marcus
was a consultant for companies serving the retail industry. From 1979 to 1988,
he served as Chairman and Chief Executive Officer of Neiman Marcus in Dallas,
Texas. Mr. Marcus also serves as a director of Edison Brothers Stores and as a
director and member of the Compensation Committee for XcelleNet, Inc.
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<PAGE> 50
Mr. Charles H. Pistor, Jr. joined the board as director on June 24, 1997.
Mr. Pistor is the former Vice Chair of Southern Methodist University, and has
served as Chief Executive Officer of Republic Bank of Dallas and president of
the American Bankers Association. Mr. Pistor currently serves as a director on
the boards of Fortune Brands, AMR and American Airlines, Centex Corporation and
ORYX Energy Company.
Mr. Andrew H. Tisch has served as a director of the Company since July 21,
1993. Mr. Tisch has been Chairman of the Management Committee of Loews
Corporation since October 1995 and a member of that committee since October
1994. Mr. Tisch also served as Chairman of the Board and Chief Executive Officer
of Lorillard, Inc. from 1989 to May 1995. Mr. Tisch is Chairman of the Board of
Bulova Corporation and served as its President from 1980 to 1989. From 1985 to
1989, Mr. Tisch served as a director of Gordon Jewelry Corporation prior to its
acquisition by the Company. Mr. Tisch currently serves as a director of Loews
Corporation and Canary Wharf, Ltd.
47
<PAGE> 51
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of certain agreements and instruments of the Company
does not purport to be complete and is qualified in its entirety by reference to
the various agreements and instruments described, including the definitions of
certain capitalized terms used herein, copies of certain of which have been
included as exhibits to various filings by the Company with the Commission. See
"Available Information."
THE REVOLVING CREDIT AGREEMENT
On March 31, 1997, the Company and ZDel as the Borrowers entered into a
three year unsecured Revolving Credit Agreement with a group of banks which
provides for revolving credit loans in an aggregate amount of up to $225.0
million, including a $30.0 million sublimit for letters of credit. The Revolving
Credit Agreement replaced a prior secured commitment totaling $150.0 million.
The revolving credit loans bear interest at floating rates, currently (i)
LIBOR plus 1.5% or (ii) the agent bank's adjusted base rate or the Federal Funds
Rate plus 0.5%, at the Borrowers' option. The interest rate based on LIBOR and
the letter of credit commission rates can be reduced or increased based on
certain future performance levels attained by the Borrowers. The Borrowers pay a
commitment fee of 0.375% per annum (subject to possible reduction based on
future performance) on the preceding month's unused Revolving Credit Agreement
commitment. Certain fees are also payable with respect to the issuance of
letters of credit. The Borrowers may repay the revolving credit loans at any
time without penalty prior to the maturity date. The interest rates and
commitment fee will also be reduced if the Company obtains an investment grade
rating. The Revolving Credit Agreement may be extended for one year at the
Borrowers' election upon obtaining appropriate consent. At July 31, 1997 there
were loans outstanding in the aggregate amount of $70.7 million under the
Revolving Credit Agreement at a weighted average interest rate of 7.20%. In
addition, letters of credit in the amount of approximately $0.6 million were
outstanding at July 31, 1997.
The Revolving Credit Agreement contains restrictive covenants, subject to
certain exceptions, including covenants with respect to the following matters:
(i) limitations on the Borrowers' ability to pay dividends and make other
payments; (ii) certain limitations on the ability of the Borrowers and certain
subsidiaries to incur additional indebtedness; (iii) limitations on the ability
of the Borrowers and certain subsidiaries to engage in certain transactions with
affiliates, incur liens, make investments and sell assets; and (iv) limitations
on the ability of the Borrowers to enter into any agreements prohibiting them
from granting liens to secure the Borrowers' indebtedness under the Revolving
Credit Agreement. In addition, (i) the Borrowers must maintain in effect at all
times one or more facilities for provision of funds to Borrowers for working
capital, through sales or pledge of receivables, in the amount of at least
$350.0 million; (ii) the Borrowers' ratio of Consolidated Funded Debt to
Consolidated Adjusted EBITDA may not exceed specified levels for four
consecutive quarters; (iii) the Borrowers' Consolidated Tangible Net Worth may
not be less than specified levels; (iv) neither the Borrowers nor their
respective subsidiaries may make capital expenditures in excess of certain
specified amounts; (v) the Borrowers' ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth may not exceed 2 to 1; (vi) the Borrowers' ratio
of the difference between (A) Consolidated EBITDA and (B) federal income taxes
paid in cash by the Company and its subsidiaries to Consolidated Total Debt
Service for any period of four consecutive fiscal quarters may not be less than
2.5 to 1.0; and (vii) the Receivables Advance Rate may not be less than 65%.
The Revolving Credit Agreement also includes certain events of default,
including, but not limited to failure to pay principal or interest; certain
covenant defaults for more than five days after their occurrence and certain
other covenant defaults for 30 days after notice of any such default; false or
misleading misrepresentations; events of default on any obligation for borrowed
money or credit received in excess of $10.0 million in the aggregate; final
judgments against either of the Borrowers or any subsidiary of the Company in an
aggregate amount of $2.5 million which remains undischarged, unsatisfied and
unstayed for more than 60 days; certain bankruptcy and similar events involving
the Borrowers or a subsidiary of the Company; cancellation, revocation,
termination or rescission of any of the documents evidencing the Revolving
Credit Agreement without the express written consent of the lenders; the
occurrence of certain events with respect to any Guaranteed Pension Plan; the
enjoining of either Borrower or any of certain of their subsidiaries by court
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or administrative or regulatory order from conducting a significant part of its
domestic business in the continental United States for more than 30 days; the
occurrence of certain events which cause substantial curtailment of revenue
producing activities at a facility if such event is not covered by business
interruption insurance and would have a materially adverse effect on the
Borrowers and certain subsidiaries as a whole; the occurrence of an event which
would allow a receivables securitization or similar facility to cease purchasing
receivables or the occurrence of an early amortization event under such a
facility; distributions to shareholders in excess of those permitted by the
Revolving Credit Agreement; or the Company's ownership of less than all of the
issued and outstanding shares of capital stock of ZDel.
Prior to the consummation of the Offering, the Company amended the
Revolving Credit Agreement in order to, among other things, incorporate therein
certain of the covenants contained in the Indenture governing the Original Notes
and the Exchange Notes.
RECEIVABLES SECURITIZATION FACILITY
In 1994, in connection with the refinancing of certain then outstanding
receivables backed notes, ZFT, a limited purpose Delaware business trust was
formed to finance customer accounts receivable. ZFT established the Receivables
Securitization Facility, pursuant to which it issued approximately $380.7
million, net of discount, aggregate principal amount of ZFT Receivables Notes.
The proceeds from the ZFT Receivables Notes were used to buy the revolving
credit card accounts receivable of ZDel and other affiliates. Collections from
those receivables are used in part to pay interest on the ZFT Receivables Notes
and to purchase daily ZDel's customer accounts receivable. The ZFT Receivables
Notes are secured by a lien on all customer accounts receivable and are
nonrecourse with regard to the Company and ZDel. JFS, a subsidiary of ZDel, is
the servicing entity for the collection of the customer accounts receivable, and
its servicing obligations are guaranteed by ZDel.
The ZFT Receivables Notes bear interest at the following rates, payable
monthly in arrears (amounts in thousands):
<TABLE>
<CAPTION>
PRINCIPAL RATE
- --------- ----
<C> <S>
$ 37,620 LIBOR + .40%, not to exceed 12.0%
294,100 7.325%
28,600 7.50%
20,440 8.15%
- --------
$380,760
========
</TABLE>
The effective interest rate, based on a current LIBOR rate of 5.625%, including
amortization of debt issuance costs, approximated 7.55% at July 31, 1997.
The ZFT Receivables Notes will be subject to redemption at the option of
ZFT in whole but not in part, on the scheduled redemption date of July 15, 1999
at a redemption price equal to the outstanding principal amount of the ZFT
Receivables Notes together with accrued and unpaid interest thereon at the
applicable interest rates. If ZFT has not given notice by June 15, 1999 that it
will redeem the ZFT Receivables Notes in full on the scheduled payment date
occurring in July 1999, the JFS will promptly solicit bids for the purchase of
all or a portion of the receivables. If the JFS is unable to sell the
receivables for a price such that the proceeds of such sale, together with other
available funds, is sufficient to pay in full the outstanding principal amount
of the ZFT Receivables Notes and interest thereon to the Scheduled Redemption
Date, the ZFT Receivables Notes will remain outstanding and will begin
amortizing based on collections of customer accounts receivable beginning in
August 1999. The ZFT Receivables Notes are also subject to partial redemption at
the option of ZFT if one of ZDel's divisions is sold to an unaffiliated
purchaser or if the amount of Excess Funds equals or exceeds $60.0 million.
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The Receivables Securitization Facility imposes certain reporting
obligations on the Company and limits ZFT's ability, among other things, to
grant liens, incur certain indebtedness, or enter into other lines of business.
Additionally, under certain conditions as defined, including among other things,
failure to pay principal or interest when due, failure to cure a borrowing base
deficiency and breach of any covenant that is not cured, the Receivables
Securitization Facility is subject to an early amortization whereby the ZFT
Receivables Notes may be declared due and payable immediately. The restricted
cash balance (which includes forthcoming monthly interest payments) shown on the
Consolidated Statements of Cash Flows as of July 31, 1997 and 1996 primarily
represents the restricted cash of ZFT which is based on the relationship between
the ZFT Receivables Notes outstanding and gross accounts receivable as of July
31, 1997 and 1996.
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DESCRIPTION OF THE NOTES
The Original Notes were and the Exchange Notes will be issued pursuant to
the Indenture. For purposes of this section, references to the "Company" mean
only Zale Corporation and not any of its subsidiaries, and references to the
"Notes" refer collectively to the Original Notes and the Exchange Notes. The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified by, reference to the provisions
of the Indenture, including the definitions of certain terms contained therein
and those terms made part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended, as in effect on the date of the Indenture. The
Indenture has been filed as an exhibit to the Registration Statement. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions."
GENERAL
The Notes will mature on October 1, 2007 and will be limited in aggregate
principal amount to $100,000,000. Interest on the Notes will accrue at the rate
of 8 1/2% per annum and will be payable semi-annually in arrears on each April 1
and October 1 commencing on April 1, 1998, to the holders of record of Notes at
the close of business on the March 15 and September 15, respectively,
immediately preceding such interest payment dates. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Notes will be general unsecured senior obligations of the Company. The
Notes will rank pari passu in right of payment with all unsubordinated
indebtedness of the Company and will be senior in right of payment to all
subordinated indebtedness of the Company. The Notes will be issued only in fully
registered form without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of, premium, if any, and interest on the Notes are
payable, and the Notes are transferable, at the office or agency of the Company
in the City of New York maintained for such purposes (which initially will be
the corporate trust office of the Trustee); provided, however, that payment of
interest may be made at the option of the Company by check mailed to the Person
entitled thereto as shown on the security register. No service charge will be
made for any registration of transfer, exchange or redemption of the Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
Settlement for the Notes will be made in same day funds. All payments of
principal and interest will be made by the Company in same day funds. The Notes
will trade in the Same-Day Funds Settlement System of The Depository Trust
Company (the "Depositary" or "DTC") until maturity, and secondary market trading
activity for the Notes will therefore settle in same day funds.
SINKING FUND
The Company will not be required to make any sinking fund payments with
respect to the Notes.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after October 1,
2002, at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or an integral multiple
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning on October 1
in the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ 104.250%
2003........................................................ 102.833%
2004........................................................ 101.417%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
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<PAGE> 55
In addition, at any time or from time to time on or prior to October 1,
2000, the Company may, at its option, use all or any portion of the net proceeds
of one or more Public Equity Offerings to redeem up to an aggregate of 30% of
the aggregate principal amount of Notes originally issued under the Indenture at
a redemption price equal to 108.5% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the redemption date;
provided that at least 70% of the aggregate principal amount of Notes originally
issued under the Indenture remains outstanding immediately after the occurrence
of such redemption. In order to effect the foregoing redemption, the Company
must mail a notice of redemption no later than 60 days after the related Public
Equity Offering and must consummate such redemption within 90 days of the
closing of the Public Equity Offering.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable.
CHANGE OF CONTROL TRIGGERING EVENT
The Indenture provides that, following the occurrence of a Change of
Control Triggering Event (the date of such occurrence being the "Change of
Control Date"), the Company will be obligated, within 20 days after the Change
of Control Date, to make an offer to purchase (a "Change of Control Offer") all
of the then outstanding Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Change of Control Purchase Date.
Within 20 days after the Change of Control Date, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things: the purchase price and
the purchase date which shall be fixed by the Company on a business day no
earlier than 30 days nor later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements under the
Exchange Act; that any Note not tendered will continue to accrue interest; that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by holders of Notes seeking to accept the
Change of Control Offer. If the Company fails to repurchase all of the Notes
tendered for purchase, such failure will constitute an Event of Default under
the Indenture. See "-- Events of Default" below.
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indenture and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon the occurrence of a Change of Control Triggering Event may
deter a third party from acquiring the Company in a transaction which
constitutes a Change of Control.
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a "Change of Control," certain of the
Company's long-term indebtedness (including the Credit Facility) may also
contain an event of default upon a "Change of Control" as defined therein which
obligates the Company to repay amounts outstanding under such indebtedness upon
an acceleration of the indebtedness issued thereunder. See "Description of Other
Indebtedness."
The provisions of the Indenture will not afford holders of the Notes the
right to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its Affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the Company
by management or its Affiliates) involving the
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<PAGE> 56
Company that may adversely affect holders of the Notes, if such transaction is
not a transaction defined as a Change of Control. A transaction involving the
Company's management or its Affiliates, or a transaction involving a
recapitalization of the Company, will result in a Change of Control only if it
is the type of transaction specified by such definition.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act, and any other applicable securities laws
or regulations and any applicable requirements of any securities exchange on
which the Notes are listed, in connection with the repurchase of Notes pursuant
to a Change of Control Offer, and any violation of the provisions of the
Indenture relating to such Change of Control Offer occurring as a result of such
compliance, shall not be deemed a Default or Event of Default under the
Indenture.
GUARANTEES
Zale Delaware, Inc. will fully and unconditionally guarantee the Company's
obligations under the Notes. In addition, if any Restricted Subsidiary of the
Company becomes a guarantor or obligor in respect of any other Indebtedness of
the Company or any of the Restricted Subsidiaries, the Company shall cause such
Restricted Subsidiary to enter into a supplemental indenture pursuant to which
such Restricted Subsidiary shall agree to guarantee the Company's obligations
under the Notes. If the Company defaults in payment of the principal of,
premium, if any, or interest on the Notes, each of the Guarantors will be
unconditionally, jointly and severally obligated to duly and punctually pay the
same.
The obligations of each Guarantor under its Guarantee are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under its Guarantee shall be entitled to a contribution
from any other Guarantor in a pro rata amount based on the net assets of each
Guarantor determined in accordance with GAAP.
Notwithstanding the foregoing, each Guarantee of a Guarantor may be
released pursuant to the provisions of the second paragraph under "-- Certain
Covenants -- Limitation on Guarantees by Restricted Subsidiaries." The Company
may, at any time, cause a Restricted Subsidiary to become a Guarantor by
executing and delivering a supplemental indenture providing for the guarantee of
payment of the Notes by such Restricted Subsidiary on the basis provided in the
Indenture.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) will rank pari passu
in right of payment with all other unsubordinated indebtedness of such Guarantor
and will rank senior in right of payment to all subordinated indebtedness of
such Guarantor. As of July 31, 1997, on a pro forma basis after giving effect to
the Offering and the application of the net proceeds therefrom, the Company and
the Guarantor would have had approximately $381.1 million in aggregate principal
amount of indebtedness outstanding which ranked pari passu in right of payment
with the Notes and the Guarantee (all of which would have been secured). The
Company and the Guarantor are co-obligors under the Credit Facility.
CERTAIN COVENANTS
The Indenture provides that the covenants set forth herein are applicable
to the Company; provided, however, that if no Default has occurred and is
continuing, after the ratings assigned to the Notes by both Rating Agencies are
equal to or higher than BBB- and Baa3, or the equivalents thereof, respectively
(the "Investment Grade Ratings"), and notwithstanding that the Notes may later
cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will not be subject to the provisions of the Indenture described
under "Limitation on Indebtedness," "Disposition of Proceeds of Assets Sales,"
"Limitation on Restricted Payments," clause (c) of the first and fourth
paragraphs of "Limitation on Designations of Unrestricted Subsidiaries,"
"Restrictions on Preferred Stock of Restricted Subsidiaries," "Limitation on
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<PAGE> 57
Transactions with Affiliates," "Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries" and clause (iii) of
"Consolidation, Merger, Sale of Assets, Etc."
Limitation on Indebtedness. The Indenture provides that the Company will
not, and will not cause or permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, issue, guarantee or in any manner
become liable for or with respect to the payment of, contingently or otherwise
(in each case, to "incur"), any Indebtedness (including any Acquired
Indebtedness but excluding any Permitted Indebtedness); provided, however, that
(i) the Company and any Guarantor may incur Indebtedness (including Acquired
Indebtedness) and (ii) any Restricted Subsidiary may incur Acquired
Indebtedness, if, in either case, immediately after giving pro forma effect
thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least
equal to 2.00:1.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of the Company and Zale Delaware, Inc. under the
Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed $325 million;
(ii) Indebtedness of the Company or any Guarantor under the Indenture,
the Notes (including any Additional Notes) and the Guarantees;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
otherwise referred to in this definition of "Permitted Indebtedness" that
is outstanding on the Issue Date and is set forth on a schedule to the
Indenture;
(iv) Indebtedness of the Company or any Restricted Subsidiary in
respect of performance bonds, bankers' acceptances, trade letters of credit
of the Company or any Restricted Subsidiary and surety bonds provided by
the Company or any Restricted Subsidiary in the ordinary course of
business;
(v) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness for borrowed money of the Company owing to a
Restricted Subsidiary is made pursuant to an intercompany note in the form
attached to the Indenture and is subordinated in accordance with provisions
set forth in the Indenture; provided, further, that any disposition, pledge
or transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the Company not permitted by this clause
(v);
(vi) Indebtedness of a Wholly-Owned Restricted Subsidiary or a
Guarantor owing to the Company or another Wholly-Owned Restricted
Subsidiary; provided that any such Indebtedness for borrowed money is made
pursuant to an intercompany note in the form attached to the Indenture;
provided, further, that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than the Company or a Wholly-Owned
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the obligor not permitted by this clause (vi), and (b) any
transaction pursuant to which any Wholly-Owned Restricted Subsidiary or
Guarantor, as the case may be, which has Indebtedness owing to the Company
or any other Wholly Owned Restricted Subsidiary, ceases to be a
Wholly-Owned Restricted Subsidiary or Guarantor, as the case may be, shall
be deemed to be the incurrence of Indebtedness by such Wholly-Owned
Restricted Subsidiary that is not permitted by this clause (vi);
(vii) Any guarantees of Indebtedness by a Restricted Subsidiary
incurred in compliance with the covenant described under "-- Limitations on
Guarantees by Restricted Subsidiaries;"
(viii) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or any
Restricted Subsidiary (which Indebtedness is otherwise permitted to be
incurred under this covenant) to the extent the notional principal amount
of such Interest Rate Protection Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Rate Protection
Obligations relate;
(ix) Indebtedness of the Company or any Restricted Subsidiary under
any Commodity Price Protection Agreements which do not increase the amount
of obligations of the Company or any
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<PAGE> 58
Restricted Subsidiary outstanding other than as a result of fluctuations in
commodity prices or by reason of fees, indemnities and compensation payable
thereunder;
(x) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or any
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties, in each case, incurred in the ordinary course of business of
the Company or any Restricted Subsidiary; provided, however, that such
Currency Agreements do not increase the Indebtedness or other obligations
of the Company or any Restricted Subsidiary outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(xi) Purchase Money Indebtedness (other than Indebtedness incurred in
connection with an Asset Acquisition) and Capitalized Lease Obligations of
the Company or any Restricted Subsidiary, together in an aggregate amount
not exceeding $25 million outstanding at any time;
(xii) (a) Indebtedness of the Company or any Guarantor to the extent
the proceeds thereof are used to Refinance Indebtedness of the Company or
any Guarantor or any Restricted Subsidiary referred to under clause (ii) or
(iii) above and (b) Indebtedness of any Restricted Subsidiary used to
Refinance Indebtedness of such Restricted Subsidiary referred to under
clause (iii) above; provided, however, that, in the case of either clause
(a) or (b), the principal amount of Indebtedness incurred pursuant to this
clause (xii) (or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue price of such
Indebtedness plus any accreted value attributable thereto since the
original issuance of such Indebtedness) shall not exceed the sum of the
principal amount of Indebtedness so Refinanced (or, if such Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness, plus any accreted value
attributable thereto since the original issuance of such Indebtedness),
plus the amount of any premium required to be paid in connection with such
Refinancing pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined by the Company or a Restricted Subsidiary, as
applicable, as necessary to accomplish such Refinancing by means of a
tender offer or privately negotiated purchase, plus the amount of expenses
in connection with such Refinancing; and
(xiii) in addition to the items referred to in clauses (i) through
(xii) above, additional Indebtedness of the Company and the Restricted
Subsidiaries not to exceed an aggregate principal amount at any time
outstanding of $25 million.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by this
covenant, the Company in its sole discretion shall classify such item of
Indebtedness and only be required to include the amount of such Indebtedness as
one of such types.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not cause or permit any of the Restricted Subsidiaries to,
directly or indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any Restricted
Subsidiary or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Company or any Restricted
Subsidiary (other than dividends or distributions made to the Company or a
Restricted Subsidiary and dividends and distributions payable solely in
Capital Stock of the Company (other than Redeemable Capital Stock) or in
options, warrants or rights to purchase Capital Stock of the Company (other
than Redeemable Capital Stock) or dividends and distributions made by a
Restricted Subsidiary on a pro rata basis to all stockholders of such
Restricted Subsidiary); or
(ii) purchase, redeem, defease or otherwise acquire or retire for
value any Capital Stock of the Company or any Affiliate of the Company
(other than any such Capital Stock owned by the Company or a Restricted
Subsidiary that is a Guarantor); or
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<PAGE> 59
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any Subordinated
Indebtedness owed to and held by the Company or a Restricted Subsidiary
that is a Guarantor); or
(iv) make any Investment (other than a Permitted Investment)
(such payments or Investments (other than an exception thereto) described in the
preceding clauses (i), (ii), (iii) and (iv) are collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than in cash, shall be the Fair Market Value of the asset(s) proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be,
pursuant to such Restricted Payment as determined by the board of directors of
the Company, whose determination shall be conclusive and evidenced by a board
resolution):
(A) no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event which is, or
after notice or lapse of time or both, would be, an "event of default"
under the terms of any Indebtedness of the Company or its Restricted
Subsidiaries;
(B) the aggregate amount of all Restricted Payments declared or made
from and after the Issue Date and all Designation Amounts would not exceed
the sum of (1) 50% of cumulative Consolidated Net Income of the Company
during the period (treated as one accounting period) beginning on the first
day of the fiscal quarter beginning after the Issue Date and ending on the
last day of the fiscal quarter of the Company immediately preceding the
date of such proposed Restricted Payment for which consolidated financial
information of the Company is available (or, if such cumulative
Consolidated Net Income of the Company for such period shall be a loss,
minus 100% of such loss), plus (2) the aggregate net cash proceeds received
by the Company either (x) as capital contributions to the Company
increasing its common equity after the Issue Date or (y) from the issuance
or sale of Capital Stock (excluding Redeemable Capital Stock but including
Capital Stock issued upon the conversion of convertible Indebtedness in
exchange for outstanding Indebtedness of the Company issued after the Issue
Date or from the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Capital Stock)) of the Company to any
Person (other than to a Subsidiary of the Company) after the Issue Date
(excluding the net cash proceeds from any issuance and sale of Capital
Stock financed, directly or indirectly, using funds borrowed from the
Company or any Restricted Subsidiary until and to the extent such borrowing
is repaid), plus (3) without duplication of any amounts included in clause
(1) above, in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an amount (to
the extent not included in Consolidated Net Income) equal to the lesser of
the return of capital with respect to such Investment and the initial
amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition of such Investment and net of
taxes, plus (4) without duplication of any amounts included in clause (1)
above so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after the
Issue Date in accordance with "Limitation on Designations of Unrestricted
Subsidiaries" below, the Fair Market Value of the Company's interest in
such Restricted Subsidiary; provided, however, that such amount shall not
in any case exceed the Designation Amount with respect to such Restricted
Subsidiary at the time of its Designation; and
(C) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the "Limitation on Indebtedness"
covenant described above.
None of the foregoing provisions of this covenant will prohibit or restrict
(i) the payment of any dividend within 60 days after the date of its
declaration, if at the date of declaration such payment would be permitted by
the provisions of the Indenture; (ii) so long as no Default shall have occurred
and be continuing or would arise therefrom, the redemption, repurchase or other
acquisition or retirement of any shares of any class of Capital Stock of the
Company in exchange for, or out of the net cash proceeds of, a substantially
concurrent issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Company to any
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<PAGE> 60
Person (other than to a Subsidiary); provided, however,that any such net cash
proceeds and the value of any Capital Stock issued in exchange for such retired
Capital Stock are excluded from clause (B)(2) of the preceding paragraph; (iii)
so long as no Default shall have occurred and be continuing or would arise
therefrom, any redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness made by exchange for, or out of the net cash proceeds
of, a substantially concurrent issue and sale of (A) Capital Stock (other than
Redeemable Capital Stock) of the Company to any Person (other than to a
Subsidiary); provided, however, that any such net cash proceeds and the value of
any Capital Stock issued in exchange for Subordinated Indebtedness are excluded
from clause (B)(2) of the preceding paragraph or (B) Indebtedness of the Company
or any Guarantor so long as such Indebtedness (1) is subordinated to the Notes
or the Guarantee of such Guarantor, as the case may be, at least to the same
extent as the Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired and (2) does not have a Stated Maturity earlier
than the Stated Maturity for the Subordinated Indebtedness being redeemed,
repurchased or otherwise acquired or retired; (iv) so long as no Default shall
have occurred and be continuing, any purchase, redemption or other acquisition
or retirement for value of any Capital Stock (including any option, warrant or
right to purchase Capital Stock) (other than Redeemable Capital Stock) of the
Company for purposes of making contributions of such Capital Stock of the
Company to employees or directors of the Company or its Subsidiaries pursuant to
any employee benefit, stock purchase or similar plan; (v) a Restricted Payment
to pay for the repurchase, retirement or other acquisition or retirement for
value of Capital Stock (or warrants or options convertible into or exchangeable
for such Capital Stock) of the Company held by any future, present or former
employee, director or consultant of the Company or any Subsidiary pursuant to
any management equity plan or stock option plan or any other management or
employee benefit plan or agreement; provided, however, that the aggregate amount
of Restricted Payments made pursuant to this clause (v) does not exceed in any
calendar year $5 million (with the unused amount in any calendar year being
carried over to succeeding calendar years subject to a maximum of $10 million in
any calendar year); (vi) payments or distributions to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with an Asset Sale or
Asset Acquisition that complies with the provisions of the Indenture; (vii)
repurchases of Capital Stock (or warrants or options convertible into or
exchangeable for such Capital Stock) deemed to occur upon exercise of stock
options to the extent that shares of such Capital Stock (or warrants or options
convertible into or exchangeable for such Capital Stock) represent a portion of
the exercise price of such options; and (viii) any declaration of a dividend in
connection with implementation of any stockholders' right plan, or the issuance
of rights, stock or other property under any such plan, or the redemption,
repurchase or other acquisition of any such rights pursuant thereto. In
computing the amount of Restricted Payments previously made for purposes of
clause (B) of the preceding paragraph, Restricted Payments (to the extent not
otherwise included therein) under the immediately preceding clauses (i), (iv),
(v), (vi) and (vii) shall be included.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, conduct any business or enter into any
transaction or series of related transactions with, or for the benefit of, any
of their respective Affiliates or any officer or director of the Company or any
Subsidiary (each, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is entered into in good faith and on terms that are no less
favorable to the Company or the Restricted Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from Persons who do not have such a relationship and (ii) with respect to any
Affiliate Transaction or series of Affiliate Transactions involving aggregate
payments or value equal to or greater than $5.0 million, the Company shall have
delivered an officer's certificate to the Trustee certifying that such Affiliate
Transaction or series of related Affiliate Transactions complies with the
preceding clause (i) and, with respect to any Affiliate Transaction or series of
Affiliate Transactions involving aggregate payments or value equal to or greater
than $10.0 million, further certifying that (a) such Affiliate Transaction or
series of Affiliate Transactions has been approved by a majority of the Board of
Directors of the Company, including a majority of the disinterested directors of
the Board of Directors of the Company or (b) the Company has received a written
opinion of an investment banking firm of national standing or other recognized
independent expert with experience appraising the terms and conditions of the
type of transactions
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or series of related transactions for which an opinion is required stating that
the transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and its
Wholly-Owned Restricted Subsidiaries; (ii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries,
bonuses or employment agreements, compensation or employee benefit arrangements
and incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business
(including customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law; (iii) any dividends made in compliance
with "Limitation on Restricted Payments" above; (iv) loans and advances to
officers, directors, employees and consultants of the Company or any Restricted
Subsidiary for travel, entertainment, moving and other relocation expenses, in
each case made in the ordinary course of business; (v) transactions with or by
any Accounts Receivable Subsidiary made in the ordinary course of business and
transactions related to any proprietary credit card issued by or for the benefit
of the Company or an Affiliate of the Company in the ordinary course of
business; (vi) any agreement or Affiliate Transactions as in effect on the Issue
Date and any transaction contemplated thereby; and (vii) tax sharing agreements
between the Company and any of its Subsidiaries providing for the payment by
such Subsidiary of an amount equal to the hypothetical United States tax
liability of the Subsidiary as if such Subsidiary had filed its own U.S. federal
tax return for any given taxable year.
Disposition of Proceeds of Asset Sales. The Indenture provides that the
Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Sale, unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets sold or
otherwise disposed of and (ii) at least 75% of such consideration consists of
cash or Cash Equivalents. The amount of any (i) Indebtedness of a Restricted
Subsidiary that is not a Guarantor that is actually assumed by the transferee in
such Asset Sale and from which the Company and the Restricted Subsidiaries are
fully released shall be deemed to be cash for purposes of determining the
percentage of cash consideration received by the Company or the Restricted
Subsidiaries (and excluding any liabilities that are incurred in connection with
or in anticipation of such Asset Sale) and (ii) notes or other similar
obligations received by the Company or any Restricted Subsidiary from such
transferee that are immediately converted, sold or exchanged (or are converted,
sold or exchanged within thirty days of the related Asset Sale) by the Company
or the Restricted Subsidiaries into cash shall be deemed to be cash, in an
amount equal to the net cash proceeds realized upon such conversion, sale or
exchange for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness (other than
the Notes), Senior Guarantor Indebtedness (other than the Guarantees) or
Indebtedness of a Wholly-Owned Restricted Subsidiary outstanding as required by
the terms thereof, or the Company determines not to apply such Net Cash Proceeds
to the permanent repayment of the Senior Indebtedness (other than the Notes),
Senior Guarantor Indebtedness (other than the Guarantees) or Indebtedness of a
Wholly-Owned Restricted Subsidiary or if no Senior Indebtedness (other than the
Notes), Senior Guarantor Indebtedness (other than the Guarantees) or
Indebtedness of a Wholly-Owned Restricted Subsidiary is outstanding, then the
Company or a Restricted Subsidiary may, within 365 days of such Asset Sale,
invest the Net Cash Proceeds in capital expenditures, properties and other
assets that replace the properties and assets that were the subject of the Asset
Sale or in properties and assets that will be used in the business of the
Company or its Restricted Subsidiaries existing on the date of the Indenture or
in businesses reasonably related thereto.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 365 days of such Asset Sale as described in the immediately
preceding paragraph (such Net Cash Proceeds, the "Unutilized Net Cash
Proceeds"), the Company will apply the Unutilized Net Cash Proceeds to the
repayment of the Notes and any other Pari Passu Indebtedness outstanding with
similar provisions requiring the Company to make an offer to purchase such
Indebtedness as follows: (A) the Company shall, within 20 days after such 365th
day, make an offer to purchase (the "Asset Sale Offer") all outstanding Notes in
the
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maximum principal amount (expressed as a multiple of $1,000) of Notes that may
be purchased out of an amount (the "Note Amount") equal to the product of such
Unutilized Net Cash Proceeds multiplied by a fraction, the numerator of which is
the outstanding principal amount of the Notes, and the denominator of which is
the sum of the outstanding principal amount of the Notes and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Notes tendered) and (B) to
the extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company will make an offer
to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of
the Unutilized Net Cash Proceeds over the Note Amount; provided that in no event
will the Company be required to make a Pari Passu Offer in a Pari Passu Debt
Amount exceeding the principal amount of such Pari Passu Indebtedness plus the
amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price (the "Offered Price") for the Notes will be
payable in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Purchase Date, in accordance
with the procedures set forth in the Indenture. Notwithstanding the above, the
Asset Sale Offer may be deferred until there are aggregate Unutilized Net Cash
Proceeds equal to or in excess of $10.0 million, at which time the entire amount
of such Unutilized Net Cash Proceeds, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph.
With respect to any Asset Sale Offer effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes and Pari
Passu Indebtedness tendered pursuant to such Asset Sale Offer exceeds the
Unutilized Net Cash Proceeds to be applied to the repurchase, such Notes shall
be purchased pro rata based on the aggregate principal amount of such Notes and
Pari Passu Indebtedness tendered by each holder. To the extent the aggregate
Offered Price of the Notes tendered pursuant to the Offer is less than the Note
Amount relating thereto or the aggregate principal amount of Pari Passu
Indebtedness that is purchased in a Pari Passu Offer is less than the Pari Passu
Debt Amount, the Company may retain and utilize any portion of the Unutilized
Net Cash Proceeds not applied to repurchase the Notes and Pari Passu
Indebtedness for any purpose consistent with the other terms of the Indenture.
Upon the completion of the purchase of all the Notes tendered pursuant to an
Offer and the completion of a Pari Passu Offer, the amount of Unutilized Net
Cash Proceeds, if any, shall be reset at zero.
If the Company becomes obligated to make an Offer pursuant to this Section,
the Notes and the Pari Passu Indebtedness shall be purchased by the Company, at
the option of the holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 45 days and not later than 60 days
from the date the notice of the Offer is given to holders, or such later date as
may be necessary for the Company to comply with the requirements of the Exchange
Act.
In the event that the Company makes an Asset Sale Offer, the Company shall
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act, and any other applicable securities laws or regulations and any
applicable requirements of any securities exchange on which the Notes are
listed, and any violation of the provisions of the Indenture relating to such
Asset Sale Offer occurring as a result of such compliance shall not be deemed a
Default or an Event of Default.
Limitation on Liens. The Indenture provides that the Company will not, and
will not cause or permit any Restricted Subsidiary to, directly or indirectly,
create, incur or assume, any Lien of any kind (other than Permitted Liens), upon
any of its property or assets, whether now owned or acquired after the Issue
Date, or any proceeds therefrom, or assign or convey any right to receive income
therefrom to secure either (i) Subordinated Indebtedness, unless the Notes, in
the case of the Company, and the Guarantees, in the case of a Restricted
Subsidiary that is a Guarantor, are secured by a Lien on such property, assets
or proceeds that is senior in priority to the Liens securing such Subordinated
Indebtedness or (ii) any other Indebtedness, unless the Notes and the
Guarantees, in the case of a Restricted Subsidiary that is a Guarantor, are
equally and ratably secured thereby.
Limitation on Guarantees by Restricted Subsidiaries. The Indenture provides
that the Company will not cause or permit any of the Restricted Subsidiaries,
directly or indirectly, to guarantee the payment of any Indebtedness of the
Company or any Restricted Subsidiary ("Other Indebtedness"), except for
guarantees to
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suppliers, lessors, licensees, contractors, franchisees or customers incurred in
the ordinary course of business, unless such Restricted Subsidiary (A) is a
Guarantor or (B) simultaneously executes and delivers a supplemental indenture
to the Indenture pursuant to which it will become a Guarantor under the
Indenture; provided, however, that if such Other Indebtedness is (i)
Indebtedness that is ranked pari passu in right of payment with the Notes or the
Guarantee of such Restricted Subsidiary, as the case may be, the Guarantee of
such Restricted Subsidiary shall be pari passu in right of payment with the
guarantee of the Other Indebtedness; or (ii) Subordinated Indebtedness, the
Guarantee of such Restricted Subsidiary shall be senior in right of payment to
the guarantee of the Other Indebtedness (which guarantee of such Subordinated
Indebtedness shall provide that such guarantee is subordinated to the Guarantees
of such Restricted Subsidiary to the same extent and in the same manner as the
other Indebtedness is subordinated to the Notes or the Guarantee of such
Restricted Subsidiary, as the case may be).
Notwithstanding the above, any Guarantee by a Restricted Subsidiary of the
Notes shall provide by its terms that it (and all Liens securing the same) shall
be automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Capital Stock of such Restricted Subsidiary held by the Company, or all or
substantially all the assets of such Restricted Subsidiary, which transaction is
in compliance with the terms of the Indenture and in which such Restricted
Subsidiary is released from all guarantees, if any, by it of Other Indebtedness
of the Company or any Restricted Subsidiaries or (ii) (with respect to any
Guarantees created after the date of the Indenture) the release by the holders
of the Indebtedness of the Company described above of their guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness), at a time when (A) no Other Indebtedness
of the Company has been guaranteed by such Restricted Subsidiary or (B) the
holders of all such Other Indebtedness which is guaranteed by such Restricted
Subsidiary also release their guarantee by such Restricted Subsidiary (including
any deemed release upon payment in full of all obligations under such
Indebtedness).
Restrictions on Preferred Stock of Restricted Subsidiaries. The Indenture
provides that (a) the Company will not sell, and will not cause or permit any of
the Restricted Subsidiaries to issue, sell or transfer, any Preferred Stock of
any Restricted Subsidiary (other than (i) to the Company or to a Wholly-Owned
Restricted Subsidiary and (ii) Preferred Stock issued by a Person prior to the
time (A) such Person becomes a Restricted Subsidiary, (B) such Person merges
with or into a Restricted Subsidiary or (C) a Restricted Subsidiary merges with
or into such Person; provided that such Preferred Stock was not issued or
incurred by such Person in anticipation of the type of transaction contemplated
by subclause (A), (B) or (C)) and (b) the Company will not permit any Person
(other than the Company or a Wholly-Owned Restricted Subsidiary) to own any
Preferred Stock of any Restricted Subsidiary except upon the acquisition of all
of the outstanding Capital Stock of such Restricted Subsidiary in accordance
with the terms of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
cause or permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause, or enter into any agreement with any Person that would cause to
become effective, any consensual encumbrance or restriction of any kind, on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distribution on or in respect of its Capital Stock or any
other interest or participation in, or measured by, its profits, to the Company
or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (c) make loans or advances to, or guarantee
any Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except any encumbrance or restriction (i) with
respect to a Restricted Subsidiary that is not a Restricted Subsidiary on the
Issue Date, in existence at the time such Person becomes a Restricted Subsidiary
(but not created in contemplation thereof); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than such Person; (ii) arising as a result of
customary non-assignment provisions in leases entered into in the ordinary
course of business; (iii) existing under any agreement governing the terms of or
otherwise arising as a result of Purchase Money Indebtedness (other than
Indebtedness incurred to finance an Asset Acquisition) for property acquired in
the ordinary course of business that only imposes
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encumbrances and restrictions on the property so acquired; (iv) contained in any
agreement for the sale or disposition of the Capital Stock or assets of any
Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (iv) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or disposition
is made in compliance with "Disposition of Proceeds of Asset Sales" above to the
extent applicable thereto; (v) existing under any agreement that Refinances the
agreements containing the encumbrance or restrictions in the foregoing clause
(i); provided, however, that the terms and conditions of any such restrictions
permitted under this clause (v) are not materially less favorable to the holders
of the Notes than those under or pursuant to the agreement evidencing the
Indebtedness Refinanced; or (vi) in existence as a result of applicable law.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture
provides that the Company may designate after the Issue Date any Subsidiary
(other than a Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of the Company's
interest in such Subsidiary calculated in accordance with GAAP or (2) the
Fair Market Value of the Company's interest in such Subsidiary as
determined in good faith by the Company's board of directors;
(c) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation); and
(d) such Unrestricted Subsidiary does not own any Capital Stock in any
Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"-- Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Indenture further provides that (i) the Company shall not and shall not
cause or permit any Restricted Subsidiary to at any time (x) provide credit
support for, or subject any of its property or assets (other than the Capital
Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness
of any Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) (other than Permitted Investments in
Unrestricted Subsidiaries) or (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary and (ii) no Unrestricted Subsidiary
shall at any time guarantee or otherwise provide credit support for any
obligation of the Company or any Restricted Subsidiary. For purposes of the
foregoing, the Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to be the Designation of all of the Subsidiaries of
such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture;
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed Revocation,
and after giving pro forma effect to the incurrence of any such
Indebtedness of such
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redesignated Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-- Limitation on Indebtedness;" and
(d) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "-- Limitation on
Transactions with Affiliates" above as if such transaction (or series of
related transactions) had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Reporting Requirements. The Indenture provides that the Company and each
Guarantor will file with the Commission, the Trustee and the Initial Purchasers,
the annual reports, quarterly reports and other documents required to be filed
with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether
or not the Company or such Guarantor has a class of securities registered under
the Exchange Act, such documents to be filed with the Commission on or prior to
the date (the "Required Filing Date") by which the Company and each Guarantor
would have been required so to file such document if the Company and such
Guarantor were so subject. The Company and each Guarantor will also in any event
(x) within 15 days of each Required Filing Date file with the Trustee copies of
the annual reports, quarterly reports and other documents which the Company and
each Guarantor would have been required to file with the Commission pursuant to
Sections 13 or 15 of the Exchange Act if the Company and such Guarantor were
subject to either of such Sections and (y) if filing such documents by the
Company and such Guarantor with the Commission is not permitted under the
Exchange Act, (i) within 15 days of each Required Filing Date, transmit by mail
to all holders, as their names and addresses appear in the security register,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents which the Company and each Guarantor would have been
required to file with the Commission pursuant to Sections 13 or 15 of the
Exchange Act if the Company and such Guarantor were subject to either of such
Sections and (ii) promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any holder
or prospective holder at the Company's cost. If any Guarantor's or other
Subsidiaries' financial statements would be required to be included in the
financial statements filed or delivered pursuant hereto if the Company were
subject to Sections 13 or 15 of the Exchange Act, the Company shall include such
Guarantor's or other Subsidiaries' financial statements in any filing or
delivery pursuant hereto.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Company will not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to, any Person or Persons, and that
the Company will not permit any of the Restricted Subsidiaries to enter into any
such transaction or series of related transactions if such transaction or series
of related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries), to any other Person or Persons, unless at the time and after
giving effect thereto (i) either (A)(1) if the transaction or transactions is a
merger or consolidation involving the Company, the Company shall be the
surviving Person of such merger or consolidation or (2) if the transaction or
transactions is a merger or consolidation involving a Restricted Subsidiary,
such Restricted Subsidiary shall be the surviving Person of such merger or
consolidation, or (B)(1) the Person formed by such consolidation or into which
the Company or such Restricted Subsidiary is merged or to which the properties
and assets of the Company or such Restricted Subsidiary, as the case may be,
substantially as an entirety, are transferred (any such surviving Person or
transferee Person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia and (2)(x) in the case of a transaction involving
the Company, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form reasonably satisfactory
to the Trustee,
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all the obligations of the Company under the Notes and the Indenture and, in
each case, the Notes and the Indenture shall remain in full force and effect, or
(y) in the case of a transaction involving a Restricted Subsidiary that is a
Guarantor, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form reasonably satisfactory
to the Trustee, all the obligations of such Restricted Subsidiary under its
Guarantee and the Indenture and, in each case, such Guarantee and Indenture
shall remain in full force and effect; (ii) immediately after giving effect to
such transaction or series of related transactions on a pro forma basis, no
Default shall have occurred and be continuing; and (iii) the Company, or the
Surviving Entity, as the case may be, immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the "Limitation on Indebtedness" covenant described above.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the Indenture as provided in the
second sentence under "Limitation on Guarantees by Restricted Subsidiaries"
above) shall, in any transaction or series of related transactions, consolidate
with or merge with or into another Person, whether or not such Person is
affiliated with such Guarantor and whether or not such Guarantor is the
Surviving Entity, unless (i) the Surviving Entity (if other than such Guarantor)
is a corporation organized and validly existing under the laws of the United
States, any State thereof or the District of Columbia; (ii) the Surviving Entity
(if other than such Guarantor) expressly assumes by a supplemental indenture all
the obligations of such Guarantor under its Guarantee and the performance and
observance of every covenant of the Indenture and the Registration Rights
Agreement to be performed or observed by such Guarantor and (iii) immediately
after giving effect to such transaction or series of related transactions on a
pro forma basis, no Default shall have occurred and be continuing.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture. In addition, each Guarantor, unless it is the other party to the
transaction or unless its Guarantee will be released and discharged in
accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Guarantee will continue to apply to
the obligations of the Company or the Surviving Entity under the Indenture.
Upon any consolidation or merger of the Company or any Guarantor or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing, in which the Company or a Guarantor is not the continuing
corporation, the successor corporation formed by such a consolidation or into
which the Company or such Guarantor is merged or to which such transfer is made,
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Indenture and the Notes, as the case may be, or such
Guarantor, as the case may be, under the Indenture and the Guarantee of such
Guarantor, as the case may be, with the same effect as if such successor
corporation had been named as the Company or Guarantor, as the case may be,
therein; and thereafter, except in the case of (a) a lease or (b) any sale,
assignment, conveyance, transfer, lease or other disposition to a Restricted
Subsidiary of the Company or such Guarantor, the Company or such Guarantor, as
the case may be, shall be discharged from all obligations and covenants under
the Indenture and the Notes and/or the Guarantee of such Guarantor, as the case
may be.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any,
when due and payable, on any of the Notes (at its Stated Maturity, upon
optional redemption, required purchase, scheduled principal payment or
otherwise); or
(ii) default in the payment of an installment of interest on any of
the Notes, when due and payable, continued for 30 days or more; or
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(iii) the Company or any Guarantor fails to comply with any of its
obligations described under "-- Consolidation, Merger, Sale of Assets,
Etc.," "Certain Covenants -- Change of Control" or "--Certain
Covenants -- Disposition of Proceeds of Asset Sales;" or
(iv) the Company or any Guarantor fails to perform or observe any
other term, covenant or agreement contained in the Notes, the Guarantees or
the Indenture (other than a default specified in (i), (ii) or (iii) above)
for a period of 45 days after written notice of such failure requiring the
Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under one or more agreements, indentures or
instruments under which the Company or any Restricted Subsidiary then has
outstanding Indebtedness in excess of $20 million individually or in the
aggregate and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults results in the acceleration of the
maturity of such Indebtedness; or
(vi) any Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further
liability under any Guarantee, or gives notice to such effect (other than
by reason of the termination of the Indenture or the release of any such
Guarantee in accordance with the terms of the Indenture); or
(vii) one or more judgments, orders or decrees of any court or
regulatory or administrative agency for the payment of money in excess of
$20 million either individually or in the aggregate shall have been
rendered against the Company or any Restricted Subsidiary or any of their
respective properties and shall not have been discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive
days during which a stay of enforcement of such judgment, order or decree,
by reason of a pending appeal or otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company, any Guarantor or any Material Subsidiary shall have
occurred.
If an Event of Default (other than as specified in clause (viii)), shall
occur and be continuing, the Trustee, by notice to the Company, or the holders
of at least 25% in aggregate principal amount of the Notes then outstanding, by
notice to the Trustee and the Company, may declare the principal of, premium, if
any, and accrued interest on all of the outstanding Notes due and payable
immediately, upon which declaration, all such amounts payable in respect of the
Notes will become and be immediately due and payable. If an Event of Default
specified in clause (viii) above occurs and is continuing, then the principal
of, premium, if any, and accrued interest on all of the outstanding Notes will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder of Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes, by written
notice to the Company and the Trustee, may rescind such declaration if (a) the
Company has paid or deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and
premium, if any, on any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes,
and (iv) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (b) all Events of Default,
other than the non-payment of principal of, premium, if any, and interest on the
Notes that has become due solely by such declaration of acceleration, have been
cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision
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which under the Indenture cannot be modified or amended without the consent of
the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.
The Company is required to furnish to the Trustee, on or before a date not
more than 60 days after the end of each fiscal quarter and not more than 120
days after the end of each fiscal year, annual and quarterly statements as to
the performance by the Company and the Guarantors of their respective
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five business days of any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions, provided that if it acquires any conflicting
interest it must eliminate such conflict upon the occurrence of an Event of
Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and any Guarantor with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"-- Certain Covenants" above, and any omission to comply with such obligations
will not constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the
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principal of, premium, if any, and interest on the outstanding Notes at maturity
(or on a date after October 1, 2002 (such date being referred to as the
"Defeasance Redemption Date"), if at or prior to electing defeasance or covenant
defeasance, the Company has delivered to the Trustee an irrevocable notice to
redeem all of the outstanding Notes on the Defeasance Redemption Date); (ii) the
Company shall have delivered to the Trustee an opinion of independent counsel to
the effect that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance or covenant defeasance had not occurred (in the case of
defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as clause (viii) under the first paragraph
under "-- Events of Default" is concerned, at any time during the period ending
on the 91st day after the date of deposit; (iv) such defeasance or covenant
defeasance shall not cause the Trustee to have a conflicting interest with
respect to any securities of the Company or any Guarantor; (v) such defeasance
or covenant defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vi) such
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (vii) the
Company shall have delivered to the Trustee an opinion of independent counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (viii) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of the Notes or any Guarantee over the other creditors of the Company or
any Guarantor with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, any Guarantor or others; and (ix) the Company shall
have delivered to the Trustee an officers' certificate and an opinion of
independent counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer of the Notes, as
expressly provided for in the Indenture) as to all outstanding Notes when (i)
either (a) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all Notes
not theretofore delivered to the Trustee for cancellation (x) have become due
and payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company; and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company or any Guarantor has paid all other sums payable under
the Indenture by the Company and the Guarantors; and (iii) the Company and each
of the Guarantors have delivered to the Trustee an officers' certificate and an
opinion of counsel each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with and that such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which the Company, any Guarantor or any
Subsidiary is bound.
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AMENDMENTS AND WAIVERS
From time to time, the Company and each Guarantor, when authorized by
resolutions of their boards of directors, and the Trustee may, without the
consent of the holders of any outstanding Notes, amend, waive or supplement the
Indenture or the Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act of
1939, as amended, or making any change that does not materially adversely affect
the legal rights of any holder; provided, however, that the Company has
delivered to the Trustee an Opinion of Counsel (as such term is defined in the
Indenture) stating that such change does not materially adversely affect the
legal rights of any holder. Other amendments and modifications of the Indenture
or the Notes may be made by the Company, each Guarantor and the Trustee with the
consent of the holders of not less than a majority of the aggregate principal
amount of the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) reduce the principal of or change the Stated Maturity of
any Note, or alter the provisions with respect to the redemption or repurchase
of the Notes in any manner adverse to the holders of the Notes; (ii) reduce the
rate of or change the time for payment of interest on any such Note; (iii)
change the place or currency of payment of principal of (or premium) or interest
on any such Note; (iv) modify any provisions of the Indenture relating to the
waiver of past defaults (other than to add sections of the Indenture or the
Notes subject thereto) or the right of the holders of Notes to institute suit
for the enforcement of any payment on or with respect to any such Note or any
Guarantee in respect thereof or the modification and amendment provisions of the
Indenture and the Notes (other than to add sections of the Indenture or the
Notes which may not be amended, supplemented or waived without the consent of
each holder therein affected); (v) reduce the percentage of the principal amount
of outstanding Notes necessary for amendment to or waiver of compliance with any
provision of the Indenture or the Notes or for waiver of any Default in respect
thereof; (vi) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the holders thereof as provided in the Indenture
and a waiver of the payment default that resulted from such acceleration); (vii)
modify the ranking or priority of any Note or the Guarantee in respect thereof
of any Guarantor in any manner adverse to the holders of the Notes; (viii)
modify the provisions of any covenant (or the related definitions) in the
Indenture requiring the Company to make and consummate a Change of Control Offer
upon a Change of Control Triggering Event or an Asset Sale Offer in respect of
an Asset Sale or modify any of the provisions or definitions with respect
thereto in a manner materially adverse to the holders of Notes affected thereby
otherwise than in accordance with the Indenture; or (ix) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the Indenture.
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the Indenture. Subject
to certain rights of the Trustee, as provided in the Indenture, the holders of a
majority in aggregate principal amount of the Notes, on behalf of all holders of
the Notes, may waive any past default under the Indenture (including any such
waiver obtained in connection with a tender offer or exchange offer for the
Notes), except a default in the payment of principal, premium or interest or a
default arising from failure to purchase any Notes tendered pursuant to an Offer
to Purchase pursuant thereto, or a default in respect of a provision that under
the Indenture cannot be modified or amended without the consent of the holder of
each Note that is affected.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Accounts Receivable Subsidiary" means Zale Funding Trust, Jewelers
National Bank, Jewelers Credit Corporation, Jewelers Financial Services, Inc.,
Diamond Funding Corp. and any other present or future Subsidiary (including any
credit card bank) of the Company that is, directly or indirectly, wholly owned
by
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the Company (other than director qualifying shares) and organized for the
purpose of and engaged in (i) purchasing, financing, and collecting accounts
receivable obligations of customers of the Company or its Subsidiaries, (ii)
issuing credit cards and financing accounts receivable obligations of customers
of the Company and its Subsidiaries, (iii) the sale or financing of such
accounts receivable or interests therein and (iv) other activities incident
thereto.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person (i) assumed in connection with an Asset
Acquisition from such Person or (ii) existing at the time such Person becomes a
Restricted Subsidiary of any other Person (other than any Indebtedness incurred
in connection with, or in contemplation of, such Asset Acquisition or such
Person becoming such a Restricted Subsidiary). Acquired Indebtedness shall be
deemed to be incurred on the date of the related acquisition of assets from any
Person or the date the acquired Person becomes a Restricted Subsidiary, as the
case may be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(iii) any other Person 10% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Limitation on
Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person will
become a Restricted Subsidiary or will be merged or consolidated with or into
the Company or any Restricted Subsidiary or (ii) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of the assets of such Person, or any division or line of
business of such Person, or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance or
transfer or other disposition (including, without limitation, any merger,
consolidation or sale-leaseback transaction) to any Person other than the
Company or a Wholly-Owned Restricted Subsidiary, in one or a series of related
transactions, of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or
substantially all of the assets of any division or line of business of the
Company or any Restricted Subsidiary; or (iii) any other properties or assets of
the Company or any Restricted Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" will not
include (a) any sale, issuance, conveyance, transfer, lease or other disposition
of properties or assets that is governed by the provisions described under the
first paragraph of "Consolidation, Merger, Sale of Assets, Etc.;" (b) sales of
surplus and other property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be; or (c) any transaction
consummated in compliance with "-- Certain Covenants -- Limitation on Restricted
Payments." For purposes of the covenant described under "Disposition of Proceeds
of Asset Sales," the term "Asset Sale" shall not include any sale, conveyance,
transfer, lease or other disposition of (A) any property or asset, whether in
one transaction or a series of related transactions (1) constituting a
Capitalized Lease Obligation or a transfer consisting solely of a grant of a
security interest permitted by the Indenture or (2) involving assets with a Fair
Market Value not in excess of $1.0 million, (B) accounts receivable to an
Accounts Receivable Subsidiary or to third parties that are not Affiliates of
the Company or any Subsidiary of the Company in the ordinary course of business,
(C) any property or assets pursuant to the Asset Purchase Agreement, dated as of
September 3, 1997, among Finlay Enterprises, Inc., Finlay Fine Jewelry
Corporation, Zale Corporation and Zale Delaware, Inc., as such agreement may be
amended from time to time or (D) the Excluded Assets.
"Asset Sale Offer" has the meaning set forth under "-- Disposition of
Proceeds of Asset Sales."
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"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, any other interest or participation that confers
on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP consistently applied.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of not more than one year issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) certificates of deposit,
Eurodollar time deposits or bankers' acceptances with a maturity of not more
than one year of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500.0 million, whose debt has a rating, at the time as of which any
investment therein is made, of A-1 (or higher) according to Standard & Poor's
Ratings Group ("S&P") or any successor rating agency or P-1 (or higher)
according to Moody's Investors Service, Inc. ("Moody's") or any successor rating
agency; (iii) commercial paper with a maturity of not more than one year issued
by a corporation that is not an Affiliate or a Subsidiary of the Company
organized under the laws of any state of the United States or the District of
Columbia and rated A-1 (or higher) by S&P, P-1 (or higher) by Moody's or the
equivalent of any such category used by another nationally recognized Rating
Agency; (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and (ii) above; and
(v) transaction deposit accounts and money market deposit accounts with a
domestic commercial bank having capital and surplus in excess of $500 million;
provided that the short term debt of such commercial bank has a rating at the
time of Investment of A-1 (or higher) according to S&P or P-1 (or higher)
according to Moody's.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 35% of the total voting power of
the then outstanding Voting Stock of the Company; (ii) the Company consolidates
with, or merges with or into, another Person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, other than any such transaction where the holders of the
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly, not less than a majority of the total voting power of the then
outstanding Voting Stock of the surviving or transferee corporation immediately
after such transaction and the preceding clause (i) is not applicable; (iii)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by such board or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (iv) any order, judgment or decree shall be entered against
the Company decreeing
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the dissolution or liquidation of the Company and such order shall remain
undischarged or unstayed for a period in excess of sixty days.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Change of Control Offer" has the meaning set forth under "-- Change of
Control Triggering Event."
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value of which is dependent upon, fluctuations
in commodity prices.
"Consolidated Cash Flow Available for Fixed Charges" means, for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) to the extent
reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to the
extent reducing Consolidated Net Income, Consolidated Interest Expense, and (d)
to the extent reducing Consolidated Net Income, Consolidated Income Tax Expense
less all cash payments during such period relating to non-cash charges that were
added back in determining Consolidated Cash Flow Available for Fixed Charges in
any prior period.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate
amount of Consolidated Cash Flow Available for Fixed Charges of the Company for
the four full fiscal quarters immediately preceding the date of the transaction
for which consolidated financial information of the Company is available (the
"Transaction Date") giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (such four full fiscal quarter period being referred to
herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of the Company for such Four Quarter Period. For purposes of this
definition, "Consolidated Cash Flow Available for Fixed Charges" and
"Consolidated Fixed Charges" will be calculated, without duplication, after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence of any Indebtedness of the Company or any of the Restricted
Subsidiaries during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation, as if such incurrence occurred on the first
day of the Reference Period, (ii) an adjustment to eliminate or include, as
applicable, the Consolidated Cash Flow Available for Fixed Charges and
Consolidated Fixed Charges of the Company directly attributable to assets which
are the subject of any Asset Sale or Asset Acquisition (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or one of the Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the Reference Period, as if such Asset Sale or
Asset Acquisition occurred on the first day of the Reference Period, and (iii)
the retirement of Indebtedness during the Reference Period which cannot
thereafter be reborrowed occurring as if retired on the first day of the
Reference Period. For purposes of calculating "Consolidated Fixed Charges" for
this "Consolidated Fixed Charge Coverage Ratio," interest on Indebtedness
incurred during the Reference Period under any revolving credit facility which
may be borrowed and repaid without reducing the commitments thereunder shall be
the actual interest during the Reference Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter will be deemed to
accrue at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined on a fluctuating basis like prime or a similar rate or a factor
thereof, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date shall be deemed to have been in
effect during the Reference Period; and (3) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Rate Protection
Obligations, will be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements. If the Company or any
Restricted Subsidiary directly or indirectly guarantees Indebtedness of a third
Person, the
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above definition will give effect to the incurrence of such guaranteed
Indebtedness as if the Company or any Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness and incurred the
related interest expense.
"Consolidated Fixed Charges" means, for any period, the sum of, without
duplication, the amounts for such period of (i) Consolidated Interest Expense;
and (ii) the product of (x) the aggregate amount of cash dividends and other
distributions paid, accrued or scheduled to be paid or accrued during such
period in respect of Redeemable Capital Stock of the Company or Preferred Stock
of a Restricted Subsidiary times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then-current effective
consolidated federal, state and local tax rate of such Person expressed as a
decimal.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes payable by the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (i) any amortization of debt discount
attributable to such period, (ii) the net costs under Interest Rate Protection
Obligations, Currency Agreements and Commodity Price Protection Agreements
(including any amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (v) all capitalized interest and all accrued interest, and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and the Restricted Subsidiaries during such
period and as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (or net loss) of the Company and the Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted, to the extent included
in calculating such net income (or net loss), by excluding, without duplication,
(i) all extraordinary gains or losses net of taxes (net of fees and expenses
relating to the transaction giving rise thereto), (ii) net income of the Company
and the Restricted Subsidiaries derived from or in respect of Investments in
Unrestricted Subsidiaries, except to the extent that cash dividends or
distributions are actually received by the Company or a Restricted Subsidiary,
(iii) the portion of net income (or net loss) of the Company and the Restricted
Subsidiaries allocable to minority interests in unconsolidated Persons, except
to the extent that cash dividends or distributions are actually received by the
Company or one of the Restricted Subsidiaries, (iv) net income (or net loss) of
any Person combined with the Company or one of the Restricted Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (v) gains or losses in respect of any Asset Sales by the Company or
any of the Restricted Subsidiaries (on an after-tax basis and net of fees and
expenses relating to the transaction giving rise thereto), and (vi) the net
income of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other noncash expenses of the Company and the
Restricted Subsidiaries reducing Consolidated Net Income for such period (other
than any non-cash item requiring an accrual or reserve for cash disbursements in
any future period), determined on a consolidated basis in accordance with GAAP.
"covenant defeasance" has the meaning set forth under "-- Defeasance or
Covenant Defeasance of Indenture."
"Credit Facility" means the Revolving Credit Agreement dated as of March
31, 1997, among the Company, Zale Delaware, Inc., The First National Bank of
Boston, as Agent, and the other financial institutions signatory thereto, as in
effect on the Issue Date, and as such agreement may be amended, renewed,
extended, substituted, refinanced, replaced, supplemented or otherwise modified
from time to time, and includes related notes, guarantees and other agreements
executed in connection therewith.
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"Currency Agreement" means the obligations of any Person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"defeasance" has the meaning set forth under "-- Defeasance or Covenant
Defeasance of Indenture."
"Designation" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Event of Default" has the meaning set forth under "-- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder, or any
successor statute.
"Excluded Assets" means certain surplus assets of the Company which are set
forth on a schedule to the Indenture.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between an
informed and willing seller and an informed and willing buyer, neither of which
is under pressure or compulsion to complete the transaction. Fair Market Value
shall be determined by the Board of Directors of the Company acting in good
faith conclusively evidenced by a board resolution thereof delivered to the
Trustee or, with respect to any asset valued at up to $1.0 million, such
determination may be made by a duly authorized officer of the Company evidenced
by an officer's certificate delivered to the Trustee.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles in effect in the
United States as in effect from time to time and which are consistently applied
for all applicable periods.
"Guarantee" means the guarantee by each of the Guarantors of the Notes and
the Company's obligations under the Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor" means (i) Zale Delaware, Inc. and (ii) each other Subsidiary
formed, created or acquired before or after the Issue Date required to become a
Guarantor after the Issue Date pursuant to "-- Certain Covenants -- Limitation
on Guarantees by Restricted Subsidiaries," or which becomes a Guarantor after
the Issue Date in accordance with the terms of the Indenture.
"incur" has the meaning set forth in "-- Certain Covenants -- Limitation on
Indebtedness."
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payable and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit (but
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excluding obligations with respect to trade letters of credit to the extent such
trade letters of credit are not drawn upon or, if drawn upon, to the extent such
drawing is reimbursed not later than the third business day following receipt by
such Person of a demand for reimbursement), bankers' acceptances or other
similar credit transaction, (ii) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (iii) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even if the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), but excluding trade
accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations of such Person, (v) all Indebtedness referred to
in the preceding clauses of other Persons and all dividends of other Persons,
the payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (vi) all guarantees by such Person of Indebtedness of
another Person (other than guarantees of operating leases of a Restricted
Subsidiary of such Person), (vii) all Redeemable Capital Stock valued at its
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(viii) Preferred Stock of any Restricted Subsidiary of the Company; (ix) all net
payment obligations under or in respect of Currency Agreements, Interest Rate
Protection Obligations and Commodity Price Protection Agreements of such Person,
and (x) any amendment, supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in clauses (i) through (ix)
above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price will be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
will be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock. Sales (on a
"true-sale" non-recourse basis) and the servicing of receivables transferred
from the Company or a Restricted Subsidiary, or transfers of cash, to an
Accounts Receivable Subsidiary as a capital contribution or in exchange for
Indebtedness of such Accounts Receivable Subsidiary or cash shall not be deemed
Indebtedness hereunder.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount or any other arrangement involving payments by or to such Person
based upon fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others or otherwise), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other Person. Investments shall exclude extensions of
trade credit in accordance with normal trade practices. In addition to the
foregoing, any foreign exchange contract, Currency Agreement, Interest Rate
Protection Obligation, Commodity Price Protection Agreement or similar agreement
shall constitute an Investment.
"Issue Date" means the original issue date of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
privilege, security interest, hypothecation, cessation and transfer, assignment
for security, claim, deposit arrangement or other encumbrance upon or with
respect to any property of any kind, whether real, personal or mixed, movable or
immovable, now owned or hereafter acquired. A Person will be deemed to own
subject to a Lien any property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capitalized
Lease Obligation or other title retention agreement.
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"Material Subsidiary" means each Restricted Subsidiary of the Company that
is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under
the Securities Act and the Exchange Act (as such regulation is in effect on the
Issue Date).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of legal counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale
and (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
consistently applied against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve).
"Other Indebtedness" has the meaning set forth under "-- Certain
Covenants -- Limitation on Guarantees of Restricted Subsidiaries."
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company which
ranks pari passu in right of payment with the Notes and (b) with respect to any
Guarantee, Indebtedness which ranks pari passu in right of payment with such
Guarantee.
"Permitted Indebtedness" has the meaning set forth under "-- Certain
Covenants -- Limitation on Indebtedness."
"Permitted Investment" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans,
extensions of credit and advances to officers, directors and employees which are
outstanding on the Issue Date or which do not exceed $5 million in the aggregate
at any one time outstanding and payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (d) Interest Rate Protection Obligations,
Commodity Price Protection Agreements and Currency Agreements permitted under
clause (viii), (ix) or (x) of the second paragraph under "-- Limitation on
Indebtedness;" (e) Investments by any Restricted Subsidiary in the Company; (f)
Investments by the Company or any Restricted Subsidiary in a Restricted
Subsidiary that is a Guarantor or another Person, if as a result of or in
connection with such Investment such other Person becomes a Wholly Owned
Restricted Subsidiary; (g) Investments represented by accounts receivable
created or acquired in the ordinary course of business; (h) Investments in the
form of the sale (on a "true-sale" non-recourse basis) or the servicing of
receivables transferred from the Company or any Restricted Subsidiary, or
transfers of cash, to an Accounts Receivable Subsidiary as a capital
contribution or in exchange for Indebtedness of such Accounts Receivable
Subsidiary or cash in the ordinary course of business; (i) loans or other
advances to vendors in connection with in store merchandising to be repaid
either on a lump sum basis or over a period of time by delivery of merchandise;
(j) Investments representing capital stock or obligations issued to the Company
or any Restricted Subsidiary in settlement of claims against any other Person by
reason of a composition or readjustment of debt or a reorganization of any
debtor of the Company or such Restricted Subsidiary; (k) Investments in credit
card receivables arising from any proprietary credit card issued by or for the
benefit of the Company or an Affiliate of the Company; (l) Investments acquired
by the Company or any Restricted Subsidiary in connection with an Asset Sale
permitted under "-- Disposition of Proceeds of Asset Sales" (other than pursuant
to the second sentence of the first paragraph thereof); (m) Investments in any
of the Notes; and (n) Investments, other than those enumerated in (a) through
(m) above, in an aggregate amount of $20 million.
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"Permitted Liens" means (a) Liens on property of (or on shares of Capital
Stock or debt securities of) a Person existing at the time such Person (i) is
merged into or consolidated with the Company or any Restricted Subsidiary or
(ii) becomes a Restricted Subsidiary; provided, however, that such Liens were in
existence prior to the contemplation of such merger, consolidation or
acquisition and do not secure any property or assets of the Company or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger, consolidation or acquisition; (b) Liens imposed by law
such as landlords', carriers', warehousemen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being contested in good
faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d)
Liens securing only the Notes; (e) Liens in favor of the Company or Liens on any
property or assets of a Restricted Subsidiary (or on shares of Capital Stock or
debt securities of a Restricted Subsidiary) in favor of the Company or any
Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent for more than 90 days or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, however, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (g) easements, reservation of rights of way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes
in connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law, public and statutory obligations, obligations under franchise
arrangements entered into in the ordinary course of business and other
obligations of a similar nature arising in the ordinary course of business; (i)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
Purchase Money Indebtedness (other than Indebtedness incurred to finance an
Asset Acquisition), mortgage financings, industrial revenue bonds or other
monetary obligations, in each case incurred solely for the purpose of financing
all or any part of the purchase price or cost of construction or installation of
assets used in the business of the Company or the Restricted Subsidiaries, or
repairs, additions or improvements to such assets; provided, however, that (I)
such Liens secure Indebtedness in an amount not in excess of the original
purchase price or the original cost of any such assets or repair, addition or
improvement thereto (plus an amount equal to the reasonable fees and expenses in
connection with the incurrence of such Indebtedness), (II) such Liens do not
extend to any other assets of the Company or the Restricted Subsidiaries (and,
in the case of repair, addition or improvements to any such assets, such Lien
extends only to the assets (and improvements thereto or thereon) repaired, added
to or improved), (III) the incurrence of such Indebtedness is permitted by
"-- Certain Covenants -- Limitation on Indebtedness" above and (IV) such Liens
attach prior to 90 days after such purchase, construction, installation, repair,
addition or improvement; (j) Liens to secure any Refinancings (or successive
Refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (k) Liens securing trade
letters of credit entered into in the ordinary course of business; (l) Liens on
and pledges of the capital stock of (A) any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary and (B) an Accounts Receivable
Subsidiary; (m) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and the Restricted
Subsidiaries, taken as a whole; (n) any interest or title of a lessor in any
property that is (i) subject to any lease or (ii) located on the real property
subject to any lease; (o) Liens arising from the rendering of a final judgment
or order against the Company or any Restricted Subsidiary that does not give
rise to an Event of Default; (p) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any Restricted Subsidiary in the ordinary course of
business; and (q) Liens on the property or assets or Capital Stock of Accounts
Receivable Subsidiaries and Liens arising out of any sale of accounts receivable
in the ordinary course to or by an Accounts Receivable Subsidiary.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Preferred Stock" means, with respect to any Person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Capital
Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary offering of Common
Stock of the Company with gross cash proceeds to the Company of at least $50
million pursuant to a registration statement under the Securities Act that has
been declared effective by the Commission (other than a registration statement
on Form S-8 or any successor form or otherwise relating to equity securities
issuable under any employee benefit plan of the Company).
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any real or
personal property; provided, however, that the aggregate principal amount of
such Indebtedness does not exceed the lesser of the Fair Market Value of such
property or the original purchase price or the original cost of any such assets
or repair, addition or improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness).
"Rating Agencies" means (i) Standard & Poor's Ratings Group and (ii)
Moody's Investors Service, Inc. or (iii) if Standard & Poor's Ratings Group or
Moody's Investors Service, Inc. or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company, which shall be
substituted for Standard & Poor's Ratings Group, Moody's Investors Service, Inc.
or both, as the case may be.
"Rating Category" means (i) with respect to Standard & Poor's Ratings
Group, any of the following categories: BB, B, CCC, CC, C and D (or equivalent
successor categories); (ii) with respect to Moody's Investors Service, Inc., any
of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor
categories); and (iii) the equivalent of any such category of Standard & Poor's
Ratings Group or Moody's Investors Service, Inc. used by another Rating Agency.
In determining whether the rating of the Notes has decreased by one or more
gradations, gradations within Rating Categories (+ and - for Standard & Poor's
Ratings Group; 1, 2 and 3 for Moody's Investors Service, Inc.; or the equivalent
gradations for another Rating Agency) shall be taken into account (e.g., with
respect to Standard & Poor's Ratings Group, a decline in a rating from BB+ to
BB, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention by the Company to effect a Change of Control.
"Rating Decline" means the occurrence of the following on, or within 90
days after, the earlier of (i) the occurrence of a Change of Control and (ii)
the date of public notice of the occurrence of a Change of Control or of the
public notice of the intention of the Company to effect a Change of Control
(which period shall be extended so long as the rating of the Notes is under
publicly announced consideration for possible downgrading by any of the Rating
Agencies): (a) in the event that the Notes have an Investment Grade Rating, the
rating of the Notes by both such Rating Agencies shall be reduced below
Investment Grade, or (b) in the event the Notes are rated below Investment Grade
by both such Rating Agencies on the Rating Date, the rating of the Notes by
either Rating Agency shall be decreased by one or more gradations (including
gradations within Rating Categories as well as between Rating Categories).
"Redeemable Capital Stock" means any class or series of Capital Stock to
the extent that, either by its terms, by the terms of any security into which it
is convertible or exchangeable, or by contract or otherwise, it is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final stated maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such maturity, or is convertible into or
exchangeable at the option of the holder thereof for debt securities at any time
prior to such maturity.
"Reference Period" has the meaning set forth under the definition of
"Consolidated Fixed Charge Coverage Ratio."
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"Refinance" means, with respect to any Indebtedness, any refinancing,
redemption, retirement, renewal, replacement, extension or refunding of such
Indebtedness.
"Restricted Payment" has the meaning set forth under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary (other than an Accounts
Receivable Subsidiary) of the Company that has not been designated by the Board
of Directors of the Company, by a Board Resolution delivered to the Trustee, as
an Unrestricted Subsidiary pursuant to and in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Revocation" has the meaning set forth under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries."
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the Commission thereunder, or any successor
statute.
"Senior Guarantor Indebtedness" means any Indebtedness of a Guarantor which
is not expressly subordinated in right of payment to any other Indebtedness of
such Guarantor.
"Senior Indebtedness" means any Indebtedness of the Company which is not
expressly subordinated in right of payment to any other Indebtedness of the
Company.
"Stated Maturity" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or any installment of interest is due and
payable.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding shares of Voting Stock having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of the shares of Voting Stock are at the time, directly or
indirectly, owned by such first named Person.
"Subordinated Indebtedness" means, with respect to the Company,
Indebtedness of the Company which is expressly subordinated in right of payment
to any other Indebtedness of the Company or, with respect to any Guarantor,
Indebtedness of such Guarantor which is expressly subordinated in right of
payment to any other Indebtedness of such Guarantor.
"Surviving Entity" has the meaning set forth under "Consolidation, Merger,
Sale of Assets, Etc."
"Transaction Date" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Unrestricted Subsidiary" means each Accounts Receivable Subsidiary and
each Subsidiary of the Company (other than a Guarantor) designated as such
pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such
Designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth under "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales."
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
77
<PAGE> 81
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
Original Notes offered and sold to Qualified Institutional Buyers ("QIBs")
in reliance on Rule 144A under the Securities Act are represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the "Rule
144A Global Note") and are registered in the name of Cede & Co. as nominee of
DTC on behalf of purchasers of the Notes represented thereby for credit to the
respective accounts of such purchasers (or to such other accounts as they may
direct) at DTC.
Original Notes originally offered and sold in reliance on Regulation S
under the Securities Act, if any, are initially represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the
"Regulation S Global Note") registered in the name of Cede & Co., as nominee of
DTC and deposited on behalf of the purchasers of the Notes represented thereby
with a custodian for DTC for credit to the respective accounts of such
purchasers (or to such other accounts as they directed) at the Euroclear System
("Euroclear") or Cedel Bank, societe anonyme ("Cedel"). Prior to the 40th day
after the later of the commencement of the issuance of the Original Notes and
the Issue Date, interests in the Regulation S Global Note may only be held
through Euroclear or Cedel.
Original Notes held by QIBs who elected to take physical delivery of their
certificates instead of holding their interest through the Rule 144A Global Note
(and which are thus ineligible to trade through DTC) (the "Series A Non-Global
Purchasers") are issued in fully registered form ("Certificated Notes"). Upon
the transfer of such Certificated Notes to a QIB or in an offshore transaction
under Rule 903 or 904 of Regulation S under the Securities Act, such
Certificated Notes will, unless such Rule 144A Global Note has previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in the
Rule 144A Global Note and/or the Regulation S Global Note upon delivery of
appropriate certifications to the Trustee. Transfers of Certificated Notes, any
interest in the Rule 144A Global Note and any interest in the Regulation S
Global Note are subject to certain restrictions.
Exchange Notes
Exchange Notes issued in exchange for Notes originally offered and sold (i)
to QIBs in reliance on Rule 144A under the Securities Act or (ii) in reliance on
Regulation S under the Securities Act will be represented by a single, permanent
Global Note in definitive, fully registered book-entry form (the "Exchange
Global Note" and together with the Rule 144A Global Note and the Regulation S
Global Note, the "Global Notes"), which will be registered in the name of Cede &
Co., as nominee of DTC on behalf of persons who receive Exchange Notes
represented thereby for credit to the respective accounts of such persons (or to
such other accounts as they may direct) at DTC.
Exchange Notes issued in exchange for Notes will be issued, upon request,
in fully registered form (together with the Certificated Notes, the
"Certificated Notes"), but otherwise such holders will only be entitled to
registration of their respective Exchange Notes in book-entry form under the
Exchange Global Note.
The Global Notes
The Company expects that pursuant to procedures established by DTC (a) upon
deposit of the Global Notes, DTC or its custodian will credit on its internal
system portions of the Global Notes, which shall be comprised of the
corresponding respective amount of the Global Notes to the respective accounts
of persons who have accounts with such depositary and (b) ownership of the Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
Participants (as defined below) and the records of Participants (with respect to
interests of persons other than Participants)). Ownership of beneficial
interests in the Global Notes will be limited to persons who
78
<PAGE> 82
have accounts with DTC ("Participants") or persons who hold interests through
Participants. Holders may hold their interests in the Global Notes directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system.
So long as DTC or its nominee is the registered owner or holder of any of
the Notes, DTC or such nominee will be considered the sole owner or holder of
such Notes represented by the Global Notes for all purposes under the Indenture
and under the Notes represented thereby. No beneficial owner of an interest in
the Global Notes will be able to transfer such interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest on the Global Notes will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global Notes
held through such Participants will be governed by standing instructions and
customary practice as is now the case with Notes held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such Notes or
to pledge such Notes, such holder must transfer its interest in the Global Notes
in accordance with the normal procedures of DTC and in accordance with the
procedures set forth in the Indenture.
Before the 40th day after the later of the commencement of the issuance of
the Notes and the Issue Date, transfers by an owner of a beneficial interest in
the Regulation S Global Note to a transferee who takes delivery of such interest
through the Rule 144A Global Note will be made only in accordance with the
applicable procedures and upon receipt by the Trustee and the Company of a
written certification from the transferor of the beneficial interest in the form
provided in the Indenture to the effect that such transfer is being made to a
person whom the transferor reasonably believes is a QIB within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A and as
permitted consistent with Regulation S.
Transfers by an owner of a beneficial interest in the Rule 144A Global Note
to a transferee who takes delivery of such interest through the Regulation S
Global Note, whether before, on or after the 40th day after the later of the
commencement of the issuance of the Notes and the Issue Date, will be made only
upon receipt by the Trustee and the Company of a certification to the effect
that such transfer is being made in accordance with Regulation S. Transfers of
Certificated Notes held by institutional Accredited Investors to persons who
will hold beneficial interests in the Rule 144A Global Note or the Regulation S
Global Note will be subject to certifications provided by the Trustee.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of the aggregate principal amount as to which such Participant or Participants
has or have given such direction.
79
<PAGE> 83
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Notes for Certificated Notes, which it will distribute to its
Participants and which, in the case of Certificated Notes, will be legended.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among Participants of DTC, Euroclear and Cedel, as applicable, they are under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. None of the Company, the Trustee, Registrar or the Paying Agent
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective direct or indirect Participants of their respective obligations
under the rules and procedures governing their operations.
Certificated Notes
Interests in Global Notes will be exchanged for Certificated Notes if (i)
DTC notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes, or DTC ceases to be a "Clearing Agency"
registered under the Exchange Act, and a successor depositary is not appointed
by the Company within 90 days, or (ii) an Event of Default has occurred and is
continuing with respect to the Notes. Upon the occurrence of any of the events
described in the preceding sentence, the Company will cause the appropriate
Certificated Notes to be delivered.
DESCRIPTION OF THE ORIGINAL NOTES
The terms of the Original Notes are identical in all material respects to
the Exchange Notes, except that (i) the Original Notes have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except under
limited circumstances) and (ii) the Exchange Notes will not provide for any
increase in the interest rate thereon. The Original Securities provide that, in
the event that a registration statement relating to the Exchange Offer has not
been filed and been declared effective within certain specified periods, or, in
certain limited circumstances, in the event a shelf registration statement (the
"Shelf Registration Statement") with respect to the resale of the Original Notes
is not declared effective by the time required by the Registration Rights
Agreement, then the interest rate borne by the Original Notes will increase by
0.25% per annum each 90-day period that such additional interest rate continues
to accrue under any such circumstance, up to an aggregate maximum increase equal
to 1% per annum, for the period from the occurrence of such event until such
time as such registration statement has been filed or declared effective, as the
case may be. The Exchange Notes are not, and upon consummation of the Exchange
Offer, the Original Notes will not be, entitled to any such additional interest
or distributions. Accordingly, holders of Original Notes should review the
information set forth under "Risk Factors -- Consequences of a Failure to
Exchange Original Notes" and "Description of the Notes."
80
<PAGE> 84
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Original Notes for Exchange Notes,
but does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the Exchange
Notes. The description does not consider the effect of any applicable foreign,
state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES
The exchange of Original Notes for Exchange Notes pursuant to the Exchange
Offer should not constitute a significant modification of the terms of the
Original Notes and, therefore, such exchange should not constitute an exchange
for federal income tax purposes. Accordingly, such exchange should have no
federal income tax consequences to holders of Original Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify holders of the Original Notes (including
any broker-dealers) against certain liabilities, including certain liabilities
under the Securities Act.
81
<PAGE> 85
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company by Troutman Sanders LLP, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of Zale Corporation and its
subsidiaries included or incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
82
<PAGE> 86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Cash Flows....................... F-5
Consolidated Statements of Stockholders' Investment......... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Zale Corporation:
We have audited the accompanying consolidated balance sheets of Zale
Corporation (a Delaware corporation) and subsidiaries as of July 31, 1997 and
1996, and the related consolidated statements of operations, cash flows, and
stockholders' investment for each of the three years in the period ended July
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zale
Corporation and subsidiaries as of July 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 3, 1997
F-2
<PAGE> 88
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales.............................................. $1,253,818 $1,137,377 $1,036,149
Cost of Sales.......................................... 643,318 576,764 524,010
---------- ---------- ----------
Gross Margin........................................... 610,500 560,613 512,139
Selling, General and Administrative Expenses........... 480,522 457,371 434,101
Depreciation and Amortization Expense.................. 14,022 7,538 381
Unusual Items -- Reorganization Recoveries............. -- (4,486) --
---------- ---------- ----------
Operating Earnings..................................... 115,956 100,190 77,657
Interest Expense, Net.................................. 36,098 30,102 29,837
---------- ---------- ----------
Earnings Before Income Taxes and Extraordinary Item.... 79,858 70,088 47,820
Income Taxes........................................... 29,305 25,094 16,350
---------- ---------- ----------
Earnings Before Extraordinary Item..................... 50,553 44,994 31,470
Extraordinary Item:
Loss on Early Extinguishment of Debt, Net of Income
Taxes of $(603)................................... -- (1,096) --
---------- ---------- ----------
Net Earnings........................................... $ 50,553 $ 43,898 $ 31,470
========== ========== ==========
Earnings Per Common Share:
Primary:
Earnings Before Extraordinary Item................ $ 1.38 $ 1.23 $ 0.88
Extraordinary Items............................... -- (0.03) --
---------- ---------- ----------
Net Earnings...................................... $ 1.38 $ 1.20 $ 0.88
========== ========== ==========
Assuming full dilution:
Earnings Before Extraordinary Item................ $ 1.37 $ 1.23 $ 0.86
Extraordinary Items............................... -- (0.03) --
---------- ---------- ----------
Net Earnings...................................... $ 1.37 $ 1.20 $ 0.86
========== ========== ==========
Weighted Average Number of Common Shares Outstanding:
Primary.............................................. 36,632 36,465 35,849
Assuming full dilution............................... 36,853 36,618 36,565
</TABLE>
See Notes to the Consolidated Financial Statements.
F-3
<PAGE> 89
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents................................. $ 41,636 $ 50,046
Customer Receivables, Net................................. 454,270 419,877
Merchandise Inventories................................... 511,702 457,862
Other Current Assets...................................... 39,271 25,535
---------- ----------
Total Current Assets........................................ 1,046,879 953,320
Property and Equipment, Net................................. 138,011 108,254
Other Assets................................................ 43,616 45,737
Deferred Tax Asset, Net..................................... 52,700 56,500
---------- ----------
Total Assets................................................ $1,281,206 $1,163,811
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt......................... $ 328 $ 26
Accounts Payable and Accrued Liabilities.................. 145,721 145,794
Deferred Tax Liability, Net............................... 23,700 32,000
---------- ----------
Total Current Liabilities................................... 169,749 177,820
Non-current Liabilities..................................... 53,544 34,627
Long-term Debt.............................................. 451,459 404,328
Excess of Revalued Net Assets Over Stockholders' Investment,
Net....................................................... 64,880 70,778
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock........................................... -- --
Common Stock.............................................. 350 352
Additional Paid-In Capital (Includes Stock Warrants)...... 401,121 383,042
Unrealized Gains on Securities............................ 2,182 1,013
Accumulated Earnings...................................... 142,404 91,851
---------- ----------
546,057 476,258
Treasury Stock............................................ (4,483) --
---------- ----------
Total Stockholders' Investment.............................. 541,574 476,258
---------- ----------
Total Liabilities and Stockholders' Investment.............. $1,281,206 $1,163,811
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
F-4
<PAGE> 90
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................. $ 50,553 $ 43,898 $ 31,470
Non-cash items:
Depreciation and amortization expense.................. 16,290 8,904 1,498
Non-cash charge in lieu of tax expense................. 28,280 23,208 16,204
Other adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt....... -- 1,699 --
Changes in:
Customer receivables, net.............................. (34,393) (22,323) 1,506
Merchandise inventories................................ (53,840) (74,739) 25,621
Other current assets................................... (13,736) (1,253) (2,385)
Other assets........................................... 1,467 (768) (55)
Accounts payable and accrued liabilities............... (73) 18,014 (27,752)
Non-current liabilities................................ (580) 1,957 (203)
-------- --------- --------
Net Cash Provided by (Used in) Operating Activities...... (6,032) (1,403) 45,904
-------- --------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment...................... (54,025) (48,790) (42,295)
Dispositions of property and equipment................... 4,887 829 1,987
Acquisition, net of cash acquired........................ -- (2,547) --
Other.................................................... -- (340) (205)
-------- --------- --------
Net Cash Used in Investing Activities.................... (49,138) (50,848) (40,513)
-------- --------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................. 291 (66,608) (3,896)
Net borrowings under revolving credit agreement.......... 47,100 23,600 --
Payment for redemption of Series B Warrants.............. -- (9,264) --
Payment of prepayment penalty and other related costs on
early extinguishment of debt........................... -- (1,699) --
Debt issue and capitalized financing costs............... (945) (629) (461)
Proceeds from exercise of stock options.................. 1,073 1,992 171
Purchase of treasury stock............................... (759) -- --
-------- --------- --------
Net Cash Provided by (Used in) Financing Activities...... 46,760 (52,608) (4,186)
-------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents..... (8,410) (104,859) 1,205
Cash and Cash Equivalents at Beginning of Period......... 50,046 154,905 153,700
-------- --------- --------
Cash and Cash Equivalents at End of Period............... $ 41,636 $ 50,046 $154,905
======== ========= ========
Supplemental cash flow information:
Interest paid.......................................... $ 34,914 $ 35,020 $ 36,443
Interest received...................................... $ 936 $ 3,233 $ 7,641
Income taxes paid (net of refunds received)............ $ 3,431 $ 1,653 $ 568
Restricted cash -- at period end date.................. $ 9,013 $ 31,510 $ 51,422
</TABLE>
See Notes to the Consolidated Financial Statements.
F-5
<PAGE> 91
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL UNREALIZED
COMMON SHARES PAID-IN GAINS(LOSSES) ACCUMULATED TREASURY
OUTSTANDING COMMON STOCK CAPITAL ON SECURITIES EARNINGS STOCK TOTAL
------------- ------------ ---------- ------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994............ 34,965 $350 $321,159 $ (326) $ 21,557 $ 0 $342,740
Net Earnings...................... -- -- -- -- 31,470 -- 31,470
Reduction of Tax Valuation
Allowance....................... -- -- 16,204 -- -- -- 16,204
Exercise of Stock Options and
Warrants........................ 19 -- 171 -- -- -- 171
Treasury Stock Acquired........... (1) -- -- -- -- -- --
Unrealized Gain on Securities..... -- -- -- 1,305 -- -- 1,305
------ ---- -------- ------ -------- ------- --------
Balance July 31, 1995............. 34,983 350 337,534 979 53,027 0 391,890
Net Earnings...................... -- -- -- -- 43,898 -- 43,898
Purchase of B Warrants............ -- -- (4,190) -- (5,074) -- (9,264)
Reduction of Tax Valuation
Allowance....................... -- -- 23,208 -- -- -- 23,208
Change in Estimate of Realization
of Deferred Income Tax Asset.... -- -- 24,500 -- -- -- 24,500
Exercise of Stock Options and
Warrants........................ 216 2 1,990 -- -- -- 1,992
Unrealized Gain on Securities..... -- -- -- 34 -- -- 34
------ ---- -------- ------ -------- ------- --------
Balance July 31, 1996............. 35,199 352 383,042 1,013 91,851 0 476,258
Net Earnings...................... -- -- -- -- 50,553 -- 50,553
Reduction of Tax Valuation
Allowance....................... -- -- 13,280 -- -- -- 13,280
Exercise of Stock Options......... 113 1 1,072 -- -- -- 1,073
Unrealized Gain on Securities..... -- -- -- 1,169 -- -- 1,169
Recoveries and purchase of Common
Stock........................... (290) (3) 3,727 -- -- (4,483) (759)
------ ---- -------- ------ -------- ------- --------
Balance, July 31, 1997............ 35,022 $350 $401,121 $2,182 $142,404 $(4,483) $541,574
====== ==== ======== ====== ======== ======= ========
</TABLE>
See Notes to the Consolidated Financial Statements.
F-6
<PAGE> 92
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS include the accounts of
Zale Corporation and its wholly-owned subsidiaries (the "Company" or "Zale").
The Company consolidates substantially all its retail operations into Zale
Delaware, Inc. ("ZDel"). ZDel is the parent company for several subsidiaries,
including three that are engaged primarily in providing credit insurance to
credit customers of the Company. All significant intercompany transactions have
been eliminated. On January 18, 1996, the Company acquired Karten's Jewelers,
Inc., ("Karten's") a privately owned chain of 20 fine jewelry stores. The
Company acquired all the outstanding shares of common stock for $3.0 million in
cash and assumption of all liabilities.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
CASH AND CASH EQUIVALENTS includes cash on hand, deposits in banks and
short-term marketable securities at varying interest rates with maturities of
three months or less. The carrying amount approximates fair value because of the
short maturity of those instruments. At July 31, 1997, $9.0 million was
restricted of which $5.4 million was restricted based on collateral requirements
under the Receivables Securitization Facility.
CUSTOMER RECEIVABLES are classified as current assets, including amounts
which are due after one year, in accordance with industry practices. The
allowance for doubtful accounts was $57.8 million and $51.4 million at July 31,
1997 and 1996, respectively. Finance charge income and net earnings from credit
insurance subsidiaries of $101.0 million, $90.8 million and $89.6 million for
the years ended July 31, 1997, 1996 and 1995, respectively, has been reflected
as a reduction of Selling, General and Administrative Expenses.
MERCHANDISE INVENTORIES are stated at the lower of cost or market, which is
determined primarily in accordance with the retail inventory method.
Substantially all inventories represent finished goods which are valued using
the last-in, first-out ("LIFO") method.
DEPRECIATION AND AMORTIZATION are computed using the straight-line method
over the estimated useful lives of the assets or remaining lease life. Estimated
useful lives of the assets range from three to forty years. Original cost and
related accumulated depreciation or amortization are removed from the accounts
in the year assets are retired. Gains or losses on dispositions of property and
equipment are included in operations in the year of disposal. Computer software
costs related to the development of major systems are capitalized as incurred
and are amortized over their useful lives.
EXCESS OF REVALUED NET ASSETS OVER STOCKHOLDERS' INVESTMENT is being
amortized over fifteen years. Amortization was $5.9 million for each of the
years ended July 31, 1997, 1996 and 1995. Accumulated amortization was $23.6
million and $17.7 million at July 31, 1997 and 1996, respectively.
STORE PREOPENING COSTS are charged to results of operations in the period
in which the store is opened. Store closing costs are estimated and recognized
in the period in which the Company makes the decision that the store will close.
Such costs include the present value of estimated future rentals net of
anticipated sublease income, loss on retirement of property and equipment and
other related occupancy costs.
F-7
<PAGE> 93
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING EXPENSES are charged against operations when incurred. Amounts
charged against operations were $46.1 million, $37.6 million and $35.2 million
for the years ended July 31, 1997, 1996 and 1995, respectively. The amounts of
prepaid advertising at July 31, 1997 and 1996 are $3.4 million and $2.4 million,
respectively.
RECLASSIFICATIONS. The classifications in use at July 31, 1997 have been
applied to the financial statements for July 31, 1996 and 1995.
MERCHANDISE INVENTORIES
The Company uses the LIFO method of accounting for inventory, which results
in a matching of current costs with current revenues. The estimated cost of
replacing the Company's inventories exceeds its net LIFO cost by approximately
$16.0 million and $12.2 million at July 31, 1997 and 1996, respectively.
Inventories on a first-in, first-out ("FIFO") basis were $527.7 million and
$470.1 million at July 31, 1997 and 1996, respectively. The Company also
maintained consigned inventory at its retail locations of approximately $135.0
million and $78.9 million at July 31, 1997 and 1996, respectively. This
consigned inventory and related contingent obligation are not reflected in the
Company's financial statements. At the time of sale, the Company records the
purchase liability in accounts payable and the related cost of merchandise in
Cost of Sales.
PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31, 1997 JULY 31, 1996
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Buildings and Leasehold Improvements............... $ 59,932 $ 39,439
Furniture and Fixtures............................. 101,767 64,569
Construction in Progress........................... 9,409 14,835
Property Held for Sale............................. 6,345 9,557
-------- --------
177,453 128,400
Less: Accumulated Amortization and Depreciation.... (39,442) (20,146)
-------- --------
Total Net Property and Equipment................... $138,011 $108,254
======== ========
</TABLE>
Property Held for Sale represents land and buildings which are being held
for future sale and are not being used in the Company's operations.
ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND NON-CURRENT LIABILITIES
The Company's accounts payable and accrued liabilities consist of the
following:
<TABLE>
<CAPTION>
JULY 31, 1997 JULY 31, 1996
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Accounts Payable................................... $ 59,321 $ 67,492
Accrued Payroll.................................... 18,280 19,759
Accrued Taxes...................................... 13,248 14,833
Extended Warranty.................................. 12,420 6,493
Other Accruals..................................... 42,452 37,217
-------- --------
Total Accounts Payable and Accrued Liabilities..... $145,721 $145,794
======== ========
</TABLE>
F-8
<PAGE> 94
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's non-current liabilities consist principally of the
accumulated obligation for postretirement benefits under Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," loss reserves for insurance subsidiaries and
reserves for tax contingencies.
POSTRETIREMENT BENEFITS. The Company provides medical and dental insurance
benefits for all eligible retirees and spouses with benefits to the latter
continuing after the death of the retiree for a maximum of thirty-six months.
Substantially all of the Company's full-time employees, who were hired on or
before November 14, 1994, become eligible for those benefits upon reaching age
55 while working for the Company and having ten years of continuous service. The
medical and dental benefits are provided under two plans. The lifetime maximum
on medical benefits is $500,000 up to the age of 65 and $50,000 thereafter.
These benefits include deductibles, retiree contributions and co-insurance
provisions that are assumed to grow with the health care cost trend rate. The
costs of the postretirement benefits are recognized in the financial statements
over an employee's active working career on an accrual basis.
The accumulated postretirement benefits obligation ("APBO"), which
represents the actuarial present value of benefits attributed to employee
service rendered as of July 31, 1997 and 1996, for the unfunded plan, include
the following components:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996
--------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Active Employees Under Retirement Age.................... $ 3,453 $ 4,260
Active Employees Eligible to Retire...................... 1,884 2,161
Current Retirees......................................... 7,315 7,641
------- -------
Accumulated Benefit Obligation........................... 12,652 14,062
Unrecognized Prior Service Credit (Cost)................. 38 (348)
Unrecognized Net Gain.................................... 8,230 7,019
------- -------
Total Accrued Postretirement Benefit Liability........... $20,920 $20,733
======= =======
</TABLE>
The unrecognized gain of $8.2 million at July 31, 1997, results primarily
from changes in plan experience and actuarial assumptions, including a reduction
in average claim cost and a reduction in the number of eligible participants.
The gain will be amortized in accordance with SFAS No. 106.
The annual expense relating to postretirement benefits, which are reflected
in Selling, General and Administrative Expenses, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1997 1996 1995
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service Cost..................................... $ 613 $1,130 $1,035
Interest Cost.................................... 1,112 1,557 1,465
Amortization..................................... (582) 58 16
------ ------ ------
Total Postretirement Benefit Cost................ $1,143 $2,745 $2,516
====== ====== ======
</TABLE>
The weighted-average discount rate used in determining the APBO at July 31,
1997 and 1996 was 7.5 and 7.75 percent, respectively. At July 31, 1997 and 1996,
the initial medical and dental trend rates were 12.0 percent and 8.25 percent,
respectively, and are assumed to gradually decrease to 6.0 percent in the year
2004. The effect of a one percent increase in the health care cost trend rate on
the APBO and the net periodic expense would be an increase of approximately $1.5
million and $0.2 million, respectively.
F-9
<PAGE> 95
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31, 1997 JULY 31, 1996
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement................. $ 70,700 $ 23,600
Receivables Securitization Facility........ 380,677 380,635
Other (primarily mortgages)................ 410 119
-------- --------
451,787 404,354
Less Current Portion....................... (328) (26)
-------- --------
Total Long-Term Debt....................... $451,459 $404,328
======== ========
</TABLE>
Fiscal year scheduled maturities of long-term debt at July 31, 1997 were as
follows: 1998 -- $0.3 million; 1999 -- $380.8 million; 2000 -- $70.7 million;
2001 -- $0 million; 2002 -- $0 million; thereafter -- $0 million; for a total of
$451.8 million.
REVOLVING CREDIT AGREEMENT. On March 31,1997, the Company and ZDel (the
"Borrowers") entered into a three year unsecured revolving credit agreement (the
"Revolving Credit Agreement") with a group of banks which provides for revolving
credit loans in an aggregate amount of up to $225.0 million, including a $30.0
million sublimit for letters of credit. The Revolving Credit Agreement replaces
a prior secured commitment totaling $150.0 million.
The revolving credit loans bear interest at floating rates, currently LIBOR
plus 1.5% or the agent bank's adjusted base rate percent or the Federal Funds
Rate plus 0.5%, at the Borrowers' option. The interest rate based on LIBOR can
be reduced based on certain future performance levels attained by the Borrowers.
The Company pays a commitment fee of .375 percent per annum (subject to
reduction based on future performance) on the preceding month's unused Revolving
Credit Agreement commitment. The Borrowers may repay the revolving credit loans
at any time without penalty prior to the maturity date. At the Borrowers'
election, the Revolving Credit Agreement provides for a one year extension upon
obtaining appropriate consent. At July 31, 1997, there were $70.7 million in
loans outstanding under the Revolving Credit Agreement at a weighted average
interest rate of 7.20%. In addition, letters of credit in the amount of
approximately $0.6 million were outstanding at July 31, 1997.
The Revolving Credit Agreement contains certain restrictive covenants,
which, among other things, restricts within certain limits the Borrowers'
ability to pay dividends and make other payments, incur additional indebtedness,
make capital expenditures, engage in certain transactions with affiliates, incur
liens, make investments and sell assets. The Revolving Credit Agreement also
requires the Borrowers to maintain certain financial ratios and specified levels
of net worth.
RECEIVABLES SECURITIZATION FACILITY. The Company formed Zale Funding Trust
("ZFT"), a limited purpose Delaware business trust, in 1994 to finance customer
accounts receivable. ZFT established an accounts receivable securitization
facility (the "ZFT Securitization"), pursuant to which it issued approximately
$380.6 million, net of discount, aggregate principal amount of Receivables
Backed Notes ("ZFT Receivables Notes"). The proceeds from the ZFT Receivables
Notes were used to buy the revolving credit card accounts receivable of ZDel and
other affiliates. Collections from those receivables are used in part to pay
interest on the ZFT Receivables Notes and to purchase daily ZDel's customer
accounts receivable. The ZFT Receivables Notes are secured by a lien on all
customer accounts receivable and are nonrecourse with regard to Zale and ZDel.
F-10
<PAGE> 96
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ZFT Receivables Notes bear interest at the following rates, payable
monthly in arrears (amounts in thousands):
<TABLE>
<CAPTION>
PRINCIPAL RATE
- --------- ----
<C> <S>
$ 37,620 LIBOR + .40%, not to exceed 12.0%
294,100 7.325%
28,600 7.50%
20,440 8.15%
- --------
$380,760
========
</TABLE>
The effective interest rate, based on a current LIBOR rate of 5.625
percent, including amortization of debt issuance costs, approximated 7.55
percent at July 31, 1997.
Jewelers Financial Services, Inc. (the "Servicer"), a subsidiary of ZDel,
is the servicing entity for the collection of the customer accounts receivable
and its servicing obligations are guaranteed by ZDel.
The ZFT Receivables Notes will be subject to redemption at the option of
ZFT in whole but not in part, on the scheduled redemption date of July 15, 1999,
at a redemption price equal to the outstanding principal amount of the ZFT
Receivables Notes together with accrued and unpaid interest thereon at the
applicable interest rates. If ZFT has not given notice by June 15, 1999 that it
will redeem the ZFT Receivables Notes in full on the scheduled payment date
occurring in July 1999, the Servicer will promptly solicit bids for the purchase
of all or a portion of the receivables. If the Servicer is unable to sell the
receivables for a price such that the proceeds of such sale, together with other
available funds, is sufficient to pay in full the outstanding principal amount
of the ZFT Receivables Notes and interest thereon to the Scheduled Redemption
Date, the ZFT Receivables Notes will remain outstanding and will begin
amortizing based on collections of customer accounts receivable beginning in
August 1999.
The ZFT Securitization imposes certain reporting obligations on the Company
and limits ZFT's ability, among other things, to grant liens, incur certain
indebtedness, or enter into other lines of business. Additionally, under certain
conditions as defined, including among other things, failure to pay principal or
interest when due, failure to cure a borrowing base deficiency and breach of any
covenant that is not cured, the ZFT Securitization is subject to an early
amortization whereby the ZFT Receivables Notes may be declared due and payable
immediately. The restricted cash balance shown on the Consolidated Statements of
Cash Flows as of July 31, 1997 and 1996 primarily represents the restricted cash
of ZFT which is based on the relationship between the ZFT Receivables Notes
outstanding and gross accounts receivable as of July 31, 1997 and 1996.
LEASE COMMITMENTS
The Company rents most of its retail space under leases that generally
range from five to ten years and may contain base rent escalations. The Company
amended and extended its corporate headquarters lease for five years effective
at the expiration of the current lease, which will continue to be treated as an
operating lease starting in September 1997. Lease incentives of approximately
$4.7 million for reimbursement of certain leasehold improvement expenditures
will be amortized against lease payments over the life of the lease. All
existing real estate leases are treated as operating leases. Sublease rental
income under noncancelable leases is not material.
F-11
<PAGE> 97
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1997 1996 1995
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Retail Space:
Minimum Rentals................................ $ 70,344 $61,724 $55,645
Rentals Based on Sales......................... 27,762 27,752 28,365
-------- ------- -------
98,106 89,476 84,010
Equipment and Corporate Headquarters............. 3,240 3,368 3,386
-------- ------- -------
Total Rent Expense............................... $101,346 $92,844 $87,396
======== ======= =======
</TABLE>
Contingent rentals paid to lessors of certain store facilities are
determined principally on the basis of a percentage of sales in excess of
contractual limits.
Future minimum rent commitments as of July 31, 1997, for all noncancellable
leases of ongoing operations were as follows: 1998 -- $65.3 million;
1999 -- $63.4 million; 2000 -- $58.5 million; 2001 -- $53.2 million;
2002 -- $47.6 million; thereafter -- $162.8 million; for a total of $450.8
million.
INTEREST
Interest expense for the years ended July 31, 1997, 1996 and 1995 was
approximately $36.9 million, $33.2 million and $37.5 million, respectively.
Interest income for the years ended July 31, 1997, 1996 and 1995 was $0.8
million, $3.1 million and $7.7 million, respectively.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on estimated
future tax effects of the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates.
F-12
<PAGE> 98
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Currently, the Company files a consolidated income tax return. The
effective income tax rate varies from the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1997 1996 1995
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal Income Tax Expense at Statutory Rate..... $27,950 $24,531 $16,737
Amortization of Excess of Revalued Net Assets
Over Stockholders' Investment.................. (2,064) (2,064) (2,064)
State Income Taxes, Net of Federal Income Tax
Benefit........................................ 3,243 2,520 1,677
Other............................................ 176 107 --
------- ------- -------
Total Income Tax Expense......................... 29,305 25,094 16,350
Tax Benefit on Extraordinary Item................ -- (603) --
------- ------- -------
Total Income Tax Expense......................... $29,305 $24,491 $16,350
======= ======= =======
Effective Income Tax Rate........................ 36.7% 35.8% 34.2%
======= ======= =======
</TABLE>
Pursuant to the guidance provided by the American Institute of Certified
Public Accountants in Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company
adopted fresh-start reporting as of the close of business on July 31, 1993. In
connection with the adoption of fresh-start reporting, the net book values of
substantially all non-current assets existing at July 30, 1993 (the "Effective
Date") were eliminated. As a consequence, SFAS No. 109, in conjunction with SOP
90-7, requires that any tax benefits realized for book purposes after the
Effective Date, from the reduction of the valuation allowance existing as of the
Effective Date be reported as an increase to additional paid-in capital rather
than as a reduction in the tax provision in the Consolidated Statements of
Operations. However, the Company will realize the cash benefit from utilization
of its tax net operating loss ("NOL") against current and future tax
liabilities. The cash benefit realized was approximately $28 million, $23
million and $16 million for the years ended July 31, 1997, 1996 and 1995,
respectively.
As of July 31, 1997, the Company has a NOL carryforward (after limitations)
of approximately $254 million. A majority of the tax basis NOL carryforward,
which will be available to offset future taxable income of the Company, was
determined based upon the initial equity valuation of the Company as determined
upon the Effective Date. The utilization of this asset is subject to
limitations. The most restrictive is the Internal Revenue Code Section 382
annual limitation. The NOL carryforward will begin to expire in fiscal year 2002
but can be utilized through 2009.
As of July 31, 1997, all years through fiscal year 1989 have been settled
with the Internal Revenue Service ("IRS") and all income tax liabilities thereon
have been paid. In addition, the IRS did not file any income tax claims in the
bankruptcy case; therefore, the Company believes that under the bankruptcy laws
any potential income tax liabilities have been discharged through the Effective
Date.
F-13
<PAGE> 99
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at July 31,
1997 and 1996 are presented below.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1997 1996
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current Deferred Taxes:
Assets --
Customer receivables........................ $ 22,549 $ 20,046
Accrued liabilities......................... 17,374 13,919
State and local taxes....................... 1,950 1,950
Net operating loss carryforward............. 29,000 24,500
Other....................................... 120 --
-------- --------
Total Assets................................ 70,993 60,415
Less -- Valuation Allowance................. (32,353) (33,071)
-------- --------
38,640 27,344
Liabilities --
Merchandise inventories, principally due to
LIFO reserve.............................. (62,133) (59,326)
Other....................................... (207) (18)
-------- --------
Deferred Current Tax Liability, Net......... $(23,700) $(32,000)
======== ========
Non-Current Deferred Taxes:
Assets --
Property and equipment,..................... $ 16,031 $ 6,287
Net operating loss carryforward............. 70,143 101,878
Postretirement benefits..................... 9,960 9,886
Other....................................... 2,168 7,497
-------- --------
Total Assets................................ 98,302 125,548
Less -- Valuation Allowance................. (44,798) (68,586)
-------- --------
53,504 56,962
Liabilities --
Other....................................... (804) (462)
-------- --------
Deferred Non-Current Tax Asset, Net.............. $ 52,700 $ 56,500
======== ========
</TABLE>
Pursuant to the requirements of SFAS No. 109, a valuation allowance must be
provided when it is more likely than not that the deferred income tax asset will
not be realized. The valuation reserve was approximately $77.2 million and
$101.6 million as of July 31, 1997 and 1996, respectively. The Company believes
that, as of July 31, 1997, a sufficient history of earnings has been established
to make realization of a $29.0 million deferred income tax asset more likely
than not. The change in valuation allowance from July 31, 1996 to July 31, 1997
was $24.5 million.
CAPITAL STOCK
COMMON STOCK. At July 31, 1997 and 1996, 70,000,000 shares of Common Stock,
par value of $0.01 per share, were authorized and 35,021,900 shares and
35,199,383 shares, respectively, were outstanding. The Company held 326,250 and
35,942 treasury shares at July 31, 1997 and 1996, respectively.
PREFERRED STOCK. At July 31, 1997 and 1996, 5,000,000 shares of Preferred
Stock, par value of $0.01, were authorized. None are issued or outstanding.
F-14
<PAGE> 100
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTS. Pursuant to the plan of reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Plan"), Zale had authorized 2,000,000 Series
A Warrants to purchase common stock. At July 31, 1997 and 1996, 1,972,750 Series
A Warrants were outstanding. Each Series A Warrant entitles the holder to
purchase, for $10.368 per share, one share of Zale common stock (subject to
certain anti-dilution adjustments). The Series A Warrants are exercisable on or
before July 30, 1998, although their expiration date may be shortened if the
market value of Zale's common stock increases to at least 150.0 percent of the
warrant exercise price for a specified number of days and less than 5.0 percent
of the Series A Warrants originally issued under the Plan are outstanding on the
date on which Zale gives the acceleration notice.
As part of Zale's settlement of certain bankruptcy litigation in 1993 with
Swarovski International Holding, A.G. ("Swarovski"), Zale issued its Series B
Warrants to purchase common stock. Each Series B Warrant entitled the holder to
purchase for $10.368 per share, one share of Zale common stock (subject to
certain anti-dilution adjustments). The Series B Warrants were presently
exercisable and, if not previously exercised, would expire on September 9, 1998,
subject to the Company's right to accelerate the expiration date of the Series B
Warrants if certain conditions were met. At July 31, 1995, the Series B Warrants
issued entitled the holders to purchase an aggregate of 1,852,884 shares of Zale
common stock. On August 31, 1995, Zale redeemed the Series B Warrants and
acquired all Swarovski's rights, title and interest under the warrant agreement
and paid $9.3 million to Swarovski in consideration of the redemption. As a
result of this, the Series B Warrants were canceled and are no longer
outstanding. Additional Paid-In Capital decreased $4.2 million, whereas
Accumulated Earnings decreased $5.1 million due to this transaction.
TREASURY STOCK. In November 1996, the Company received approximately
191,000 shares of common stock valued on the date of receipt at $19.50 per share
which was approved for distribution to pre-confirmation creditors of the Company
but not claimed by such pre-confirmation creditors. This resulted in a $3.7
million increase to additional paid-in capital offset by an equal increase in
treasury stock. The Company also received approximately 99,000 shares of common
stock as part of its settlement of remaining pre-bankruptcy litigation for which
the Company paid $0.8 million. The Company expects no additional significant
recoveries of stock in the future.
STOCK OPTION PLANS. As of July 31, 1997 the Company had two stock option
plans. As of the Effective Date, the Company adopted a stock option plan (the
"Stock Option Plan") to enable the Company to attract, retain and motivate
officers and key employees by providing for proprietary interest of such
individuals in the Company. Options to purchase an aggregate of 3,555,000 shares
of Common Stock may be granted under the Stock Option Plan to eligible
employees. Options granted under the Stock Option Plan (i) must be granted at an
exercise price not less than the fair market value of the shares of Common Stock
into which such options are exercisable, (ii) vest ratably over a four-year
vesting period and (iii) expire ten years from the date of grant. The 1995
Outside Director Stock Option Plan, (the "Director Plan") authorizes the Company
to grant common stock to non-employee directors at fair market value of the
Company common stock on the date of grant. The options vest over a four year
period and expire ten years from the date of grant. The maximum number of shares
which may be granted under the Director Plan is 150,000 shares.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES GRANT PRICE EXERCISE PRICE
------------------------- --------------------------- -------------------------
FISCAL 1997 FISCAL 1996 FISCAL 1997 FISCAL 1996 FISCAL 1997 FISCAL 1996
----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year............ 2,722,075 2,212,925 $ 8.68-19.00 $ 8.68-14.00 $13.60 $10.65
Granted................................... 615,700 1,103,100 17.56-21.81 13.75-19.00 21.37 17.71
Exercised................................. (112,825) (189,325) 8.73-17.69 8.77-11.81 11.67 8.92
Canceled.................................. (136,525) (404,625) 9.00-17.69 8.73-14.00 13.07 10.68
--------- --------- ------------ ------------ ------ ------
Outstanding, end of year.................. 3,088,425 2,722,075 $ 8.68-21.81 $ 8.68-19.00 $15.16 $13.60
========= ========= ============ ============ ====== ======
</TABLE>
F-15
<PAGE> 101
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of July 31, 1997 and 1996, 1,195,875 and 654,875, respectively, of
options outstanding were exercisable.
In fiscal 1997, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company accounts for the stock option plans under
APB Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plan been determined pursuant to the provisions of
SFAS No. 123, the Company's pro-forma net earnings for fiscal 1997 and 1996
would have been $48,587 and $43,627, respectively, resulting in earnings per
share of $1.33 and $1.20, respectively. The fair value of each option grant is
estimated on the date of grant using the Black Scholes option pricing model with
the following weighted-average assumptions used for options granted in fiscal
1997 and 1996, respectively: risk-free interest rate of 6.0% and 6.5%, expected
dividend yield of zero, expected lives of 5 years, and expected volatility of
35.8% and 37.0%.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to August 1, 1996, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
UNUSUAL ITEMS -- REORGANIZATION RECOVERIES
Pursuant to the Plan, Zale assigned certain claims and causes of action and
advanced $3.0 million to Jewel Recovery, L.P., a limited partnership ("Jewel
Recovery") which was formed upon Zale's emergence from bankruptcy. The sole
purpose of Jewel Recovery is to prosecute and settle such assigned claims and
causes of action. The general partner of Jewel Recovery is Jewel Recovery, Inc.,
a subsidiary of the Company. Its limited partners are holders of various prior
unsecured claims against Zale. The $3.0 million advance was fully reserved as of
the Effective Date as its collectibility was uncertain.
Jewel Recovery has pursued certain claims and has been awarded significant
recoveries against third parties. During the first quarter of fiscal year 1996,
Zale was notified that it would recover its $3.0 million advance to Jewel
Recovery. The $3.0 million advance was repaid to Zale in December 1995.
Additionally, Shawmut Bank ("Shawmut") was elected as Disbursement Agent
and held all cash and common stock to be used in settlements of creditors
claims. During fiscal 1996, Shawmut provided Zale with information on creditors
whose claim rights have terminated. As a result, during the fiscal year 1996,
Zale recovered cash funds of approximately $1.5 million held by Shawmut related
to cash approved for distribution to pre-confirmation creditors of Zale but not
claimed by such pre-confirmation creditors. The $3.0 million and the $1.5
million recoveries were recorded as unusual items in the Company's first quarter
of fiscal year 1996 and are reflected on the Consolidated Statements of
Operations for the year ended July 31, 1996 and had an after-tax impact of $0.08
per share.
COMMITMENTS AND CONTINGENCIES
The Company is involved in certain other legal actions and claims arising
in the ordinary course of business. Management believes that such litigation and
claims will be resolved without material effect on the Company's financial
position or results of operations.
The Company has an operations services agreement for management information
systems with a third-party servicer. The agreement, which began in December 1996
requires fixed payments totaling $34.4 million over a 60 month term and a
variable amount based on usage.
F-16
<PAGE> 102
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BENEFIT PLANS
PROFIT SHARING PLAN
At July 31, 1997, the Company maintains The Zale Corporation Savings &
Investment Plan. Substantially all employees who are at least age 21 are
eligible to participate in the plan. Each employee can contribute from one
percent to fifteen percent of their annual salary. Under this plan, the Company
will match 50 cents in Zale stock for every dollar an employee contributes up to
two percent of annual earnings. In order for an employee to be eligible for the
Company match, the employee must have worked at least 1,000 hours during the
plan year and be employed on the last day of the plan year.
An employee is 33.3 percent vested in the Zale stock after one year of
service, 66.7 percent vested after two years of service and 100 percent vested
after three years of service. As of July 31, 1997, approximately 6,400 employees
participated in The Zale Corporation Savings & Investment Plan.
Also, under this plan, the Company may make a profit sharing cash
contribution at its sole discretion. To be eligible for such discretionary
profit sharing contributions, an employee must have at least twelve consecutive
months of service, have worked at least 1,000 hours during the plan year and be
employed on the last day of the plan year.
An employee is 20 percent vested in the profit sharing contributions after
three years of service, 40 percent vested after four years of service, 60
percent vested after five years of service, 80 percent vested after six years of
service and 100 percent vested after seven years of service. The Company's
contribution to the plan including matching contributions was $3.5 million, $3.9
million and $3.6 million for fiscal years 1997, 1996 and 1995, respectively.
RETIREMENT PLAN
On September 14, 1995, the Boards of Directors of Zale and ZDel approved
the preparation and implementation of the Zale Delaware, Inc. Supplemental
Executive Retirement Plan (the "Plan"), which was executed on behalf of the
Company February 23, 1996, to be effective as of September 15, 1995. The purpose
of the Plan is to provide eligible executives with the opportunity to receive
payments each year after retirement equal to a portion of their final average
pay as defined.
FINANCIAL INSTRUMENTS
The Company has adopted SFAS No. 107 "Disclosures about Fair Value of
Financial Instruments" which extends existing fair value disclosure practices by
requiring all entities to disclose the fair value of financial instruments, for
which it is practicable to estimate fair value.
As cash and short-term cash investments, customer receivables, trade
payables and certain other short-term financial instruments are all short-term
in nature, their carrying amount approximates fair value. The carrying amount of
the $380.7 million, net of discount, Receivables Securitization Facility also
approximates fair value.
The investments of the Company's insurance subsidiaries, primarily stocks
and bonds in the amount of $25.9 million, approximate market value at July 31,
1997 and are reflected in Other Assets on the Consolidated Balance Sheets.
Investments are classified as available for sale and are carried at fair value.
Changes in unrealized gains and losses are recorded directly to stockholders'
investment.
CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments and customer receivables. The Company maintains
cash and cash equivalents, short and long-term investments and certain other
financial instruments with various financial institutions. These financial
institutions are located throughout the country.
F-17
<PAGE> 103
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to customer receivables are limited
due to the Company's large number of customers and their dispersion across many
regions. As of July 31, 1997 and 1996, the Company had no significant
concentrations of credit risk.
RELATED-PARTY TRANSACTIONS
One of the Company's directors serves as a director of a company from which
the Company purchased approximately $3.4 million and $0.5 million of jewelry
merchandise during fiscal year 1997 and 1996, respectively. The Company believes
the terms were equivalent to those of unrelated parties.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which establishes accounting standards for the impairment of long-lived assets
and goodwill. The adoption of SFAS No. 121 did not have a material impact on the
consolidated financial statement of the Company in fiscal 1997.
In the second quarter of fiscal 1998, the Company will adopt SFAS No. 128,
"Earnings per Share." As a result, the Company's reported earnings per share for
fiscal 1997 and each of the quarter in fiscal 1997 will be restated. Upon the
adoption of SFAS No. 128, basic earnings per common share will be computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per common share will be
computed by dividing net income by the weighted average of common stock and
common stock equivalents outstanding during the period.
Effective July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 requires the Company to report comprehensive
income in the financial statements. SFAS No. 131 requires the Company to
disclose revenues, profits and loss, and assets for certain business segments.
These statements are effective for fiscal years beginning after December 15,
1997, with earlier adoption permitted. The Company has not yet determined the
impact of this statement on its financial disclosures.
F-18
<PAGE> 104
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Notes are guaranteed by ZDel
(the "Guarantor Subsidiary"). Such guarantee is full and unconditional. Separate
financial statements of the Guarantor Subsidiary are not presented because the
Company's management has determined that they would not be material to
investors. The following supplemental financial information sets forth, on an
unconsolidated basis, statements of operations, balance sheets, and statements
of cash flow information for the Company ("Parent Company Only"), for the
Guarantor Subsidiary and for the Company's other subsidiaries (the "Non-
Guarantor Subsidiaries"). The supplemental financial information reflects the
investments of the Company and the Guarantor Subsidiary in the Guarantor and
Non-Guarantor Subsidiaries using the equity method of accounting. Certain
reclassifications have been made to provide for uniform disclosure of all
periods presented. These reclassifications are not material.
F-19
<PAGE> 105
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $ -- $1,233,438 $20,380 $ -- $1,253,818
Cost of Sales..................... -- 633,208 10,110 -- 643,318
------- ---------- ------- -------- ----------
Gross Margin...................... -- 600,230 10,270 -- 610,500
Selling, General, and
Administrative Expenses......... 150 464,843 15,529 -- 480,522
Depreciation and Amortization
Expense......................... -- 12,337 1,685 -- 14,022
------- ---------- ------- -------- ----------
Operating Earnings (Loss)......... (150) 123,050 (6,944) -- 115,956
Interest Expense, Net............. -- 36,098 -- -- 36,098
------- ---------- ------- -------- ----------
Earnings (Loss) Before Income
Taxes........................... (150) 86,952 (6,944) -- 79,858
Income Taxes...................... (64) 37,079 (7,710) -- 29,305
------- ---------- ------- -------- ----------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries........ (86) 49,873 766 -- 50,553
Equity in Earnings of
Subsidiaries.................... 50,639 162 -- (50,801) --
------- ---------- ------- -------- ----------
Net Earnings...................... $50,553 $ 50,035 $ 766 $(50,801) $ 50,553
======= ========== ======= ======== ==========
</TABLE>
F-20
<PAGE> 106
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
COMPANY GUARANTOR GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales........................... $ -- $1,119,047 $18,330 $ -- $1,137,377
Cost of Sales....................... -- 567,856 8,908 -- 576,764
------- ---------- ------- -------- ----------
Gross Margin........................ -- 551,191 9,422 -- 560,613
Selling, General, and Administrative
Expenses.......................... 151 436,855 20,365 -- 457,371
Depreciation and Amortization
Expense........................... -- 6,521 1,017 -- 7,538
Unusual Items -- Reorganization
Recoveries........................ -- (1,486) (3,000) -- (4,486)
------- ---------- ------- -------- ----------
Operating Earnings (Loss)........... (151) 109,301 (8,960) -- 100,190
Interest Expense, Net............... -- 30,102 -- -- 30,102
------- ---------- ------- -------- ----------
Earnings (Loss) Before Income Taxes
and Extraordinary Item............ (151) 79,199 (8,960) -- 70,088
Income Taxes........................ (53) 28,816 (3,669) -- 25,094
------- ---------- ------- -------- ----------
Earnings (Loss) Before Extraordinary
Item.............................. (98) 50,383 (5,291) -- 44,994
Extraordinary Item, Net of Income
Taxes of $(603)................... -- (1,096) -- -- (1,096)
------- ---------- ------- -------- ----------
Earnings (Loss) Before Equity in
Earnings (Loss) of Subsidiaries... (98) 49,287 (5,291) -- 43,898
Equity in Earnings (Loss) of
Subsidiaries...................... 43,996 (7,329) -- (36,667) --
------- ---------- ------- -------- ----------
Net Earnings (Loss)................. $43,898 $ 41,958 $(5,291) $(36,667) $ 43,898
======= ========== ======= ======== ==========
</TABLE>
F-21
<PAGE> 107
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT NON-
COMPANY GUARANTOR GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales.......................... $ -- $1,019,748 $ 16,401 $ -- $1,036,149
Cost of Sales...................... -- 516,202 7,808 -- 524,010
------- ---------- ---------- -------- ----------
Gross Margin....................... -- 503,546 8,593 -- 512,139
Selling, General, and
Administrative Expenses.......... 157 412,817 21,127 -- 434,101
Depreciation and Amortization
Expense (Credit)................. -- (366) 747 -- 381
------- ---------- ---------- -------- ----------
Operating Earnings (Loss).......... (157) 91,095 (13,281) -- 77,657
Interest Expense, Net.............. -- 29,806 31 -- 29,837
------- ---------- ---------- -------- ----------
Earnings (Loss) Before Income
Taxes............................ (157) 61,289 (13,312) -- 47,820
Income Taxes....................... (59) 22,901 (6,492) -- 16,350
------- ---------- ---------- -------- ----------
Earnings (Loss) Before Equity in
Earnings (Loss) of
Subsidiaries..................... (98) 38,388 (6,820) -- 31,470
Equity in Earnings (Loss) of
Subsidiaries..................... 31,568 (6,952) -- (24,616) --
------- ---------- ---------- -------- ----------
Net Earnings (Loss)................ $31,470 $ 31,436 $ (6,820) $(24,616) $ 31,470
======= ========== ========== ======== ==========
</TABLE>
F-22
<PAGE> 108
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1997
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents..... $ -- $ 35,102 $ 6,534 $ -- $ 41,636
Customer Receivables, Net..... -- 454,270 -- -- 454,270
Merchandise Inventories....... -- 503,764 7,938 -- 511,702
Intercompany Receivable....... -- 13,581 -- (13,581) --
Other Current Assets.......... -- 38,901 370 -- 39,271
-------- ---------- ------- --------- ----------
Total Current
Assets.............. -- 1,045,618 14,842 (13,581) 1,046,879
Investment in Subsidiaries.... 543,686 9,052 -- (552,738) --
Property and Equipment, Net... -- 134,175 3,836 -- 138,011
Other Assets.................. -- 11,145 32,471 -- 43,616
Deferred Tax Asset, Net....... 59 52,641 -- -- 52,700
-------- ---------- ------- --------- ----------
Total Assets.......... $543,745 $1,252,631 $51,149 $(566,319) $1,281,206
======== ========== ======= ========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term
Debt....................... $ -- $ 328 $ -- $ -- $ 328
Intercompany Payable.......... 1,384 -- 12,197 (13,581) --
Accounts Payable and Accrued
Liabilities................ 141 136,454 9,126 -- 145,721
Deferred Tax Liability, Net... 646 23,054 -- -- 23,700
-------- ---------- ------- --------- ----------
Total Current
Liabilities......... 2,171 159,836 21,323 (13,581) 169,749
Non-current Liabilities....... -- 40,615 12,929 -- 53,544
Long-term Debt................ -- 451,459 -- -- 451,459
Excess of Revalued Net Assets
Over Stockholders'
Investment, Net............ -- 64,880 -- -- 64,880
Total Stockholders'
Investment.......... 541,574 535,841 16,897 (552,738) 541,574
-------- ---------- ------- --------- ----------
Total Liabilities and
Stockholders'
Investment.......... $543,745 $1,252,631 $51,149 $(566,319) $1,281,206
======== ========== ======= ========= ==========
</TABLE>
F-23
<PAGE> 109
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1996
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents...... $ -- $ 38,226 $11,820 $ -- $ 50,046
Customer Receivables, Net...... -- 419,877 -- -- 419,877
Merchandise Inventories........ -- 449,288 8,574 -- 457,862
Intercompany Receivable........ -- 15,962 -- (15,962) --
Other Current Assets........... 54 25,296 185 -- 25,535
-------- ---------- ------- --------- ----------
Total Current Assets... 54 948,649 20,579 (15,962) 953,320
Investment in Subsidiaries..... 479,766 22,646 -- (502,412) --
Property and Equipment, Net.... -- 101,810 6,444 -- 108,254
Other Assets................... -- 13,328 32,409 -- 45,737
Deferred Tax Asset, Net........ 59 56,441 -- -- 56,500
-------- ---------- ------- --------- ----------
Total Assets........... $479,879 $1,142,874 $59,432 $(518,374) $1,163,811
======== ========== ======= ========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term
Debt........................ $ -- $ 26 $ -- $ -- $ 26
Intercompany Payable........... 2,975 -- 12,987 (15,962) --
Accounts Payable and Accrued
Liabilities................. -- 143,036 2,758 -- 145,794
Deferred Tax Liability, Net.... 646 31,354 -- -- 32,000
-------- ---------- ------- --------- ----------
Total Current
Liabilities.......... 3,621 174,416 15,745 (15,962) 177,820
Non-current Liabilities........ -- 20,825 13,802 -- 34,627
Long-term Debt................. -- 404,328 -- -- 404,328
Excess of Revalued Net Assets
Over Stockholders'
Investment, Net............. -- 70,778 -- -- 70,778
Total Stockholders'
Investment........... 476,258 472,527 29,885 (502,412) 476,258
-------- ---------- ------- --------- ----------
Total Liabilities and
Stockholders'
Investment........... $479,879 $1,142,874 $59,432 $(518,374) $1,163,811
======== ========== ======= ========= ==========
</TABLE>
F-24
<PAGE> 110
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities........... $ (314) $ 2,178 $ 4,999 $(12,895) $ (6,032)
Net Cash Flows from Investing
Activities:
Additions to property and
equipment...................... -- (54,025) -- -- (54,025)
Dispositions of property and
equipment...................... -- 2,277 2,610 -- 4,887
------ -------- ------- -------- --------
Net Cash Provided by (Used in)
Investing Activities........... -- (51,748) 2,610 -- (49,138)
------ -------- ------- -------- --------
Net Cash Flows from Financing
Activities:
Proceeds from long-term debt..... -- 291 -- -- 291
Net borrowings under revolving
credit agreement............... -- 47,100 -- -- 47,100
Debt issue and capitalized
financing costs................ -- (945) -- -- (945)
Proceeds from exercise of stock
options........................ 1,073 -- -- -- 1,073
Purchase of treasury stock....... (759) -- -- -- (759)
Dividends paid................... -- -- (12,895) 12,895 --
------ -------- ------- -------- --------
Net Cash Provided by Financing
Activities..................... 314 46,446 (12,895) 12,895 46,760
------ -------- ------- -------- --------
Net Decrease in Cash and Cash
Equivalents.................... -- (3,124) (5,286) -- (8,410)
Cash and Cash Equivalents at
Beginning of Period............ -- 38,226 11,820 -- 50,046
------ -------- ------- -------- --------
Cash and Cash Equivalents at End
of Period...................... $ -- $ 35,102 $ 6,534 $ -- $ 41,636
====== ======== ======= ======== ========
</TABLE>
F-25
<PAGE> 111
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities................ $ 8,937 $ (12,799) $14,508 $(12,049) $ (1,403)
Net Cash Flows from Investing
Activities:
Additions to property and equipment... -- (48,102) (688) -- (48,790)
Dispositions of property and
equipment........................... -- 829 -- -- 829
Acquisition, net of cash acquired..... -- (2,547) -- -- (2,547)
Other................................. 34 (408) 34 -- (340)
------- --------- ------- -------- ---------
Net Cash Provided by (Used in)
Investing Activities................ 34 (50,228) (654) -- (50,848)
------- --------- ------- -------- ---------
Net Cash Flows from Financing
Activities:
Payments on long-term debt............ -- (66,608) -- -- (66,608)
Net borrowings under revolving credit
agreement........................... -- 23,600 -- -- 23,600
Redemption of Series B Warrants....... (9,264) -- -- -- (9,264)
Prepayment penalty.................... (1,699) -- -- -- (1,699)
Debt issue and capitalized financing
costs............................... -- (629) -- -- (629)
Proceeds from exercise of stock
options and warrants................ 1,992 -- -- -- 1,992
Dividends paid........................ -- -- (12,049) 12,049 --
------- --------- ------- -------- ---------
Net Cash Used In Financing
Activities.......................... (8,971) (43,637) (12,049) 12,049 (52,608)
------- --------- ------- -------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents.................... -- (106,664) 1,805 -- (104,859)
Cash and Cash Equivalents at Beginning
of Period........................... -- 144,890 10,015 -- 154,905
------- --------- ------- -------- ---------
Cash and Cash Equivalents at End of
Period.............................. $ -- $ 38,226 $11,820 $ -- $ 50,046
======= ========= ======= ======== =========
</TABLE>
F-26
<PAGE> 112
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR ELIMINATIONS CONSOLIDATED
------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating
Activities................................. $(171) $ 39,290 $ 8,675 $(1,890) $ 45,904
Net Cash Flows from Investing Activities:
Additions to property and equipment.......... -- (40,063) (2,232) -- (42,295)
Dispositions of property and equipment....... -- 1,987 -- -- 1,987
Other........................................ -- (205) -- -- (205)
----- -------- ------- ------- --------
Net Cash Used in Investing Activities........ -- (38,281) (2,232) -- (40,513)
----- -------- ------- ------- --------
Net Cash Flows from Financing Activities:
Payments on long-term debt................... -- (3,896) -- -- (3,896)
Debt issue and capitalized financing costs... -- (461) -- -- (461)
Proceeds from exercise of stock options and
warrants................................... 171 -- -- -- 171
Dividends paid............................... -- -- (1,890) 1,890 --
----- -------- ------- ------- --------
Net Cash Provided by (Used in) Financing
Activities................................. 171 (4,357) (1,890) 1,890 (4,186)
----- -------- ------- ------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents................................ -- (3,348) 4,553 -- 1,205
Cash and Cash Equivalents at Beginning of
Period..................................... -- 148,238 5,462 -- 153,700
----- -------- ------- ------- --------
Cash and Cash Equivalents at End of Period... $ -- $144,890 $10,015 $ -- $154,905
===== ======== ======= ======= ========
</TABLE>
SUBSEQUENT EVENT
On September 3, 1997, the Company signed a purchase agreement to sell the
majority of the assets of its Diamond Park Division (the "Diamond Park Asset
Sale"). The Diamond Park Division, which manages leased fine jewelry departments
in major department store chains including Marshall Field's, Dillard's,
Mercantile and Parisian, had net sales of $125.3 million in fiscal 1997. At July
31, 1997, inventory and net property and equipment of the Diamond Park Division
were $54.5 million and $4.0 million, respectively. In connection with the
Diamond Park Asset Sale, the Company will receive cash consideration totaling
approximately $63 million. The Company will continue to operate in Dillard's
stores through January 1998, the end of the current license period, at which
time the remaining inventory of such operations will be sold to the purchaser.
The Company intends to reinvest the net proceeds from the Diamond Park Asset
Sale into the Company's operations. The closing of the Diamond Park Asset Sale
is subject to regulatory approval and customary closing conditions and is
expected to occur on or about October 6, 1997.
EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On September 23, 1997, the Company sold $100 million in aggregate principal
amount of 8 1/2% Senior Notes due 2007. All proceeds from the sale of the Senior
Notes were used by the Company to repay outstanding indebtedness under its
revolving credit agreement and for general corporate purposes.
On October 6, 1997, the Company closed the Diamond Park Asset Sale for
approximately $63 million. The Company received $58 million in October 1997 with
the remaining balance payable in January 1998, at
F-27
<PAGE> 113
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED) -- (CONTINUED)
which time the remaining inventory of the Dillard's stores will be sold to the
purchaser. The net proceeds from the Diamond Park Asset Sale are being
reinvested into the Company's operations.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for the years ended July 31, 1997
and 1996 were as follows (amounts in thousands except per share data):
<TABLE>
<CAPTION>
FISCAL 1997
FOR THE THREE MONTHS ENDED
---------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1997 1997 1997 1996
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.............................. $273,580 $244,376 $505,083 $230,779
Gross margin........................... 132,271 119,182 248,312 110,735
Net earnings (loss).................... 1,620 (1,444) 51,515 (1,138)
Net earnings (loss) per primary common
share................................ 0.04 (0.04) 1.41 (0.03)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
FOR THE THREE MONTHS ENDED
---------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1996 1996 1996 1995
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.............................. $248,858 $222,283 $451,962 $214,274
Gross margin........................... 122,760 107,797 225,952 104,104
Net earnings (loss).................... 12 (2,439) 46,234 91
Net earnings (loss) per primary common
share................................ 0.00 (0.07) 1.27 0.00
</TABLE>
F-28
<PAGE> 114
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE GUARANTOR. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
GUARANTOR SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 3
Incorporation of Certain Documents by
Reference............................ 3
Cautionary Notice Regarding Forward-
Looking Statements................... 4
Summary................................ 5
Risk Factors........................... 15
The Exchange Offer..................... 20
Use of Proceeds........................ 27
Capitalization......................... 28
Selected Consolidated Financial Data... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 31
Business............................... 36
Management............................. 44
Description of Certain Indebtedness.... 48
Description of the Notes............... 51
Certain Federal Income Tax
Considerations....................... 81
Plan of Distribution................... 81
Legal Matters.......................... 82
Experts................................ 82
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
======================================================
======================================================
$100,000,000
LOGO
ZALE CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
8 1/2% SERIES A SENIOR NOTES DUE 2007
FOR
8 1/2% SERIES B SENIOR NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
, 1997
======================================================
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The provisions of the Delaware General Corporation Law (the "DGCL") and the
Registrant's Certificate of Incorporation set forth the extent to which the
Registrant's directors and officers may be indemnified against liabilities they
may incur while serving in such capacities. Section 145 of Title 8 of the DGCL
gives a corporation power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
same Section also gives a corporation power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. Also, the Section states that, to the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any such action, suit or
proceeding, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Article Seven of the Certificate of Incorporation of both the Company and
the Guarantor provides:
(a) A director of the Corporation shall not be personally liable either to
the Corporation or any stockholder for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, or (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of the
law, or (iii) for any matter in respect of which such director shall be liable
under Section 174 of Title 8 of the General Corporation Law of the State of
Delaware or any amendment thereto or successor provision thereto, or (iv) for
any transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption of
any provision of the Certificate of Incorporation inconsistent with this
paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in any
respect of any matter occurring, or any cause of action, suit or claim that, but
for this paragraph (a) of this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, by reason of (i) the fact that such person is or was a
director, officer, employee or agent of the Corporation at any time after the
Commencement Time (as defined below), or is or was serving at any time after the
Commencement Time at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other
II-1
<PAGE> 116
enterprise and (ii) any acts or omissions by such person in such capacity that
occurred after the Commencement Time, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, so long as such person acted or omitted to act
in good faith and in a manner that such person (x) reasonably believed to be in
or not opposed to the best interests of the Corporation and (y) with respect to
any criminal action or proceeding, had reasonable cause to believe was lawful;
provided, however, that if a court of competent jurisdiction, after exhaustion
of all appeals therefrom, adjudges such person to be liable to the Corporation
for any amount or if such person pays an amount in settlement to the
Corporation, the Corporation may indemnify such person for such amount only with
the approval of such court. The Corporation may adopt Bylaws or enter into
agreements with any such person for the purpose of providing such
indemnification. "Commencement Time" means 8:00 a.m., C.S.T., on July 21, 1993.
The Company maintains an insurance policy insuring the Company and
directors and officers of the Company against certain liabilities, including
liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.1 -- Indenture dated September 30, 1997 by and among the
Company, the Guarantor and Bank One, N.A., as Trustee.
4.2 -- Purchase Agreement dated September 23, 1997 by and among
the Company, the Guarantor and the Initial Purchasers.
4.3 -- Form of 8 1/2% Series A Senior Note due 2007 (included in
Exhibit 4.1 hereto).
4.4 -- Registration Rights Agreement dated September 30, 1997 by
and between the Company, the Guarantor and the Initial
Purchasers.
4.6 -- Form of 8 1/2% Series B Senior Note due 2007 (included in
Exhibit 4.1 hereto).
4.7 -- Form of Guarantee (included in Exhibit 4.1 hereto).
*5.1 -- Opinion of Troutman Sanders LLP.
*8.1 -- Opinion of Troutman Sanders LLP as to certain tax
matters.
12.1 -- Statement regarding Ratio of Earnings to Fixed Charges.
*23.1 -- Consent of Troutman Sanders LLP (Included in Exhibits 5.1
and 8.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Power of Attorney (included on the signature pages in
Part II of this Registration Statement).
*25.1 -- Statement of Eligibility of the Trustee under the
Indenture filed as Exhibit 4.1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
II-2
<PAGE> 117
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(a) For purposes of determining any liability under the Securities Act of
1933, each filing of the Company's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day after receipt of
such request, and to send the incorporation documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on the 3rd day of November 1997.
ZALE CORPORATION
By: /s/ ROBERT J. DINICOLA
-----------------------------------
Robert J. DiNicola
Chairman of the Board and
Chief Executive Officer
By: /s/ LOUIS J. GRABOWSKY
-----------------------------------
Louis J. Grabowsky
Executive Vice President
and Chief Financial Officer
Each person whose signature to this Registration Statement appears below
appoints Robert J. DiNicola, Louis J. Grabowsky and Alan P. Shor, and each of
them, any one of whom may act without the joinder of the other, as his agent and
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement (and, in addition, any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, for the offering to which
this Registration Statement relates), which amendments may make such changes in
and additions to this Registration Statement as such agent and attorney-in-fact
may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. DINICOLA Chairman of the Board of November 3, 1997
- ----------------------------------------------------- Directors, Chief
Robert J. DiNicola Executive Officer,
and Director
/s/ LOUIS J. GRABOWSKY Executive Vice President November 3, 1997
- ----------------------------------------------------- and Chief Financial
Louis J. Grabowsky Officer
/s/ MARK R. LENZ Vice President and November 3, 1997
- ----------------------------------------------------- Controller
Mark R. Lenz
/s/ GLEN ADAMS Director October 31, 1997
- -----------------------------------------------------
Glen Adams
/s/ A. DAVID BROWN Director October 31, 1997
- -----------------------------------------------------
A. David Brown
</TABLE>
II-4
<PAGE> 119
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER P. COPSES Director November 3, 1997
- -----------------------------------------------------
Peter P. Copses
/s/ ANDREA JUNG Director November 3, 1997
- -----------------------------------------------------
Andrea Jung
/s/ RICHARD C. MARCUS Director November 3, 1997
- -----------------------------------------------------
Richard C. Marcus
/s/ CHARLES H. PISTOR, JR. Director October 31, 1997
- -----------------------------------------------------
Charles H. Pistor, Jr.
/s/ ANDREW H. TISCH Director October 31, 1997
- -----------------------------------------------------
Andrew H. Tisch
</TABLE>
II-5
<PAGE> 120
Pursuant to the requirements of the Securities Act of 1933, the Guarantor
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on the 3rd day of November 1997.
ZALE DELAWARE, INC.
By: /s/ ROBERT J. DINICOLA
-----------------------------------
Robert J. DiNicola
Chairman of the Board and
Chief Executive Officer
By: /s/ LOUIS J. GRABOWSKY
-----------------------------------
Louis J. Grabowsky
Executive Vice President
and Chief Financial Officer
Each person whose signature to this Registration Statement appears below
appoints Robert J. DiNicola, Louis J. Grabowsky and Alan P. Shor, and each of
them, any one of whom may act without the joinder of the other, as his agent and
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement (and, in addition, any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, for the offering to which
this Registration Statement relates), which amendments may make such changes in
and additions to this Registration Statement as such agent and attorney-in-fact
may deem necessary and appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. DINICOLA Chairman of the Board of November 3, 1997
- ----------------------------------------------------- Directors, Chief
Robert J. DiNicola Executive Officer,
and Director
/s/ LOUIS J. GRABOWSKY Executive Vice President November 3, 1997
- ----------------------------------------------------- and Chief Financial
Louis J. Grabowsky Officer
/s/ MARK R. LENZ Vice President and November 3, 1997
- ----------------------------------------------------- Controller
Mark R. Lenz
/s/ GLEN ADAMS Director October 31, 1997
- -----------------------------------------------------
Glen Adams
/s/ A. DAVID BROWN Director October 31, 1997
- -----------------------------------------------------
A. David Brown
/s/ PETER P. COPSES Director November 3, 1997
- -----------------------------------------------------
Peter P. Copses
</TABLE>
II-6
<PAGE> 121
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREA JUNG Director November 3, 1997
- -----------------------------------------------------
Andrea Jung
/s/ RICHARD C. MARCUS Director November 3, 1997
- -----------------------------------------------------
Richard C. Marcus
/s/ CHARLES H. PISTOR, JR. Director October 31, 1997
- -----------------------------------------------------
Charles H. Pistor, Jr.
/s/ ANDREW H. TISCH Director November 3, 1997
- -----------------------------------------------------
Andrew H. Tisch
</TABLE>
II-7
<PAGE> 122
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S> <C>
4.1 -- Indenture dated September 30, 1997 by and among the
Company, the Guarantor and Bank One, N.A., as Trustee.
4.2 -- Purchase Agreement dated September 23, 1997 by and among
the Company, the Guarantor and the Initial Purchasers.
4.3 -- Form of 8 1/2% Series A Senior Note due 2007 (included in
Exhibit 4.1 hereto).
4.4 -- Registration Rights Agreement dated September 30, 1997 by
and between the Company, the Guarantor and the Initial
Purchasers.
4.6 -- Form of 8 1/2% Series B Senior Note due 2007 (included in
Exhibit 4.1 hereto).
4.7 -- Form of Guarantee (included in Exhibit 4.1 hereto).
*5.1 -- Opinion of Troutman Sanders LLP.
*8.1 -- Opinion of Troutman Sanders LLP as to certain tax
matters.
12.1 -- Statement regarding Ratio of Earnings to Fixed Charges.
*23.1 -- Consent of Troutman Sanders LLP (Included in Exhibits 5.1
and 8.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Power of Attorney (included on the signature pages in
Part II of this Registration Statement).
*25.1 -- Statement of Eligibility of the Trustee under the
Indenture filed as Exhibit 4.1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.1
ZALE CORPORATION, AS ISSUER,
ZALE DELAWARE, INC., AS GUARANTOR, AND
BANK ONE, N.A., AS TRUSTEE
________________
INDENTURE
DATED AS OF SEPTEMBER 30, 1997
UP TO $125,000,000
8 1/2% SENIOR NOTES DUE 2007
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of September 30, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608, 610
Section 311 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 312 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
Section 313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Section 314 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1019
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103, 104, 404, 1201
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103, 104, 404, 1201
(d). . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. Not Applicable
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 315 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601(b)
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601(a)
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601(c), 603
(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
Section 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . 101 ("Outstanding")
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . 502, 512
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1003
Section 318 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<TABLE>
<S> <C> <C>
Section 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Accounts Receivable Subsidiary". . . . . . . . . . . . . . . . 2
"Acquired Indebtedness" . . . . . . . . . . . . . . . . . . . . 2
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Asset Acquisition" . . . . . . . . . . . . . . . . . . . . . . 3
"Asset Sale" . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Average Life to Stated Maturity" . . . . . . . . . . . . . 4
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . 4
"Board of Directors". . . . . . . . . . . . . . . . . . . . . . 4
"Board Resolution" . . . . . . . . . . . . . . . . . . . . . . 4
"Book-Entry Security" . . . . . . . . . . . . . . . . . . . . . 4
"Business Day" . . . . . . . . . . . . . . . . . . . . . . . . 4
"Capital Stock" . . . . . . . . . . . . . . . . . . . . . . . . 5
"Capitalized Lease Obligation". . . . . . . . . . . . . . . . . 5
"Cash Equivalents". . . . . . . . . . . . . . . . . . . . . . . 5
"Change of Control" . . . . . . . . . . . . . . . . . . . . . . 5
"Change of Control Triggering Event". . . . . . . . . . . . . . 6
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Commodity Price Protection Agreement" . . . . . . . . . . . . 6
"Common Stock". . . . . . . . . . . . . . . . . . . . . . . . . 6
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Company Request" or "Company Order" . . . . . . . . . . . . . 7
"Consolidated Cash Flow Available for Fixed Charges" . . . . . 7
"Consolidated Fixed Charge Coverage Ratio". . . . . . . . . . . 7
"Consolidated Fixed Charges". . . . . . . . . . . . . . . . . . 8
"Consolidated Income Tax Expense" . . . . . . . . . . . . . . . 8
"Consolidated Interest Expense" . . . . . . . . . . . . . . . . 8
"Consolidated Net Income" . . . . . . . . . . . . . . . . . . . 9
"Consolidated Non-cash Charges" . . . . . . . . . . . . . . . . 9
"Consolidation" . . . . . . . . . . . . . . . . . . . . . . . . 9
"Corporate Trust Office" . . . . . . . . . . . . . . . . . . . 10
</TABLE>
(i)
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Credit Facility" . . . . . . . . . . . . . . . . . . . . . . . 10
"Currency Agreement". . . . . . . . . . . . . . . . . . . . . . 10
"Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Depositary" . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Disinterested Director". . . . . . . . . . . . . . . . . . . . 10
"Exchange Act". . . . . . . . . . . . . . . . . . . . . . . . . 10
"Exchange Offer". . . . . . . . . . . . . . . . . . . . . . . . 10
"Exchange Offer Registration Statement" . . . . . . . . . . . . 10
"Excluded Assets" . . . . . . . . . . . . . . . . . . . . . . . 11
"Fair Market Value" . . . . . . . . . . . . . . . . . . . . . . 11
"GAAP" or "Generally Accepted Accounting
Principles". . . . . . . . . . . . . . . . . . . . . . . . . 11
"Global Securities" . . . . . . . . . . . . . . . . . . . . . . 11
"Guarantee" . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"guarantee" . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Guarantor" . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Holder". . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Indebtedness". . . . . . . . . . . . . . . . . . . . . . . . . 12
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Indenture Obligations" . . . . . . . . . . . . . . . . . . . . 13
"Initial Securities". . . . . . . . . . . . . . . . . . . . . . 13
"Initial Purchasers" . . . . . . . . . . . . . . . . . . . . . 13
"Interest Payment Date" . . . . . . . . . . . . . . . . . . . . 13
"Interest Rate Protection Obligations". . . . . . . . . . . . . 13
"Investment". . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Investment Grade Rating" . . . . . . . . . . . . . . . . . . . 14
"Issue Date" . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Lien". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Material Subsidiary" . . . . . . . . . . . . . . . . . . . . . 14
"Maturity". . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Moody's" . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Net Cash Proceeds" . . . . . . . . . . . . . . . . . . . . . . 14
"Non-U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . 15
"Non-U.S. Subsidiaries" . . . . . . . . . . . . . . . . . . . . 15
"Officers' Certificate" . . . . . . . . . . . . . . . . . . . . 15
"Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . 15
"Opinion of Independent Counsel". . . . . . . . . . . . . . . . 15
"Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Pari Passu Indebtedness" . . . . . . . . . . . . . . . . . . . 16
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . 16
"Permitted Investment". . . . . . . . . . . . . . . . . . . . . 16
"Permitted Liens" . . . . . . . . . . . . . . . . . . . . . . . 17
"Person". . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Predecessor Security". . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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"Preferred Stock" . . . . . . . . . . . . . . . . . . . . . . . 19
"Prospectus". . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Public Equity Offering". . . . . . . . . . . . . . . . . . . . 19
"Purchase Money Indebtedness" . . . . . . . . . . . . . . . . . 19
"QIB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Rating Agencies" . . . . . . . . . . . . . . . . . . . . . . . 20
"Rating Category" . . . . . . . . . . . . . . . . . . . . . . . 20
"Rating Date" . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Rating Decline" . . . . . . . . . . . . . . . . . . . . . . . 20
"Redeemable Capital Stock" . . . . . . . . . . . . . . . . . . 21
"Redemption Date" . . . . . . . . . . . . . . . . . . . . . . . 21
"Redemption Price". . . . . . . . . . . . . . . . . . . . . . . 21
"Refinance" . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Registration Rights Agreement" . . . . . . . . . . . . . . . . 21
"Registration Statement". . . . . . . . . . . . . . . . . . . . 21
"Regular Record Date" . . . . . . . . . . . . . . . . . . . . . 21
"Regulation S Global Securities". . . . . . . . . . . . . . . . 21
"Responsible Officer" . . . . . . . . . . . . . . . . . . . . . 22
"Restricted Subsidiary" . . . . . . . . . . . . . . . . . . . . 22
"Rule 144A Global Security" . . . . . . . . . . . . . . . . . . 22
"Sale and Leaseback Transaction". . . . . . . . . . . . . . . . 22
"S&P" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Securities Act". . . . . . . . . . . . . . . . . . . . . . . . 22
"Senior Guarantor Indebtedness" . . . . . . . . . . . . . . . . 22
"Senior Indebtedness" . . . . . . . . . . . . . . . . . . . . . 22
"Shelf Registration Statement". . . . . . . . . . . . . . . . . 22
"Special Record Date" . . . . . . . . . . . . . . . . . . . . . 23
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . 23
"Subordinated Indebtedness" . . . . . . . . . . . . . . . . . . 23
"Subsidiary". . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Trust Indenture Act" . . . . . . . . . . . . . . . . . . . . . 23
"Unrestricted Subsidiary" . . . . . . . . . . . . . . . . . . . 23
"Voting Stock". . . . . . . . . . . . . . . . . . . . . . . . . 23
"Wholly-Owned Restricted Subsidiary". . . . . . . . . . . . . . 24
Section 102. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . 24
Section 103. Compliance Certificates and Opinions. . . . . . . . . . . . . . 25
Section 104. Form of Documents Delivered to Trustee. . . . . . . . . . . . . 26
Section 105. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . 27
Section 106. Notices, etc., to the Trustee, the Company and any
Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 107. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . 29
Section 108. Conflict with Trust Indenture Act.. . . . . . . . . . . . . . . 29
Section 109. Effect of Headings and Table of Contents. . . . . . . . . . . . 30
</TABLE>
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Section 110. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 30
Section 111. Separability Clause . . . . . . . . . . . . . . . . . . . . . . 30
Section 112. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . 30
Section 113. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 114. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 115. Independence of Covenants . . . . . . . . . . . . . . . . . . . 31
Section 116. Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . 31
Section 117. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 202. Form of Face of Security. . . . . . . . . . . . . . . . . . . . 32
Section 203. Form of Reverse of Securities . . . . . . . . . . . . . . . . . 42
Section 204. Form of Trustee's Certificate of Authentication . . . . . . . . 50
Section 205. Form of Guarantee of any Guarantor. . . . . . . . . . . . . . . 52
Section 206. Form of Option of Holder to Elect Purchase. . . . . . . . . . . 52
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 303. Execution, Authentication, Delivery and Dating. . . . . . . . . 55
Section 304. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . 57
Section 305. Registration, Registration of Transfer
and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 306. Book-Entry Provisions for U.S. Global Security. . . . . . . . . 59
Section 307. Special Transfer Provisions . . . . . . . . . . . . . . . . . . 61
Section 308. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . . . 64
Section 309. Payment of Interest; Interest Rights Preserved. . . . . . . . . 65
Section 310. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 311. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . 66
Section 312. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 313. Computation of Interest . . . . . . . . . . . . . . . . . . . . 67
ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant Defeasance. . 67
</TABLE>
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Section 402. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . 67
Section 403. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . 68
Section 404. Conditions to Defeasance or Covenant Defeasance . . . . . . . . 69
Section 405. Deposited Money and U.S. Government
Obligations to Be Held in Trust; Other
Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . 71
Section 406. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE FIVE
REMEDIES
Section 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 72
Section 502. Acceleration of Maturity; Rescission and
Annulment . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . . . . . . 75
Section 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . 76
Section 505. Trustee May Enforce Claims without Possession of
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 506. Application of Money Collected. . . . . . . . . . . . . . . . . 77
Section 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . 78
Section 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest . . . . . . . . . . . . . . . 79
Section 509. Restoration of Rights and Remedies. . . . . . . . . . . . . . . 79
Section 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . 79
Section 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . 79
Section 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . . . 80
Section 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . 80
Section 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . 80
Section 515. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . 81
Section 516. Remedies Subject to Applicable Law. . . . . . . . . . . . . . . 81
ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . 81
Section 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . 83
Section 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . 83
Section 604. Trustee Not Responsible for Recitals, Dispositions
of Securities or Application of Proceeds Thereof. . . . . . . 85
Section 605. Trustee and Agents May Hold Securities;
Collections; etc. . . . . . . . . . . . . . . . . . . . . . . 85
Section 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . 85
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Section 607. Compensation and Indemnification of Trustee and
Its Prior Claim . . . . . . . . . . . . . . . . . . . . . . . 85
Section 608. Conflicting Interests . . . . . . . . . . . . . . . . . . . . . 86
Section 609. Trustee Eligibility . . . . . . . . . . . . . . . . . . . . . . 86
Section 610. Resignation and Removal; Appointment of
Successor Trustee . . . . . . . . . . . . . . . . . . . . . . 87
Section 611. Acceptance of Appointment by Successor. . . . . . . . . . . . . 88
Section 612. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 613. Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses
of Holders . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 702. Disclosure of Names and Addresses of Holders. . . . . . . . . . 91
Section 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . 91
Section 704. Reports by Company and Guarantors . . . . . . . . . . . . . . . 91
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company and Guarantors May Consolidate, etc.,
Only on Certain Terms . . . . . . . . . . . . . . . . . . . . 92
Section 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without
Consent of Holders . . . . . . . . . . . . . . . . . . . . . 94
Section 902. Supplemental Indentures and Agreements with
Consent of Holders. . . . . . . . . . . . . . . . . . . . . . 95
Section 903. Execution of Supplemental Indentures and
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . 97
Section 905. Conformity with Trust Indenture Act.. . . . . . . . . . . . . . 98
Section 906. Reference in Securities to Supplemental Indentures. . . . . . . 98
Section 907. Notice of Supplemental Indentures. . .. . . . . . . . . . . . . 98
Section 908. Revocation and Effect of Consents. . .. . . . . . . . . . . . . 98
</TABLE>
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ARTICLE TEN
COVENANTS
<TABLE>
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Section 1001. Payment of Principal, Premium and Interest. . . . . . . . . . . 99
Section 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . 99
Section 1003. Money for Security Payments to Be Held in Trust . . . . . . . . 99
Section 1004. Corporate Existence . . . . . . . . . . . . . . . . . . . . . 101
Section 1005. Payment of Taxes and Other Claims . . . . . . . . . . . . . . 101
Section 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . . 102
Section 1007. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 1008. Limitation on Indebtedness. . . . . . . . . . . . . . . . . . 102
Section 1009. Limitation on Restricted Payments . . . . . . . . . . . . . . 105
Section 1010. Limitation on Transactions with Affiliates. . . . . . . . . . 109
Section 1011. Disposition of Proceeds of Asset Sales. . . . . . . . . . . . 110
Section 1012. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 115
Section 1013. Limitation on Guarantees by Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 116
Section 1014. Purchase of Securities upon a Change of Control
Triggering Even . . . . . . . . . . . . . . . . . . . . . . 117
Section 1015. Restrictions on Preferred Stock of Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 121
Section 1016. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries. . . . . . . 121
Section 1017. Limitation on Designations of Unrestricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 122
Section 1018. Reporting Requirements. . . . . . . . . . . . . . . . . . . . 124
Section 1019. Statement by Officers as to Default . . . . . . . . . . . . . 125
Section 1020. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . 125
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption. . . . . . . . . . . . . . . . . . . . . 126
Section 1102. Applicability of Article. . . . . . . . . . . . . . . . . . . 126
Section 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . 126
Section 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . 127
Section 1105. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . 127
Section 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . 128
Section 1107. Securities Payable on Redemption Date . . . . . . . . . . . . 128
Section 1108. Securities Redeemed or Purchased in Part. . . . . . . . . . . 129
</TABLE>
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ARTICLE TWELVE
SATISFACTION AND DISCHARGE
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Section 1201. Satisfaction and Discharge of Indenture.. . . . . . . . . . . 130
Section 1202. Application of Trust Money. . . . . . . . . . . . . . . . . . 131
ARTICLE THIRTEEN
GUARANTEES
Section 1301. Guarantor's Guarantee . . . . . . . . . . . . . . . . . . . . 131
Section 1302. Continuing Guarantee; No Right of Set-Off;
Independent Obligation. . . . . . . . . . . . . . . . . . . 132
Section 1303. Guarantee Absolute. . . . . . . . . . . . . . . . . . . . . . 133
Section 1304. Right to Demand Full Performance. . . . . . . . . . . . . . . 136
Section 1305. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Section 1306. The Guarantor Remains Obligated in Event the
Company is No Longer Obligated to Discharge
Indenture Obligations . . . . . . . . . . . . . . . . . . . 137
Section 1307. Fraudulent Conveyance; Contribution; Subrogation. . . . . . . 137
Section 1308. Guarantee is in Addition to Other Security. . . . . . . . . . 138
Section 1309. Release of Security Interests . . . . . . . . . . . . . . . . 138
Section 1310. No Bar to Further Actions . . . . . . . . . . . . . . . . . . 139
Section 1311. Failure to Exercise Rights Shall Not Operate as a
Waiver; No Suspension of Remedies. . . . . . . . . . . . . 139
Section 1312. Trustee's Duties; Notice to Trustee. . . . . . . . . . . . . 139
Section 1313. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 140
Section 1314. Release of Guarantee . . . . . . . . . . . . . . . . . . . . 140
Section 1315. Execution of Guarantee . . . . . . . . . . . . . . . . . . . 140
</TABLE>
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TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
</TABLE>
ACKNOWLEDGMENTS
SCHEDULE I Existing Indebtedness
SCHEDULE II Excluded Assets
EXHIBIT A Form of Intercompany Note
EXHIBIT B Form of Certificate to be Delivered in Connection with Transfers
Pursuant to Regulation S
(viii)
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APPENDIX I Form of Transferee Certificate for Series A Securities
APPENDIX II Form of Transferee Certificate for Series B Securities
(ix)
<PAGE> 12
INDENTURE, dated as of September 30, 1997, among Zale
Corporation, a Delaware corporation (the "Company"), Zale Delaware, Inc., a
Delaware corporation (the "Guarantor"), and Bank One, N.A., as trustee (the
"Trustee").
RECITALS OF THE COMPANY AND THE GUARANTOR
The Company has duly authorized the creation of an issue of 8
1/2% Senior Notes due 2007, Series A (the "Series A Securities" or the "Initial
Securities"), and an issue of 8 1/2% Senior Notes due 2007, Series B (the
"Series B Securities" and, together with the Series A Securities, the
"Securities"), of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture and the Securities;
The Guarantor has duly authorized the issuance of a Guarantee of
the Securities, of substantially the tenor hereinafter set forth, and to
provide therefor, the Guarantor has duly authorized the execution and delivery
of this Indenture and its Guarantee;
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company, (ii) the Guarantee,
when executed by the Guarantor and delivered hereunder, the valid obligation of
the Guarantor and (iii) this Indenture a valid agreement of the Company and the
Guarantor in accordance with the terms of this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
<PAGE> 13
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars
shall refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles
refer to this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in
Article Four.
"Accounts Receivable Subsidiary" means Zale Funding Trust,
Jewelers National Bank, Jewelers Credit Corporation, Jewelers Financial
Services, Inc., Diamond Funding Corp. and any other present or future
Subsidiary (including any credit card bank) of the Company that is, directly or
indirectly, wholly owned by the Company (other than director qualifying shares)
and organized for the purpose of and engaged in (i) purchasing, financing, and
collecting accounts receivable obligations of customers of the Company or its
Subsidiaries, (ii) issuing credit cards and financing accounts receivable
obligations of customers of the Company and its Subsidiaries, (iii) the sale or
financing of such accounts receivable or interests therein and (iv) other
activities incident thereto.
"Acquired Indebtedness" means, with respect to any specified
Person, Indebtedness of any other Person (i) assumed in connection with an
Asset Acquisition from such Person or (ii) existing at the time such Person
becomes a Restricted Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Restricted Subsidiary). Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person; (ii) any other
Person that owns, directly or indirectly, 10% or more of such specified
Person's Capital Stock or any officer or director of any
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<PAGE> 14
such specified Person or other Person or, with respect to any natural Person,
any person having a relationship with such Person by blood, marriage or
adoption not more remote than first cousin; or (iii) any other Person 10% or
more of the Voting Stock of which is beneficially owned or held directly or
indirectly by such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person will
become a Restricted Subsidiary or will be merged or consolidated with or into
the Company or any Restricted Subsidiary or (ii) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of the assets of such Person, or any division or line of
business of such Person, or which is otherwise outside of the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance or transfer or other disposition (including, without limitation, any
merger, consolidation or Sale and Leaseback Transaction) to any Person other
than the Company or a Wholly-Owned Restricted Subsidiary, in one or a series of
related transactions, of (i) any Capital Stock of any Restricted Subsidiary;
(ii) all or substantially all of the assets of any division or line of business
of the Company or any Restricted Subsidiary; or (iii) any other properties or
assets of the Company or any Restricted Subsidiary other than in the ordinary
course of business. For the purposes of this definition, the term "Asset Sale"
will not include (a) any sale, issuance, conveyance, transfer, lease or other
disposition of properties or assets that is governed by the provisions
described in paragraph (a) of Section 801 herein; (b) sales of surplus and
other property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; or (c) any transaction
consummated in compliance with Section 1009 hereof. For purposes of the
covenant described under Section 1011 hereof, the term "Asset Sale" shall not
include any sale, conveyance, transfer, lease or other disposition of (A) any
property or asset, whether in one transaction or a series of related
transactions (1) constituting a Capitalized Lease Obligation or a transfer
consisting solely of a grant of a security interest permitted by the Indenture
or (2) involving assets with a Fair Market Value not in excess of $1,000,000,
(B) accounts receivable to an Accounts Receivable Subsidiary or to third
parties that are not Affiliates of the Company or any Subsidiary of the Company
in the ordinary course of business, (C) any property or assets pursuant to the
Asset Purchase Agreement, dated as of September 3, 1997, among Finlay
Enterprises, Inc., Finlay Fine Jewelry Corporation, Zale Corporation and Zale
Delaware, Inc., as such agreement may be amended from time to time or (D) the
Excluded Assets.
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<PAGE> 15
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund requirements) of such Indebtedness
multiplied by (b) the amount of each such principal payment by (ii) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Board of Directors" means the board of directors of the Company
or any Guarantor, as the case may be, or any duly authorized committee of such
board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Guarantor, as the
case may be, to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Book-Entry Security" means any Rule 144A Global Securities or
Regulation S Global Securities bearing the legend specified in Section 202
evidencing all or part of a series of Securities, authenticated and delivered
to the Depositary for such series or its nominee, and registered in the name of
such Depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions or trust companies
in New York, New York, Dallas, Texas or the city in which the Corporate Trust
Office of the Trustee is located are authorized or obligated by law, regulation
or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated) of such Person's capital stock, any other interest or participation
that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease
of (or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of this Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP consistently applied.
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<PAGE> 16
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of not more than one year issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) certificates of deposit,
Eurodollar time deposits or bankers' acceptances with a maturity of not more
than one year of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000, whose debt has a rating, at the time as of which any
investment therein is made, of A-1 (or higher) according to S&P or any
successor rating agency or P-1 (or higher) according to Moody's or any
successor rating agency; (iii) commercial paper with a maturity of not more
than one year issued by a corporation that is not an Affiliate or a Subsidiary
of the Company organized under the laws of any state of the United States or
the District of Columbia and rated A-1 (or higher) by S&P, P-1 (or higher) by
Moody's or the equivalent of any such category used by another nationally
recognized Rating Agency; (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (i)
and (ii) above; and (v) transaction deposit accounts and money market deposit
accounts with a domestic commercial bank having capital and surplus in excess
of $500,000,000; provided that the short term debt of such commercial bank has
a rating at the time of Investment of A-1 (or higher) according to S&P or P-1
(or higher) according to Moody's.
"Change of Control" means the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company): (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total voting
power of the then outstanding Voting Stock of the Company; (ii) the Company
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, other than any such transaction where the holders of
the Voting Stock of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the total voting power of
the then outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction and the preceding clause (i) is not
applicable; (iii) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such board or whose
nomination for election by the stockholders of the Company was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office; or (iv) any order,
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<PAGE> 17
judgment or decree shall be entered against the Company decreeing the
dissolution or liquidation of the Company and such order shall remain
undischarged or unstayed for a period in excess of sixty days.
"Change of Control Triggering Event" means the occurrence of both
a Change of Control and a Rating Decline.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it, then the body performing such duties
at such time.
"Commodity Price Protection Agreement" means any forward
contract, commodity swap, commodity option or other similar financial agreement
or arrangement relating to, or the value of which is dependent upon,
fluctuations in commodity prices.
"Common Stock" means the common stock, par value $.01 per share,
of the Company.
"Company" means Zale Corporation, a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person. To the extent necessary to comply
with the requirements of the provisions of Sections 310 through 317 of the
Trust Indenture Act as they are applicable to the Company, the term "Company"
shall include any other obligor with respect to the Securities for purposes of
complying with such provisions.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the
Board, its President, its Chief Executive Officer, its Chief Financial Officer
or a Vice President (regardless of Vice Presidential designation), and by any
one of its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Consolidated Cash Flow Available for Fixed Charges" means, for
any period, (i) the sum of, without duplication, the amounts for such period,
taken as a single accounting period, of (a) Consolidated Net Income, (b) to the
extent reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to
the extent reducing Consolidated Net Income, Consolidated Interest Expense, and
(d) to the extent reducing Consolidated Net Income, Consolidated Income Tax
Expense less all cash payments during such period relating to non-cash charges
that were added back in determining Consolidated Cash Flow Available for Fixed
Charges in any prior period.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of the
aggregate amount of Consolidated Cash Flow Available for Fixed Charges of the
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<PAGE> 18
Company for the four full fiscal quarters immediately preceding the date of the
transaction for which consolidated financial information of the Company is
available (the "Transaction Date") giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period") to the aggregate amount
of Consolidated Fixed Charges of the Company for such Four Quarter Period. For
purposes of this definition, "Consolidated Cash Flow Available for Fixed
Charges" and "Consolidated Fixed Charges" will be calculated, without
duplication, after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence of any Indebtedness of the Company or any of
the Restricted Subsidiaries during the period commencing on the first day of
the Four Quarter Period to and including the Transaction Date (the "Reference
Period"), including, without limitation, the incurrence of the Indebtedness
giving rise to the need to make such calculation, as if such incurrence
occurred on the first day of the Reference Period, (ii) an adjustment to
eliminate or include, as applicable, the Consolidated Cash Flow Available for
Fixed Charges and Consolidated Fixed Charges of the Company directly
attributable to assets which are the subject of any Asset Sale or Asset
Acquisition (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the
Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period, and (iii) the retirement of Indebtedness
during the Reference Period which cannot thereafter be reborrowed occurring as
if retired on the first day of the Reference Period. For purposes of
calculating "Consolidated Fixed Charges" for this "Consolidated Fixed Charge
Coverage Ratio," interest on Indebtedness incurred during the Reference Period
under any revolving credit facility which may be borrowed and repaid without
reducing the commitments thereunder shall be the actual interest during the
Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter will be deemed to accrue at a fixed
rate per annum equal to the rate of interest on such Indebtedness in effect on
the Transaction Date; (2) if interest on any Indebtedness actually incurred on
the Transaction Date may optionally be determined on a fluctuating basis like
prime or a similar rate or a factor thereof, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction Date
shall be deemed to have been in effect during the Reference Period; and (3)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Rate Protection Obligations, will be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements. If the Company or any Restricted Subsidiary directly or indirectly
guarantees Indebtedness of a third Person, the above definition will give
effect to the
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<PAGE> 19
incurrence of such guaranteed Indebtedness as if the Company or any Restricted
Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness and incurred the related interest expense.
"Consolidated Fixed Charges" means, for any period, the sum of,
without duplication, the amounts for such period of (i) Consolidated Interest
Expense; and (ii) the product of (x) the aggregate amount of cash dividends and
other distributions paid, accrued or scheduled to be paid or accrued during
such period in respect of Redeemable Capital Stock of the Company or Preferred
Stock of a Restricted Subsidiary times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then-current effective
Consolidated federal, state and local tax rate of such Person expressed as a
decimal.
"Consolidated Income Tax Expense" means, for any period, the
provision for federal, state, local and foreign income taxes payable by the
Company and the Restricted Subsidiaries for such period as determined on a
Consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and the
Restricted Subsidiaries for such period as determined on a Consolidated basis
in accordance with GAAP, including, without limitation, (i) any amortization of
debt discount attributable to such period, (ii) the net costs under Interest
Rate Protection Obligations, Currency Agreements and Commodity Price Protection
Agreements (including any amortization of discounts), (iii) the interest
portion of any deferred payment obligation, (iv) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and (v) all capitalized interest and all accrued interest,
and (b) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period and as determined on a Consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the Consolidated
net income (or net loss) of the Company and the Restricted Subsidiaries for
such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such net income (or net loss), by excluding, without
duplication, (i) all extraordinary gains or losses net of taxes (net of fees
and expenses relating to the transaction giving rise thereto), (ii) net income
of the Company and the Restricted Subsidiaries derived from or in respect of
Investments in Unrestricted Subsidiaries, except to the extent that cash
dividends or distributions are actually received by the Company or a Restricted
Subsidiary, (iii) the portion of net income (or net loss) of the Company and
the Restricted Subsidiaries allocable to minority interests in unconsolidated
Persons, except to the extent that cash dividends or distributions are actually
received by the Company or one of the Restricted Subsidiaries, (iv) net income
(or net loss) of any Person combined with the Company or
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<PAGE> 20
one of the Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (v) gains or
losses in respect of any Asset Sales by the Company or any of the Restricted
Subsidiaries (on an after-tax basis and net of fees and expenses relating to
the transaction giving rise thereto), and (vi) the net income of any Restricted
Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Non-cash Charges" means, for any period, the
aggregate depreciation, amortization and other noncash expenses of the Company
and the Restricted Subsidiaries reducing Consolidated Net Income for such
period (other than any non-cash item requiring an accrual or reserve for cash
disbursements in any future period), determined on a Consolidated basis in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its subsidiaries if
and to the extent the accounts of such Person and each of its Restricted
Subsidiaries would normally be consolidated with those of such Person, all in
accordance with GAAP. The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 100 East
Broad Street, Columbus, Ohio 43215.
"Credit Facility" means the Revolving Credit Agreement dated as
of March 31, 1997, among the Company, Zale Delaware, Inc., The First National
Bank of Boston, as Agent, and the other financial institutions signatory
thereto, as in effect on the Issue Date, and as such agreement may be amended,
renewed, extended, substituted, refinanced, replaced, supplemented or otherwise
modified from time to time, and includes related notes, guarantees and other
agreements executed in connection therewith.
"Currency Agreement" means the obligations of any Person pursuant
to any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect the Company or any Restricted
Subsidiary against fluctuations in currency values.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
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<PAGE> 21
"Depositary" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depository Trust Company
("DTC"), its nominees and successors, or another Person designated as
Depositary by the Company, which must be a clearing agency registered under the
Exchange Act.
"Disinterested Director" means, with respect to any transaction
or series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission
thereunder, or any successor statute.
"Exchange Offer" means the exchange offer by the Company and the
Guarantor of Series B Securities for Series A Securities to be effected
pursuant to Section 2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 2.1 of the
Registration Rights Agreement.
"Excluded Assets" means certain surplus assets of the Company
which are set forth on Schedule II to the Indenture.
"Fair Market Value" means, with respect to any asset, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between an informed and willing seller and an informed and willing buyer,
neither of which is under pressure or compulsion to complete the transaction.
Fair Market Value shall be determined by the Board of Directors of the Company
acting in good faith conclusively evidenced by a Board Resolution thereof
delivered to the Trustee or, with respect to any asset valued at up to
$1,000,000, such determination may be made by a duly authorized officer of the
Company evidenced by an Officer's Certificate delivered to the Trustee.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles in effect in the United States as in
effect from time to time and which are consistently applied for all applicable
periods.
"Global Securities" means a security evidencing all or a part of
the Securities to be issued as Book-Entry Securities issued to the Depositary
in accordance with Section 306.
"Guarantee" means the guarantee by each of the Guarantors of the
Securities and the Company's obligations under the Indenture.
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<PAGE> 22
"guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor" means (i) Zale Delaware, Inc. and (ii) each other
Subsidiary formed, created or acquired before or after the Issue Date required
to become a Guarantor after the Issue Date pursuant to Section 1013 hereof or
which becomes a Guarantor after the Issue Date in accordance with the terms of
the Indenture. "Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payable
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit (but
excluding obligations with respect to trade letters of credit to the extent
such trade letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed not later than the third business day
following receipt by such Person of a demand for reimbursement), bankers'
acceptances or other similar credit transaction, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business, (iv) all Capitalized Lease Obligations of such Person, (v) all
Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount
of such obligation being deemed to be the lesser of the value of such property
or asset or the amount of the obligation so secured), (vi) all guarantees by
such Person of Indebtedness of another Person (other than guarantees of
operating leases of a Restricted Subsidiary of such Person), (vii) all
Redeemable Capital
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<PAGE> 23
Stock valued at its involuntary maximum fixed repurchase price plus accrued and
unpaid dividends, (viii) Preferred Stock of any Restricted Subsidiary of the
Company, (ix) all net payment obligations under or in respect of Currency
Agreements, Interest Rate Protection Obligations and Commodity Price Protection
Agreements of such Person, and (x) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (i) through (ix) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price will be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness will be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to
be determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock. Sales (on a "true-sale" non-recourse basis) and the
servicing of receivables transferred from the Company or a Restricted
Subsidiary, or transfers of cash, to an Accounts Receivable Subsidiary as a
capital contribution or in exchange for Indebtedness of such Accounts
Receivable Subsidiary or cash shall not be deemed Indebtedness hereunder.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules thereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto
entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and
any other obligor under this Indenture or under the Securities, including any
Guarantor, to pay principal of, premium, if any, and interest on the Securities
when due and payable, and all other amounts due or to become due under or in
connection with this Indenture and the Securities, and the performance of all
other obligations to the Trustee and the Holders under this Indenture and the
Securities, according to the respective terms hereof and thereof.
"Initial Securities" has the meaning stated in the first recital
of this Indenture.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and BancBoston Securities Inc.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate Protection Obligations" means the obligations of
any Person pursuant to any arrangement with any other Person whereby, directly
or indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying
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<PAGE> 24
either a floating or a fixed rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or a floating rate of interest on the same notional amount or any other
arrangement involving payments by or to such Person based upon fluctuations in
interest rates.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit (including by means of a
guarantee) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others or otherwise), or any purchase or acquisition by such
Person of any Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by any other Person. Investments shall exclude
extensions of trade credit in accordance with normal trade practices. In
addition to the foregoing, any foreign exchange contract, Currency Agreement,
Interest Rate Protection Obligation, Commodity Price Protection Agreement or
similar agreement shall constitute an Investment.
"Investment Grade Rating" means a Rating of BBB- and Baa3 or
higher, in each case by the applicable Rating Agency, or the equivalents
thereof.
"Issue Date" means the original issue date of the Securities
under this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), privilege, security interest, hypothecation, cessation and transfer,
assignment for security, claim, deposit arrangement or other encumbrance upon
or with respect to any property of any kind, whether real, personal or mixed,
movable or immovable, now owned or hereafter acquired. A Person will be deemed
to own subject to a Lien any property which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
Capitalized Lease Obligation or other title retention agreement.
"Material Subsidiary" means each Restricted Subsidiary of the
Company that is a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X under the Securities Act and the Exchange Act (as such
regulation is in effect on the Issue Date).
"Maturity" means, when used with respect to the Securities, the
date on which the principal of the Securities becomes due and payable as
therein provided or as provided in this Indenture, whether at Stated Maturity,
the Offer Date or the Redemption Date and whether by declaration of
acceleration, Offer in respect of Unutilized Net Cash Proceeds, Change of
Control Offer in respect of a Change of Control Triggering Event, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
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<PAGE> 25
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) net of (i)
brokerage commissions and other reasonable fees and expenses (including fees
and expenses of legal counsel and investment bankers) related to such Asset
Sale, (ii) provisions for all taxes payable as a result of such Asset Sale,
(iii) amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (iv) appropriate amounts to be provided by the Company or
any Restricted Subsidiary, as the case may be, as a reserve required in
accordance with GAAP consistently applied against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale (provided that the amount of any such reserves
shall be deemed to constitute Net Cash Proceeds at the time such reserves shall
have been released or are not otherwise required to be retained as a reserve).
"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S under the Securities Act.
"Non-U.S. Subsidiaries" means Subsidiaries organized under the
laws of jurisdictions other than the United States and the states and
territories thereof.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President, the Chief Executive Officer, the Chief
Financial Officer or a Vice President (regardless of Vice Presidential
designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company or any Guarantor, as the case may be, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for the Company, any Guarantor or the Trustee, unless an Opinion of
Independent Counsel is required pursuant to the terms of this Indenture, and
who shall be reasonably acceptable to the Trustee.
"Opinion of Independent Counsel" means a written opinion of
counsel which is issued by a Person who is not an employee, director or
consultant (other than non-employee legal counsel) of the Company or any
Guarantor and who shall be reasonably acceptable to the Trustee.
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<PAGE> 26
"Outstanding" when used with respect to Securities means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company or any Affiliate
thereof) in trust or set aside and segregated in trust by the Company or any
Affiliate thereof (if the Company or any Affiliate thereof shall act as its own
Paying Agent) for the Holders of such Securities; provided that if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor reasonably satisfactory to the
Trustee has been made;
(c) Securities, to the extent provided in Sections 402 and
403, with respect to which the Company has effected defeasance or covenant
defeasance as provided in Article Four; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have been
presented to the Trustee and the Company proof reasonably satisfactory to each
of them that such Securities are held by a bona fide purchaser in whose hands
the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company, any Guarantor, or any other obligor upon the Securities or any
Affiliate of the Company, any Guarantor or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the reasonable satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company, any Guarantor or any other obligor upon the Securities or
any Affiliate of the Company, any Guarantor or such other obligor.
"Pari Passu Indebtedness" means (a) any Indebtedness of the
Company which ranks pari passu in right of payment with the Securities and (b)
with respect to any Guarantee, Indebtedness which ranks pari passu in right of
payment with such Guarantee.
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<PAGE> 27
"Paying Agent" means any Person (including the Company)
authorized by the Company to pay the principal of, premium, if any, or interest
on, any Securities on behalf of the Company.
"Permitted Investment" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans, extensions of credit and advances to officers, directors
and employees which are outstanding on the Issue Date or which do not exceed
$5,000,000 in the aggregate at any one time outstanding and payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses in accordance with GAAP; (d)
Interest Rate Protection Obligations, Commodity Price Protection Agreements and
Currency Agreements permitted under clause (viii), (ix) or (x) of paragraph
(b) under Section 1008; (e) Investments by any Restricted Subsidiary in the
Company; (f) Investments by the Company or any Restricted Subsidiary in a
Restricted Subsidiary that is a Guarantor or another Person, if as a result of
or in connection with such Investment such other Person becomes a Wholly-Owned
Restricted Subsidiary; (g) Investments represented by accounts receivable
created or acquired in the ordinary course of business; (h) Investments in the
form of the sale (on a "true-sale" non-recourse basis) or the servicing of
receivables transferred from the Company or any Restricted Subsidiary, or
transfers of cash, to an Accounts Receivable Subsidiary as a capital
contribution or in exchange for Indebtedness of such Accounts Receivable
Subsidiary or cash in the ordinary course of business; (i) loans or other
advances to vendors in connection with in store merchandising to be repaid
either on a lump sum basis or over a period of time by delivery of merchandise;
(j) Investments representing capital stock or obligations issued to the Company
or any Restricted Subsidiary in settlement of claims against any other Person
by reason of a composition or readjustment of debt or a reorganization of any
debtor of the Company or such Restricted Subsidiary; (k) Investments in credit
card receivables arising from any proprietary credit card issued by or for the
benefit of the Company or an Affiliate of the Company; (l) Investments acquired
by the Company or any Restricted Subsidiary in connection with an Asset Sale
permitted under Section 1011 hereof (other than pursuant to the second sentence
of the first paragraph thereof); (m) Investments in any of the Securities; and
(n) Investments, other than those enumerated in (a) through (m) above, in an
aggregate amount of $20,000,000.
"Permitted Liens" means (a) Liens on property of (or on shares of
Capital Stock or debt securities of) a Person existing at the time such Person
(i) is merged into or consolidated with the Company or any Restricted
Subsidiary or (ii) becomes a Restricted Subsidiary; provided, however, that
such Liens were in existence prior to the contemplation of such merger,
consolidation or acquisition and do not secure any property or assets of the
Company or any Restricted Subsidiary other than the property or assets subject
to the Liens prior to such merger, consolidation or acquisition; (b) Liens
16
<PAGE> 28
imposed by law such as landlords', carriers', warehousemen's and mechanics'
Liens and other similar Liens arising in the ordinary course of business which
secure payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Securities; (e) Liens in favor of
the Company or Liens on any property or assets of a Restricted Subsidiary (or
on shares of Capital Stock or debt securities of a Restricted Subsidiary) in
favor of the Company or any Restricted Subsidiary; (f) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent for
more than 90 days or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided, however,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or imperfections of title that in the
aggregate are not material in amount and do not in any case materially detract
from the properties subject thereto or interfere with the ordinary conduct of
the business of the Company and the Restricted Subsidiaries; (h) Liens
resulting from the deposit of cash or notes in connection with contracts,
tenders or expropriation proceedings, or to secure workers' compensation,
surety or appeal bonds, costs of litigation when required by law, public and
statutory obligations, obligations under franchise arrangements entered into in
the ordinary course of business and other obligations of a similar nature
arising in the ordinary course of business; (i) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, Purchase Money Indebtedness (other
than Indebtedness incurred to finance an Asset Acquisition), mortgage
financings, industrial revenue bonds or other monetary obligations, in each
case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries, or repairs, additions
or improvements to such assets; provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with
the incurrence of such Indebtedness), (II) such Liens do not extend to any
other assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the incurrence of such Indebtedness is permitted by Section
1008 hereof and (IV) such Liens attach prior to 90 days after such purchase,
construction, installation, repair, addition or improvement; (j) Liens to
secure any Refinancings (or successive Refinancings), in whole or in part, of
any Indebtedness secured by Liens referred to in the clauses above so long as
such Lien does not extend to any other property (other than improvements
thereto); (k) Liens securing trade letters of credit entered into in the
ordinary course of business; (l) Liens on and pledges of the capital stock of
(A) any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary and (B) an Accounts Receivable Subsidiary; (m) leases or subleases
granted to others that do
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<PAGE> 29
not materially interfere with the ordinary course of business of the Company
and the Restricted Subsidiaries, taken as a whole; (n) any interest or title of
a lessor in any property that is (i) subject to any lease or (ii) located on
the real property subject to any lease; (o) Liens arising from the rendering of
a final judgment or order against the Company or any Restricted Subsidiary that
does not give rise to an Event of Default; (p) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any Restricted Subsidiary in the ordinary
course of business; and (q) Liens on the property or assets or Capital Stock of
Accounts Receivable Subsidiaries and Liens arising out of any sale of accounts
receivable in the ordinary course to or by an Accounts Receivable Subsidiary.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 308 in
exchange for a mutilated Security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
Capital Stock of any other class of such Person.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means an underwritten primary offering
of Common Stock of the Company with gross cash proceeds to the Company of at
least $50,000,000 pursuant to a registration statement under the Securities Act
that has been declared effective by the Commission (other than a registration
statement on Form S-8 or any successor form or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
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<PAGE> 30
"Purchase Money Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary incurred for the purpose of financing all or any
part of the purchase price or the cost of construction or improvement of any
real or personal property; provided, however, that the aggregate principal
amount of such Indebtedness does not exceed the lesser of the Fair Market Value
of such property or the original purchase price or the original cost of any
such assets or repair, addition or improvement thereto (plus an amount equal to
the reasonable fees and expenses in connection with the incurrence of such
Indebtedness).
"QIB" means a "Qualified Institutional Buyer" under Rule 144A
under the Securities Act.
"Rating Agencies" means (i) Standard & Poor's Ratings Group and
(ii) Moody's Investors Service, Inc. or (iii) if Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. or both shall not make a rating of the
Securities publicly available, a nationally recognized securities rating agency
or agencies, as the case may be, selected by the Company, which shall be
substituted for Standard & Poor's Ratings Group, Moody's Investors Services,
Inc. or both, as the case may be.
"Rating Category" means (i) with respect to Standard & Poor's
Ratings Group, any of the following categories: BB, B, CCC, CC, C and D (or
equivalent successor categories); (ii) with respect to Moody's Investors
Service, Inc., any of the following categories: Ba, B, Caa, Ca, C and D (or
equivalent successor categories); and (iii) the equivalent of any such category
of Standard & Poor's Ratings Group or Moody's Investors Service, Inc. used by
another Rating Agency. In determining whether the rating of the Notes has
decreased by one or more gradations, gradations within Rating Categories (+ and
- - for Standard & Poor's Ratings Group; 1, 2 and 3 for Moody's Investors
Service, Inc.; or the equivalent gradations for another Rating Agency) shall be
taken into account (e.g., with respect to Standard & Poor's Ratings Group, a
decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute
a decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the
earlier of (i) a Change of Control and (ii) public notice of the occurrence of
a Change of Control or of the intention by the Company to effect a Change of
Control.
"Rating Decline" means the occurrence of the following on, or
within 90 days after, the earlier of (i) the occurrence of a Change of Control
and (ii) the date of public notice of the occurrence of a Change of Control or
of the public notice of the intention of the Company to effect a Change of
Control (which period shall be extended so long as the rating of the Securities
is under publicly announced consideration for possible downgrading by any of
the Rating Agencies): (a) in the event that the Securities have an Investment
Grade Rating, the rating of the Securities by both such Rating
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<PAGE> 31
Agencies shall be reduced below Investment Grade, or (b) in the event the
Securities are rated below Investment Grade by both such Rating Agencies on the
Rating Date, the rating of the Securities by either Rating Agency shall be
decreased by one or more gradations (including gradations within Rating
Categories as well as between Rating Categories).
"Redeemable Capital Stock" means any class or series of Capital
Stock to the extent that, either by its terms, by the terms of any security
into which it is convertible or exchangeable, or by contract or otherwise, it
is or upon the happening of an event or passage of time would be, required to
be redeemed prior to the final Stated Maturity of the Securities or is
redeemable at the option of the holder thereof at any time prior to such Stated
Maturity, or is convertible into or exchangeable at the option of the holder
thereof for debt securities at any time prior to such Stated Maturity.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which
it is to be redeemed pursuant to this Indenture.
"Refinance" means, with respect to any Indebtedness, any
refinancing, redemption, retirement, renewal, replacement, extension or
refunding of such Indebtedness.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of September 30, 1997, among the Company, the Guarantor and
the Initial Purchasers.
"Registration Statement" means any registration statement of the
Company and the Guarantor which covers any of the Series A Securities (and
related guarantees) or Series B Securities (and related guarantees) pursuant to
the provisions of the Registration Rights Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the March 15 or September 15 (whether or not a Business Day)
next preceding such Interest Payment Date.
"Regulation S Global Securities" means a permanent global note in
registered form representing the aggregate principal amount of Securities sold
in reliance on Regulation S under the Securities Act.
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"Responsible Officer" when used with respect to the Trustee means
any officer assigned to the Corporate Trust Office or any agent of the Trustee
appointed hereunder, including any vice president, assistant vice president,
assistant secretary, or any other officer or assistant officer of the Trustee
or any agent of the Trustee appointed hereunder to whom any corporate trust
matter is referred because of his or her knowledge of and familiarity with the
particular subject.
"Restricted Subsidiary" means any Subsidiary (other than an
Accounts Receivable Subsidiary) of the Company that has not been designated by
the Board of Directors of the Company, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 1017. Any such designation may be revoked by a Board Resolution of the
Company delivered to the Trustee, subject to the provisions of such covenant.
"Rule 144A Global Securities" means a permanent global note in
registered form representing the aggregate principal amount of Securities sold
in reliance on Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series
of related transactions pursuant to which the Company or a Restricted
Subsidiary sells or transfers any property or asset in connection with the
leasing, or the resale against installment payments, of such property or asset
to the seller or transferor.
"S&P" means Standard & Poor's Rating Group, a division of McGraw
Hill, Inc., or any successor rating agency.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder, or any
successor statute.
"Senior Guarantor Indebtedness" means any Indebtedness of a
Guarantor which is not expressly subordinated in right of payment to any other
Indebtedness of such Guarantor.
"Senior Indebtedness" means any Indebtedness of the Company which
is not expressly subordinated in right of payment to any other Indebtedness of
the Company.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company and the Guarantor pursuant to Section 2.2 of the of
the Registration Rights Agreement, which covers all of the Registrable
Securities (as defined in the Registration Rights Agreement) on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in each
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<PAGE> 33
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, with respect to any Security or any
installment of interest thereon, the dates specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and when used with respect to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness or
any installment of interest is due and payable.
"Subordinated Indebtedness" means, with respect to the Company,
Indebtedness of the Company which is expressly subordinated in right of payment
to any other Indebtedness of the Company or, with respect to any Guarantor,
Indebtedness of such Guarantor which is expressly subordinated in right of
payment to any other Indebtedness of such Guarantor.
"Subsidiary" means, with respect to any Person, (a) any
corporation of which the outstanding shares of Voting Stock having at least a
majority of the votes entitled to be cast in the election of directors shall at
the time be owned, directly or indirectly, by such Person, or (b) any other
Person of which at least a majority of the shares of Voting Stock are at the
time, directly or indirectly, owned by such first named Person.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"Unrestricted Subsidiary" means each Accounts Receivable
Subsidiary and each Subsidiary of the Company (other than a Guarantor)
designated as such pursuant to and in compliance with Section 1017 hereof. Any
such Designation may be revoked by a Board Resolution of the Company delivered
to the Trustee, subject to the provisions of such covenant.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the Board of Directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
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<PAGE> 34
"Wholly-Owned Restricted Subsidiary" means any Restricted
Subsidiary of which 100% of the outstanding Capital Stock is owned by the
Company and/or another Wholly-Owned Restricted Subsidiary. For purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
Section 102. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Act" 105
"Additional Securities" 301
"Affiliate Transactions" 1010
"Agent Members" 306
"Asset Sale Offer" 1011
"Change of Control Offer" 1014
"Change of Control Purchase Date" 1014
"Change of Control Purchase Notice" 1014
"Change of Control Purchase Price" 1014
"covenant defeasance" 403
"Defaulted Interest" 309
"defeasance" 402
"Defeasance Redemption Date" 404
"Defeased Securities" 401
"Designation" 1017
"Designation Amount" 1017
"Event of Default" 501
"Four Quarter Period" 101
"Global Security" 201
"incur" 1008
"Initial Securities" Recitals
"Offer Date" 1011
"Offered Price" 1011
"Other Indebtedness" 1013
"Pari Passu Debt Amount" 1013
"Pari Passu Offer" 1013
"Permitted Indebtedness" 1008
"Physical Securities" 306
"Private Placement Legend" 202
"Reference Period" 101
"Registration Default" 202
"Required Filing Date" 1018
"Restricted Payment" 1009
</TABLE>
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<PAGE> 35
<TABLE>
<S> <C>
"Revocation" 1017
"Rule 144A" 201
"Securities" Recitals
"Security Amount" 1011
"Security Register" 305
"Security Registrar" 305
"Series A Securities" Recitals
"Series B Securities" Recitals
"Special Payment Date" 309
"Surviving Entity" 801
"Transaction Date" 101
"Unutilized Net Cash Proceeds" 1011
"U.S. Government Obligations" 404
</TABLE>
Section 103. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and any
Guarantor (if applicable) and any other obligor on the Securities (if
applicable) shall furnish to the Trustee an Officers' Certificate in a form and
substance reasonably acceptable to the Trustee stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with, and an Opinion of Counsel in a form
and substance reasonably acceptable to the Trustee stating that in the opinion
of such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such certificates or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that each individual signing such certificate
or individual or firm signing such opinion has read such covenant or condition
and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual
or such firm, he or it has made such examination or investigation as is
necessary to enable him or it to
24
<PAGE> 36
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Guarantor or other obligor on the Securities may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or opinion may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company, any Guarantor or other obligor on the Securities
stating that the information with respect to such factual matters is in the
possession of the Company, any Guarantor or other obligor on the Securities,
unless such officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Opinions of Counsel required to be delivered to
the Trustee may have qualifications customary for opinions of the type required
and counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, including certificates certifying as to matters of fact, including
that various financial covenants have been complied with.
Any certificate or opinion of an officer of the Company, any
Guarantor or other obligor on the Securities may be based, insofar as it
relates to accounting matters, upon a certificate or opinion of, or
representations by, an accountant or firm of accountants in the employ of the
Company, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the accounting matters upon which his certificate or opinion may be based are
erroneous. Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent with respect to the Company.
25
<PAGE> 37
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 105. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the
Security Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Security shall bind every
future Holder of the same Security or the Holder of every Security issued upon
the transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company, any Guarantor or any other obligor of the Securities in
reliance thereon, whether or not notation of such action is made upon such
Security.
(d) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of such Holders entitled to give
such request, demand, authorization,
26
<PAGE> 38
direction, notice, consent, waiver or other Act, but the Company shall have no
obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), any
such record date shall be the record date specified in or pursuant to such
Board Resolution, which shall be a date not more than 30 days prior to the
first solicitation of Holders generally in connection therewith and no later
than the date such first solicitation is completed.
If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for purposes of
determining whether Holders of the requisite proportion of Securities then
Outstanding have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for this
purpose the Securities then Outstanding shall be computed as of such record
date; provided that no such request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders
which may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 106. Notices, etc., to the Trustee, the Company and any
Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any
Guarantor or any other obligor on the Securities shall be sufficient for every
purpose (except as provided in Section 501(d)) hereunder if in writing and
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Department, or at any other address previously furnished in
writing to the Holders, the Company, any Guarantor or any other obligor on the
Securities by the Trustee; or
(b) the Company or any Guarantor by the Trustee or any Holder
shall be sufficient for every purpose (except as provided in Section 501(d))
hereunder if in writing and mailed, first-class postage prepaid, or delivered
by recognized overnight courier, to the Company or such Guarantor addressed to
it c/o Zale Corporation, 901 W. Walnut Hill Lane, Irving, Texas 75038,
attention: Chief Financial Officer, or at any other address previously
furnished in writing to the Trustee by the Company or such Guarantor.
27
<PAGE> 39
Section 107. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, or delivered
by recognized overnight courier, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner
shall be conclusively deemed to have been received by such Holder whether or
not actually received by such Holder. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be reasonably satisfactory to the Trustee shall be deemed
to be a sufficient giving of such notice.
Section 108. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 109. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 110. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and
the Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
28
<PAGE> 40
Section 111. Separability Clause.
In case any provision in this Indenture or in the Securities or
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 112. Benefits of Indenture.
Nothing in this Indenture or in the Securities or Guarantees,
express or implied, shall give to any Person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 113. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 114. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 115. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
Section 116. Schedules and Exhibits.
All schedules and exhibits attached hereto are by this reference
made a part hereof with the same effect as if herein set forth in full.
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<PAGE> 41
Section 117. Counterparts.
This Indenture may be executed in any number of counterparts,
each of which shall be deemed an original; but all such counterparts shall
together constitute but one and the same instrument.
30
<PAGE> 42
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
The Securities, the Guarantee and the Trustee's certificate of
authentication thereon shall be in substantially the forms set forth in this
Article Two, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted hereby and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any securities
exchange, any organizational document or governing instrument or applicable law
or as may, consistently herewith, be determined by the officers executing such
Securities and Guarantee, as evidenced by their execution of the Securities and
Guarantees. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A
under the Securities Act ("Rule 144A") and Initial Securities offered and sold
in reliance on Regulation S shall be issued initially in the form of one or
more permanent global Securities substantially in the form set forth in Section
202 (the "Global Security") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided. Initial Securities offered and sold in reliance on
Regulation S shall remain in the form of a Global Security until the
consummation of the Exchange Offer pursuant to the Registration Rights
Agreement.
Section 202. Form of Face of Security.
(a) The form of the face of any Series A Securities
authenticated and delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for a
Series B Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights
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<PAGE> 43
Agreement, then the Global Security shall bear the legend set forth below (the
"Private Placement Legend") on the face thereof:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION,
(2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE
THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED
STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN
OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (E)
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<PAGE> 44
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I)
PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE
TERMS "UNITED STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR
DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO.
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS
33
<PAGE> 45
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
ZALE CORPORATION
-------------------
8 1/2% SENIOR NOTE DUE 2007, SERIES A
CUSIP NO. 988858AA4
No. 1 $_________________
---
Zale Corporation, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of _________________ United States
dollars on October 1, 2007, at the office or agency of the Company referred to
below, and to pay interest thereon from September 30, 1997, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semiannually on April 1 and October 1 in each year, commencing April 1,
1998 at the rate of 8 1/2% per annum, subject to adjustments as described in
the second following paragraph, in United States dollars, until the principal
hereof is paid or duly provided for. Interest shall be computed on the basis
of a 360-day year comprised of twelve 30-day months.
The Holder of this Series A Security is entitled to the benefits
of the Registration Rights Agreement among the Company, the Guarantor and the
Initial Purchasers, dated September 30, 1997, pursuant to which, subject to the
terms and conditions thereof, the Company and the Guarantor are obligated to
consummate the Exchange Offer pursuant to which the Holder of this Security
(and the related Guarantee) shall have the right to exchange this Security (and
the related Guarantee) for 8 1/2% Senior Notes due 2007, Series B and related
guarantees (herein called the "Series B Securities") in like principal amount
as provided therein. The Series A Securities and the Series B Securities are
together (including related Guarantees) referred to as the
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<PAGE> 46
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
In the event that either (a) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to the 35th calendar day
following the date of original issue of the Series A Securities, (b) the
Exchange Offer Registration Statement has not been declared effective on or
prior to the 120th calendar day following the date of original issue of the
Series A Securities, (c) the Exchange Offer is not consummated on or prior to
the 150th calendar day following the date of original issue of the Series A
Securities or (d) a Shelf Registration Statement is not filed within 30 days
after the obligation to file such Shelf Registration Statement arises or is not
declared effective within 90 days of such date (each such event referred to in
clauses (a) through (d) above, a "Registration Default"), the interest rate
borne by the Series A Securities shall be increased by one-quarter of one
percent per annum upon the occurrence of each Registration Default, which rate
(as increased as aforesaid) will increase by one quarter of one percent each
90-day period that such additional interest continues to accrue under any such
circumstance, with an aggregate maximum increase in the interest rate equal to
one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of additional interest will cease and the interest rate will revert
to the original rate.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Security) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid, or duly provided for, and interest on
such defaulted interest at the interest rate borne by the Series A Securities,
to the extent lawful, shall forthwith cease to be payable to the Holder on such
Regular Record Date, and may either be paid to the Person in whose name this
Security (or any Predecessor Security) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for that
purpose, or at such other office or agency as may be maintained for such
purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of
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<PAGE> 47
the Company by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantee by the
Guarantor of the punctual payment when due of the Indenture Obligations made in
favor of the Trustee for the benefit of the Holders. Reference is hereby made
to Article Thirteen of the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations under the Guarantee of the
Guarantor.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
Dated: ZALE CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
(b) The form of the face of any Series B Securities
authenticated and delivered hereunder shall be substantially as follows:
[Legend if Security is a Global Security]
36
<PAGE> 48
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR
DEPOSITORY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO.
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
37
<PAGE> 49
ZALE CORPORATION
-------------------
8 1/2% SENIOR NOTE DUE 2007, SERIES B
CUSIP NO. ______________
No. 1 $_________________
---
Zale Corporation, a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of __________________ United
States dollars on October 1, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon from September 30, 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on April 1 and October 1 in each year, commencing
April 1, 1998 at the rate of 8 1/2% per annum, in United States dollars, until
the principal hereof is paid or duly provided for; provided that to the extent
interest has not been paid or duly provided for with respect to the Series A
Security exchanged for this Series B Security, interest on this Series B
Security shall accrue from the most recent Interest Payment Date to which
interest on the Series A Security which was exchanged for this Series B
Security has been paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 8 1/2% Senior Notes due 2007, Series A, and related
Guarantees (herein called the "Series A Securities") in like principal amount
were exchanged for the Series B Securities and related Guarantees. The Series
B Securities rank pari passu in right of payment with the Series A Securities.
In addition, for any period in which the Series A Security
exchanged for this Series B Security was outstanding, in the event that either
(a) the Exchange Offer Registration Statement is not filed with the Commission
on or prior to the 35th calendar day following the date of original issue of
the Series A Security, (b) the Exchange Offer Registration Statement has not
been declared effective on or prior to the 120th calendar day following the
date of original issue of the Series A Security, (c) the Exchange Offer is not
consummated on or prior to the 150th calendar day following the date of
original issue of the Series A Security or (d) a Shelf Registration Statement
is not filed within 30 days after the obligation to file such Shelf
Registration Statement arises or is not declared effective within 90 days of
such date (each such event referred to in clauses (a) through (d) above, a
"Registration Default"), the interest rate borne by the Series A Securities
shall be increased by one-quarter of one percent per annum upon the
38
<PAGE> 50
occurrence of each Registration Default, which rate (as increased as aforesaid)
will increase by one quarter of one percent each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
aggregate maximum increase in the interest rate equal to one percent (1%) per
annum. Following the cure of all Registration Defaults the accrual of
additional interest will cease and the interest rate will revert to the
original rate; provided that, to the extent interest at such increased interest
rate has been paid or duly provided for with respect to the Series A Security,
interest at such increased interest rate, if any, on this Series B Security
shall accrue from the most recent Interest Payment Date to which such interest
on the Series A Security has been paid or duly provided for; provided, however,
that, if after any such reduction in interest rate, a different event specified
in clause (a), (b), (c) or (d) above occurs, the interest rate shall again be
increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Security) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid, or duly provided for, and interest on
such defaulted interest at the interest rate borne by the Series B Securities,
to the extent lawful, shall forthwith cease to be payable to the Holder on such
Regular Record Date, and may either be paid to the Person in whose name this
Security (or any Predecessor Security) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be fixed
by the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for such
purpose, or at such other office or agency as may be maintained for such
purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the address of the Person entitled thereto as such
address shall appear on the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
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<PAGE> 51
This Security is entitled to the benefits of the Guarantee by the
Guarantor of the punctual payment when due of the Indenture Obligations made in
favor of the Trustee for the benefit of the Holders. Reference is hereby made
to Article Thirteen of the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations under the Guarantee of the
Guarantor.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
Dated: ZALE CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
40
<PAGE> 52
Section 203. Form of Reverse of Securities.
(a) The form of the reverse of the Series A Securities shall
be substantially as follows:
ZALE CORPORATION
8 1/2% Senior Note due 2007, Series A
This Security is one of a duly authorized issue of Securities of
the Company designated as its 8 1/2% Senior Notes due 2007, Series A (herein
called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $100,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of September 30, 1997, among the Company, the Guarantor
and Bank One, N.A., as trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantor, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of
(a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
October 1, 2002, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice to the Holders by first-class mail,
in amounts of $1,000 or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning October 1 in the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . 104.250%
2003 . . . . . . . . . . . . . . . . . . . 102.833%
2004 . . . . . . . . . . . . . . . . . . . 101.417%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
41
<PAGE> 53
In addition, at any time or from time to time on or prior to
October 1, 2000, the Company may, at its option, use all or a portion of the
net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Securities originally
issued under the Indenture at a redemption price equal to 108.5% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the Redemption Date; provided that at least seventy percent of the
aggregate principal amount of Securities (including any Additional Securities)
originally issued under the Indenture remains outstanding immediately after the
occurrence of such redemption. In order to effect the foregoing redemption,
the Company must mail a notice of redemption no later than 60 days after the
related Public Equity Offering and must consummate such redemption within 90
days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities or portions thereof to be redeemed pro
rata, by lot or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control Triggering Event, each
Holder may require the Company to purchase such Holder's Securities in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, pursuant to a Change of Control
Offer in accordance with the procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay Senior Indebtedness (other than the Securities), Senior Guarantor
Indebtedness (other than the Guarantees) or Indebtedness of a Wholly-Owned
Restricted Subsidiary, or invested in capital expenditures, properties or other
assets that replace the properties and assets that were the subject of the
Asset Sale or which will be used in the business of the Company or its
Restricted Subsidiaries existing on the date of the Indenture or in businesses
reasonably related thereto, exceeds a specified amount the Company will be
required to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
42
<PAGE> 54
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for
the unredeemed portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Guarantor and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of a specified percentage in aggregate
principal amount of the Securities at the time Outstanding. The Indenture also
contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company and
the Guarantor with certain provisions of the Indenture and the Securities and
the Guarantees and certain past Defaults under the Indenture and the Securities
and the Guarantees and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event
such Guarantor or such other obligor is obligated to make payments in respect
of the Securities), which is absolute and unconditional, to pay the principal
of, premium, if any, and interest on, this Security at the times, place, and
rate, and in the coin or currency, herein prescribed.
If this Series A Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Security is registrable on the Security Register of the
Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York or at such other office or agency of the Company as may be maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
43
<PAGE> 55
If this Series A Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the Holder, provided it is a Qualified Institutional Buyer, may exchange this
Series A Security for a Book-Entry Security by instructing the Trustee (by
completing the Transferee Certificate in the form in Appendix I) to arrange for
such Series A Security to be represented by a beneficial interest in a Global
Security in accordance with the customary procedures of the Depository, unless
the Company has elected not to issue a Global Security.
If this Series A Security is a Global Security, it is
exchangeable for a Series A Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and
the Depositary. In addition, certificated securities shall be transferred to
all beneficial holders in exchange for their beneficial interests in the Global
Securities if (x) the Depositary notifies the Company that it is unwilling or
unable to continue as depository for the Global Security and a successor
depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. Upon any such issuance, the
Trustee is required to register such certificated Series A Securities in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). All such certificated Series A Securities would be
required to include the Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or
15(d) of the Exchange Act, upon the written request of a Holder of a Series A
Security, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities
Act (or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security who such Holder informs the Company is
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security
is registered as the owner
44
<PAGE> 56
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, any Guarantor, the Trustee nor any such agent shall be affected by
notice to the contrary.
After the Securities have been assigned an Investment Grade
Rating by both Rating Agencies, and notwithstanding that the Securities may
later cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will no longer be subject to the covenants set forth in Sections
1008, 1009, 1010, 1011, 1015, and 1016, clauses (a)(iii) and (c)(iii) of
Section 1017, and clause (a)(iii) of Section 801 of the Indenture; provided,
that no Default has occurred and is continuing at the time the Securities have
been assigned such rating.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix I hereto,
will be attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall
be substantially as follows:
ZALE CORPORATION
8 1/2% Senior Note due 2007, Series B
This Security is one of a duly authorized issue of Securities of
the Company designated as its 8 1/2% Senior Notes due 2007, Series B (herein
called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $100,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of September 30, 1997, among the Company, the Guarantor
and Bank One, N.A., as trustee (herein called the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Guarantor, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of
(a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
45
<PAGE> 57
The Securities are subject to redemption at any time on or after
October 1, 2002, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice to the Holders by first-class mail,
in amounts of $1,000 or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning October 1 of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . 104.250%
2003 . . . . . . . . . . . . . . . . . 102.833%
2004 . . . . . . . . . . . . . . . . . 101.417%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
In addition, at any time or from time to time on or prior to
October 1, 2000, the Company may, at its option, use all or a portion of the
net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Securities originally
issued under the Indenture at a redemption price equal to 108.5% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the Redemption Date; provided that at least seventy percent of the
aggregate principal amount of Securities (including any Additional Securities)
originally issued under the Indenture remains outstanding immediately after the
occurrence of such redemption. In order to effect the foregoing redemption,
the Company must mail a notice of redemption no later than 60 days after the
related Public Equity Offering and must consummate such redemption within 90
days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities or portions thereof to be redeemed pro
rata, by lot or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control Triggering Event, each
Holder may require the Company to purchase such Holder's Securities in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, pursuant to a Change of Control
Offer in accordance with the procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay Senior
46
<PAGE> 58
Indebtedness (other than the Securities), Senior Guarantor Indebtedness (other
than the Guarantees) or Indebtedness of a Wholly-Owned Restricted Subsidiary,
or invested in capital expenditures, properties or other assets that replace
the properties and assets that were the subject of the Asset Sale or which will
be used in the business of the Company or its Restricted Subsidiaries existing
on the date of the Indenture or in businesses reasonably related thereto,
exceeds a specified amount the Company will be required to apply such proceeds
to the repayment of the Securities and certain Indebtedness ranking pari passu
in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for
the unredeemed portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Guarantor and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of a specified percentage in aggregate
principal amount of the Securities at the time Outstanding. The Indenture also
contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company and
the Guarantor with certain provisions of the Indenture and the Securities and
the Guarantees and certain past Defaults under the Indenture and the Securities
and the Guarantees and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
47
<PAGE> 59
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event
such Guarantor or such other obligor is obligated to make payments in respect
of the Securities), which is absolute and unconditional, to pay the principal
of, and premium, if any, and interest on, this Security at the times, place,
and rate, and in the coin or currency, herein prescribed.
If this Series B Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Series B Security is registrable on the Security Register
of the Company, upon surrender of this Series B Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or its attorney duly authorized
in writing, and thereupon one or more new Series B Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
If this Series B Security is a Global Security, it is
exchangeable for a Series B Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and
the Depositary. In addition, certificated securities shall be transferred to
all beneficial holders in exchange for their beneficial interests in the Global
Security if (x) the Depositary notifies the Company that it is unwilling or
unable to continue as depository for the Global Security and a successor
depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. Upon any such issuance, the
Trustee is required to register such certificated Series B Securities in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or
48
<PAGE> 60
the Trustee may treat the Person in whose name this Security is registered as
the owner hereof for all purposes, whether or not this Security is overdue, and
neither the Company, any Guarantor, the Trustee nor any such agent shall be
affected by notice to the contrary.
After the Securities have been assigned an Investment Grade
Rating by both Rating Agencies, and notwithstanding that the Securities may
later cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will no longer be subject to the covenants set forth in Sections
1008, 1009, 1010, 1011, 1015, and 1016, clauses (a)(iii) and (c)(iii) of
Section 1017, and clause (a)(iii) of Section 801 of the Indenture; provided,
that no Default has occurred and is continuing at the time the Securities have
been assigned such rating.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix II hereto,
will be attached to the Series B Security.]
Section 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be included on
the form of the face of the Securities substantially in the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
[Series A Securities]
This is one of the 8 1/2% Senior Notes due 2007, Series A referred to in
the within-mentioned Indenture.
BANK ONE, N.A.,
as Trustee
By:
-------------------------------
Name:
Title:
49
<PAGE> 61
[Series B Securities]
This is one of the 8 1/2% Senior Notes due 2007, Series B referred to in
the within-mentioned Indenture.
BANK ONE, N.A.,
as Trustee
By:
-------------------------------
Name:
Title:
50
<PAGE> 62
Section 205. Form of Guarantee of any Guarantor.
The form of Guarantee shall be set forth on the Securities substantially
as follows:
GUARANTEE
For value received, the undersigned hereby absolutely, fully and
unconditionally and irrevocably guarantees, jointly and severally with each
other Guarantor, if any, to the holder of this Security the payment of
principal of, premium, if any, and interest on this Security upon which this
Guarantee is endorsed in the amounts and at the time when due and payable
whether by declaration thereof, or otherwise, and interest on the overdue
principal and interest, if any, of this Security, if lawful, and the payment or
performance of all other obligations of the Company under the Indenture or the
Securities, to the holder of this Security and the Trustee, all in accordance
with and subject to the terms and limitations of this Security and Article
Thirteen of the Indenture. This Guarantee will not become effective until the
Trustee duly executes the certificate of authentication on this Security. This
Guarantee shall be governed by and construed in accordance with the laws of the
State of New York, without regard to conflict of law principles thereof.
Dated:
ZALE DELAWARE, INC.
Attest: By:
------------------------ ----------------------------
Name: Name:
Title: Title:
Section 206. Form of Option of Holder to Elect Purchase.
The form of Option of Holder to Elect Purchase Form shall be set
forth on the Securities substantially as follows:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 1011 or Section 1014, as applicable, of the Indenture,
check the Box: [ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1011 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
51
<PAGE> 63
$ _______________.
Date: ___________________Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
52
<PAGE> 64
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $100,000,000 in
aggregate principal amount of Securities, except for Securities authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities pursuant to Section 303, 304, 305, 306, 307, 308, 906,
1011, 1014 or 1108; provided, however, that notwithstanding anything else
stated herein the Company may issue up to an additional $25,000,000 in
aggregate principal amount of Securities (the "Additional Securities")
initially to the Initial Purchasers (as defined in the Registration Rights
Agreement) pursuant to this Indenture on one occasion at any time through and
including October 23, 1997 and such Additional Securities shall be treated as
Securities for all purposes of this Indenture.
The Securities shall be known and designated as the "8 1/2%
Senior Notes due 2007" of the Company. The Stated Maturity of the Securities
shall be October 1, 2007, and the Securities shall each bear interest at the
rate of 8 1/2% per annum, as such interest rate may be adjusted as set forth in
the Securities, from September 30, 1997, or from the most recent Interest
Payment Date to which interest has been paid, payable semiannually on April 1
and October 1 in each year, commencing April 1, 1998, until the principal
thereof is paid or duly provided for. Interest on any overdue principal,
interest (to the extent lawful) or premium, if any, shall be payable on demand.
The principal of, premium, if any, and interest on, the
Securities shall be payable and the Securities will be exchangeable and
transferable at an office or agency of the Company in The City of New York
maintained for such purposes; provided, however, that payment of interest may
be made at the option of the Company by check mailed to addresses of the
Persons entitled thereto as such addresses shall appear on the Security
Register.
For all purposes hereunder, the Series A Securities and the
Series B Securities will be treated as one class and are together referred to
as the "Securities." The Series A Securities rank pari passu in right of
payment with the Series B Securities.
The Securities shall be subject to repurchase by the Company
pursuant to an Offer as provided in Section 1011.
53
<PAGE> 65
Holders shall have the right to require the Company to
purchase their Securities, in whole or in part, in the event of a Change of
Control Triggering Event pursuant to Section 1014.
The Securities shall be redeemable as provided in Article
Eleven and in the Securities.
The Indebtedness evidenced by the Securities shall be pari
passu in right of payment with Senior Indebtedness.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 302. Denominations.
The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
one of its Chairman of the Board, its President, its Chief Executive Officer,
its Chief Financial Officer or one of its Vice Presidents under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries or Vice Presidents. The signatures of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities. At any
time and from time to time after the execution and delivery of this Indenture,
the Company may deliver Securities executed by the Company to the Trustee (with
Guarantees endorsed thereon) for authentication, together with a Company Order
for the authentication and delivery of such Securities; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities as provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to
any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on
54
<PAGE> 66
such Security a certificate of authentication substantially in the form
provided for herein duly executed by the Trustee by manual signature of an
authorized officer, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company or any Guarantor, pursuant to Article
Eight, shall, in a single transaction or through a series of related
transactions, be consolidated or merged with or into any other Person or shall
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person, and the successor
Person resulting from such consolidation or surviving such merger, or into
which the Company or such Guarantor shall have been merged, or the successor
Person which shall have participated in the sale, assignment, conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article Eight, any
of the Securities authenticated or delivered prior to such consolidation,
merger, sale, assignment, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like
principal amount; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 303 in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities
at the time Outstanding for Securities authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities on behalf of the Trustee. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as any Security Registrar
or Paying Agent to deal with the Company and its Affiliates.
If an officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates such Security such Security
shall be valid nevertheless.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten or
otherwise produced, in any authorized
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denomination, substantially of the tenor of the definitive Securities in lieu
of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities
may determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until
so exchanged the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
The Company shall cause the Trustee to keep, so long as it is
the Security Registrar, at the Corporate Trust Office of the Trustee, or such
other office as the Trustee may designate, a register (the register maintained
in such office or in any other office or agency designated pursuant to Section
1002 being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as the Security Registrar may prescribe,
the Company shall provide for the registration of Securities and of transfers
of Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may appoint one or more co-Security Registrars.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series of any authorized denomination or denominations, of a like
aggregate principal amount.
Furthermore, any Holder of a Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial
interests in such Global Security may be effected only through a book-entry
system maintained by the Holder of such Global Security (or its agent), and
that ownership of a beneficial interest in a Security shall be required to be
reflected in a book entry.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency.
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Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, Securities of the same
series which the Holder making the exchange is entitled to receive; provided
that no exchange of Series A Securities for Series B Securities shall occur
until an Exchange Offer Registration Statement shall have been declared
effective by the Commission and that the Series A Securities exchanged for the
Series B Securities shall be canceled.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company,
evidencing the same Indebtedness, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any
registration of transfer, exchange or redemption of Securities, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith, other than exchanges pursuant to Sections 303,
304, 305, 308, 906, 1011, 1014 or 1108 not involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of the
Securities selected for redemption under Section 1104 and ending at the close
of business on the day of such mailing or (b) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on
transfer provided in the legend required to be set forth on the face of each
Security pursuant to Section 202, and to the restrictions set forth in this
Section 305, and the Holder of each Security, by such Holder's acceptance
thereof (or interest therein), agrees to be bound by such restrictions on
transfer.
The restrictions imposed by this Section 305 upon the
transferability of any particular Security shall cease and terminate on (a) the
later of September 30, 1999 or two years after the last date on which the
Company or any Affiliate of the Company was the owner of such Security (or any
predecessor of such Security) or (b) (if earlier) if and when such Security has
been sold pursuant to an effective registration statement under the Securities
Act or transferred pursuant to Rule 144 or Rule 904 under the Securities Act
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(or any successor provision), unless the Holder thereof is an affiliate of the
Company within the meaning of Rule 144 (or such successor provisions). Any
Security as to which such restrictions on transfer shall have expired in
accordance with their terms or shall have terminated may, upon surrender of
such Security for exchange to the Security Registrar in accordance with the
provision of this Section 305 (accompanied, in the event that such restrictions
on transfer have terminated pursuant to Rule 144 or Rule 904 (or any successor
provision), by an Opinion of Counsel satisfactory to the Company and the
Trustee, to the effect that the transfer of such Security has been made in
compliance with Rule 144 or Rule 904 (or any such successor provision)), be
exchanged for a new Security, of like tenor and aggregate principal amount,
which shall not bear the Private Placement Legend. The Company shall inform
the Trustee of the effective date of any Registration Statement registering the
Securities under the Securities Act no later than two Business Days after such
effective date.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any U.S. Global Security, whether pursuant to this Section
305, Section 304, 308, 906 or 1108 or otherwise, shall also be a U.S. Global
Security and bear the legend specified in Section 202.
Section 306. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered
in the name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(b) Transfers of Global Securities shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees. Interests of beneficial owners in
the Global Security may be transferred in accordance with the rules and
procedures of the Depositary and the provisions of Section 307. Beneficial
owners may obtain physical securities (the
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"Physical Securities") in exchange for their beneficial interests in the Global
Security upon request in accordance with the Depositary's and the Security
Registrar's procedures. In connection with the execution, authentication and
delivery of such Physical Securities, the Security Registrar shall reflect on
its books and records a decrease in the principal amount of the relevant Global
Security equal to the principal amount of such Physical Securities and the
Company shall execute and the Trustee shall authenticate and deliver one or
more Physical Securities having an equal aggregate principal amount. In
addition, Physical Securities shall be issued to all beneficial owners in
exchange for their beneficial interests in the Global Security if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Security and a successor Depositary is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Security Registrar has received a request
from the Depositary.
(c) In connection with any transfer of a portion of the
beneficial interest in the Global Security pursuant to subsection (b) of this
Section to beneficial owners who are required to hold Physical Securities, the
Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of the entire Global
Security to beneficial owners pursuant to subsection (b) of this Section, the
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the Global Security, an equal aggregate
principal amount of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a "restricted
security" within the meaning of Rule 144(a)(3) of the Securities Act delivered
in exchange for an interest in Global Securities pursuant to subsection (c) or
subsection (d) of this Section shall, except as otherwise provided by Section
307, bear the Private Placement Legend.
(f) The registered holder of the Global Security may grant
proxies and otherwise authorize any person, including Agent Members and Persons
that may hold interests through Agent Members, to take any action which a
Holder is entitled to take under this Indenture or the Securities.
Section 307. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement, or (ii) an Initial Security is exchanged for
a Series B Security in connection
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with the Exchange Offer, in each case pursuant to the Registration Rights
Agreement, the following provisions shall apply:
(a) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of an Initial
Security to a QIB (excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer of any
Initial Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is
after the second anniversary of the Issue Date; provided,
however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Security, or
portion thereof, at any time on or prior to the second
anniversary of the Issue Date and such transfer can otherwise
lawfully be made under the Securities Act without registering
such Initial Security thereunder or (y) such transfer is being
made by a proposed transferor who has checked the box provided
for on the form of Initial Security stating, or has otherwise
advised the Company and the Security Registrar in writing,
that the sale has been made in compliance with the provisions
of Rule 144A to the transferee who has signed the
certification provided for on the form of Initial Security
stating, or has otherwise advised the Company and the Security
Registrar in writing, that it is purchasing the Initial
Security for its own account or an account with respect to
which it exercises sole investment discretion and that it, or
the person on whose behalf it is acting with respect to any
such account, is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule
144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and
that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and
the Initial Security to be transferred consists of Physical
Securities which after transfer are to be evidenced by an
interest in the Rule 144A Global Security, upon receipt by the
Security Registrar of instructions given in accordance with
the Depositary's and the Security Registrar's procedures
therefor, the Security Registrar shall reflect on its books
and records the date and an increase in the principal amount
of the Rule 144A Global Security in an amount equal to the
principal amount of the Physical Securities to be transferred,
and the Trustee shall cancel the Physical Security so
transferred.
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(iii) If the proposed transferor is an Agent
Member seeking to transfer an interest in a Global Security,
upon receipt by the Registrar of written instructions given in
accordance with the Depositary's and the Registrar's
procedures, the Registrar shall register the transfer and
reflect on its books and records the date and (A) a decrease
in the principal amount of the Global Security from which
interests are to be transferred in an amount equal to the
principal amount of the Securities to be transferred and (B)
an increase in the principal amount of the Rule 144A Global
Security in an amount equal to the principal amount of the
Global Security to be transferred.
(b) Transfers to Non-U.S. Persons. The following provisions
shall apply with respect to any transfer of an Initial Security to a Non-U.S.
Person:
(i) Prior to November 10, 1997, an owner of a
beneficial interest in the Regulation S Global Security may
not transfer such interest to a transferee that is a U.S.
Person or for the account or benefit of a U.S. Person within
the meaning of Rule 902(o) of the Securities Act. During such
time, all beneficial interests in the Regulation S Global
Security shall be transferred only through Cedel or Euroclear,
either directly if the transferor and transferee are
participants in such system, or indirectly through
organizations that are participants.
(ii) The Registrar shall register the transfer
of any Initial Security, whether or not such Security bears
the Private Placement Legend, if (x) the requested transfer is
after the second anniversary of the Issue Date; provided,
however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Security, or
portion thereof, at any time on or prior to the second
anniversary of the Issue Date and such transfer can otherwise
be lawfully made under the Securities Act without registering
such Initial Securities thereunder or (y) the proposed
transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit ___ hereto.
(iii) If the proposed transferee is an Agent
Member and the Securities to be transferred consist of
Physical Securities which after transfer are to be evidenced
by an interest in the Regulation S Global Security, upon
receipt by the Registrar of (x) written instructions given in
accordance with the Depositary's and the Registrar's
procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (ii) above, together with
any required legal opinions and certifications, the Registrar
shall register the transfer and reflect on its books and
records the date and an increase in the principal amount of
the Regulation S Global Security in
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an amount equal to the principal amount of Physical Securities
to be transferred, and the Trustee shall cancel the Physical
Securities so transferred.
(iv) If the proposed transferor is an Agent Member
seeking to transfer an interest in a Global Security,
upon receipt by the Registrar of (x) written instructions
given in accordance with the Depositary's and the Registrar's
procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, together with
any required legal opinions and certificates, the Registrar
shall register the transfer and reflect on its books and
records the date and (A) a decrease in the principal amount of
the Global Security from which such interests are to be
transferred in an amount equal to the principal amount of the
Securities to be transferred and (B) an increase in the
principal amount of the Regulation S Global Security in an
amount equal to the principal amount of the Global Security to
be transferred.
(c) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Security Registrar shall deliver Securities that do not
bear the Private Placement Legend. Upon the registration of transfer, exchange
or replacement of Securities bearing the Private Placement Legend, the Security
Registrar shall deliver only Securities that bear the Private Placement Legend
unless there is delivered to the Security Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Security
only as provided in this Indenture.
The Security Registrar shall retain copies of all letters,
notices and other written communications received pursuant to Section 306 or
this Section 307. The Company shall have the right to inspect and make copies
of all such letters, notices or other written communications at any reasonable
time upon the giving of reasonable written notice to the Security Registrar.
In the event that Regulation S is amended during the term of
this Indenture to alter the applicable holding period, all reference in this
Indenture to a holding period for Non-U.S. Persons will be deemed to include
such amendment.
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Section 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee,
or (b) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company, any Guarantor and the Trustee, such security or indemnity, in each
case, as may be required by them to save each of them harmless, then, in the
absence of notice to the Company, any Guarantor or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon a Company Request the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a replacement Security of like tenor and principal amount,
bearing a number not contemporaneously outstanding and the Guarantor shall
execute a replacement Guarantee.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a replacement Security, pay such Security. Upon the
issuance of any replacement Securities under this Section, the Company may
require the payment of a sum sufficient to pay all documentary, stamp or
similar issue or transfer taxes or other governmental charges that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Security and Guarantee issued pursuant to
this Section in lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Company and any Guarantor,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on the Stated Maturity of such interest shall be
paid to the Person in whose name the Security (or any Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on the Stated Maturity of such interest,
and interest on such defaulted interest at the then applicable interest rate
borne by the Securities, to the extent lawful
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(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest"), shall forthwith cease to be payable to the Holder on the
Regular Record Date; and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or any
relevant Predecessor Securities) are registered at the close
of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each
Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Payment Date"),
and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such
deposit prior to the Special Payment Date, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Subsection
provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the
date of the Special Payment Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company in
writing of such Special Record Date. In the name and at the
expense of the Company, the Trustee shall cause notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at its address as it appears in the
Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date and Special Payment Date
therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities are
registered on such Special Record Date and shall no longer be
payable pursuant to the following Subsection (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such
exchange, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this Subsection,
such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 309, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu
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of any other Security shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security.
Section 310. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and the Company, or the Trustee on behalf of the
Company, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice shall state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and provided further, however, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
Section 311. Persons Deemed Owners.
Prior to and at the time of due presentment of a Security for
registration of transfer, the Company, any Guarantor, the Trustee and any agent
of the Company, any Guarantor or the Trustee may treat the Person in whose name
any Security is registered as the owner of such Security for the purpose of
receiving payment of principal of, premium, if any, and (subject to Section
309) interest on, such Security and for all other purposes whatsoever, whether
or not such Security is overdue, and neither the Company, any Guarantor, the
Trustee nor any agent of the Company, any Guarantor or the Trustee shall be
affected by notice to the contrary.
Section 312. Cancellation.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company and any
Guarantor may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
or such Guarantor may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section 312, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be destroyed and
certification of their destruction delivered to the Company, unless by a
Company Order received by the Trustee prior to such destruction, the Company
shall direct that the canceled Securities be returned to it. The Trustee shall
provide the Company a list of all Securities that have been canceled from time
to time as requested by the Company.
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Section 313. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 402 or
Section 403 be applied to all of the Outstanding Securities (the "Defeased
Securities"), upon compliance with the conditions set forth below in this
Article Four.
Section 402. Defeasance and Discharge.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 402, the Company, each Guarantor and any other
obligor upon the Securities, if any, shall be deemed to have been discharged
from its obligations with respect to the Defeased Securities on the date the
conditions set forth in Section 404 below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company, each
Guarantor and any other obligor upon the Securities shall be deemed to have
paid and discharged the entire Indebtedness represented by the Defeased
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 405 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company and upon Company Request, shall execute
proper instruments acknowledging the same), except for the following which
shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of Defeased Securities to receive, solely from the trust fund
described in Section 404 and as more fully set forth in such Section, payments
in respect of the principal of, premium, if any, and interest on, such
Securities, when such payments are due, (b) the Company's obligations with
respect to such Defeased Securities under Sections 304, 305, 308 and 1002, (c)
the rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 607, and (d)
this Article Four. Subject to compliance with this Article Four, the Company
may exercise its option under this Section 402 notwithstanding the prior
exercise of its option under Section 403 with respect to the Securities.
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Section 403. Covenant Defeasance.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 403, the Company and each Guarantor shall be
released from its obligations under any covenant or provision contained or
referred to in Sections 1005 through 1018, inclusive, and the provisions of
clause (iii) of Section 801(a), with respect to the Defeased Securities on and
after the date the conditions set forth in Section 404 below are satisfied
(hereinafter, "covenant defeasance"), and the Defeased Securities shall
thereafter be deemed to be not "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the Defeased Securities, the
Company and each Guarantor may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such Section
or Article, whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or Article or by reason of any reference
in any such Section or Article to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Sections 501(c), (d), (e) or (g), but, except as specified
above, the remainder of this Indenture and such Defeased Securities shall be
unaffected thereby.
Section 404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 402 or Section 403 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (a) United States
dollars in an amount, (b) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms and with no further reinvestment will provide, not later than
one day before the due date of any payment, money in an amount, or (c) a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee to pay and discharge, the principal
of, premium, if any, and interest on, the Defeased Securities, on the Stated
Maturity of such principal or interest (or on any date after October 1, 2002
(such date being referred to as the "Defeasance Redemption Date") if at or
prior to electing to exercise either its option applicable to Section 402 or
its option applicable to Section 403, the Company has delivered to the Trustee
an irrevocable notice to redeem all of the Outstanding Securities on the
Defeasance Redemption Date). For this purpose, "U.S. Government Obligations"
means securities that are (i) direct
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obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt;
(2) In the case of an election under Section 402, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(3) In the case of an election under Section 403, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States to the effect that the Holders of the Outstanding Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(4) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Section 501(h) or (i) is
concerned, at any time during the period ending on the 91st day after the date
of deposit (it being understood that this condition shall not be satisfied
until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not cause
the Trustee for the Securities to have a conflicting interest in violation of
and for purposes of the Trust Indenture Act with respect to any other
securities of the Company or any Guarantor;
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(6) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a Default under, this Indenture or
any other material agreement or instrument to which the Company or any
Guarantor is a party or by which it is bound;
(7) Such defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act of 1940, as amended, unless
such trust shall be registered under such Act or exempt from registration
thereunder;
(8) The Company shall have delivered to the Trustee an
Opinion of Independent Counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Securities or any Guarantee over
the other creditors of the Company or any Guarantor with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, any
Guarantor or others; and
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each stating that
all conditions precedent under this Indenture to either the defeasance under
Section 402 or the covenant defeasance under Section 403, as the case may be,
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel
required to be delivered under this Section shall be in form and substance
reasonably satisfactory to the Trustee and may have qualifications customary
for opinions of the type required and counsel delivering such opinions may rely
on certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to
matters of fact, including that various financial covenants have been complied
with.
Section 405. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all United States dollars and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 404 in respect
of the Defeased Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee
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may determine, to the Holders of such Securities of all sums due and to become
due thereon in respect of principal, premium, if any, and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 404 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is imposed, assessed or for the account of the Holders of the Defeased
Securities.
Anything in this Article Four to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 402 or
403, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities and any Guarantor's obligations under any Guarantee shall be revived
and reinstated, with present and prospective effect, as though no deposit had
occurred pursuant to Section 402 or 403, as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply all such United States
dollars or U.S. Government Obligations in accordance with Section 402 or 403,
as the case may be; provided, however, that if the Company makes any payment to
the Trustee or Paying Agent of principal of, premium, if any, or interest on
any Security following the reinstatement of its obligations, the Trustee or
Paying Agent shall promptly pay any such amount to the Holders of the
Securities and the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the United States dollars and U.S.
Government Obligations held by the Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of the principal of or premium, if
any, when due and payable, on any of the Securities (at its Stated Maturity,
upon optional redemption, required repurchase, scheduled principal payment or
otherwise);
(b) default in the payment of an installment of interest on
any of the Securities, when due and payable, continued for 30 days or more;
(c) the Company or any Guarantor fails to comply with any of
its obligations described in Article Eight or in Sections 1011 or 1014 hereof;
(d) the Company or any Guarantor fails to perform or observe
any other term, covenant or agreement contained in the Securities, the
Guarantees or this Indenture (other than a default specified in (a), (b) or (c)
above) for a period of 45 days after written notice of such failure requiring
the Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Securities then Outstanding;
(e) default or defaults under one or more agreements,
indentures or instruments under which the Company or any Restricted Subsidiary
then has outstanding Indebtedness in excess of $20,000,000 individually or in
the aggregate and either (i) such Indebtedness is already due and payable in
full or (ii) such default or defaults results in the acceleration of the
maturity of such Indebtedness;
(f) any Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further
liability under any Guarantee, or gives notice to such effect (other than by
reason of the termination of this Indenture or the release of any such
Guarantee in accordance with the terms of this Indenture);
(g) one or more judgments, orders or decrees of any court or
regulatory or administrative agency for the payment of money in excess of
$20,000,000 either individually or in the aggregate shall have been rendered
against the Company or any Restricted Subsidiary or any of their respective
properties and shall not have been
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discharged and either (a) any creditor shall have commenced an enforcement
proceeding upon such judgment, order or decree or (b) there shall have been a
period of 60 consecutive days during which a stay of enforcement of such
judgment, order or decree, by reason of a pending appeal or otherwise, shall
not be in effect;
(h) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company, any
Guarantor or any Material Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (ii) a decree or order adjudging the Company,
any Guarantor or any Material Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company, any Guarantor or any Material Subsidiary under any applicable federal
or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company, any Guarantor
or any Material Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their respective
affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect, for
a period of 60 consecutive days; or
(i) (i) the Company, any Guarantor or any Material Subsidiary
commences a voluntary case or proceeding under any applicable Bankruptcy Law or
any other case or proceeding to be adjudicated bankrupt or insolvent, (ii) the
Company, any Guarantor or any Material Subsidiary consents to the entry of a
decree or order for relief in respect of the Company, such Guarantor or such
Material Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, (iii) the Company, any Guarantor or any Material
Subsidiary files a petition or answer or consent seeking reorganization or
relief under any applicable federal or state law, (iv) the Company, any
Guarantor or any Material Subsidiary (1) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company,
any Guarantor or such Material Subsidiary or of any substantial part of their
respective properties, (2) makes an assignment for the benefit of creditors or
(3) admits in writing its inability to pay its debts generally as they become
due, (v) a custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official shall be appointed out of court with respect to the Company or
any Material Subsidiary or any substantial part of their assets or properties
or (vi) the Company, any Guarantor or any Material Subsidiary takes any
corporate action in furtherance of any such actions in this paragraph (i).
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Sections 501(h) and (i)) shall occur and be continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Securities
then Outstanding, may, and the
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Trustee at the request of such Holders, shall, declare all unpaid principal of,
premium, if any, and accrued interest on all Securities to be due and payable,
by a notice in writing to the Company (and to the Trustee if given by the
Holders of the Securities) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable immediately. If an
Event of Default specified in clause (h) or (i) of Section 501 occurs and is
continuing, then all the Securities shall ipso facto become and be due and
payable immediately in an amount equal to the principal amount of the
Securities, together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any Holder. Thereupon, the Trustee may, at his or her
discretion, proceed to protect and enforce the rights of the Holders of the
Securities by appropriate judicial proceedings.
After such declaration of acceleration with respect to the
Securities, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount of the Securities
Outstanding, by written notice to the Company and the Trustee, may rescind such
declaration if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel,
(ii) all overdue interest on all Outstanding Securities,
(iii) the principal of and premium, if any, on any
Outstanding Securities which have become due otherwise than by
such declaration of acceleration and interest thereon at a
rate borne by the Securities, and
(iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities; and
(b) all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Securities that has become
due solely by such declaration of acceleration, have been cured or waived as
provided in Section 513. No such rescission shall affect any subsequent
Default or impair any right consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company and each Guarantor covenant that if
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(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Stated Maturity thereof or otherwise,
the Company and such Guarantor will, upon demand of the Trustee, pay to it, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal and premium, if any, and interest,
with interest upon the overdue principal and premium, if any, and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Securities; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company or any Guarantor, as the case may be, fails to
pay such amounts forthwith upon such demand, the Trustee, in its own name and
as trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company or any
Guarantor or any other obligor upon the Securities and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company, any Guarantor or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture or any Guarantee by such appropriate
private or judicial proceedings as the Trustee shall deem most effectual to
protect and enforce such rights, including seeking recourse against any
Guarantor pursuant to the terms of any Guarantee, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy, including, without limitation, seeking recourse against any Guarantor
pursuant to the terms of a Guarantee, or to enforce any other proper remedy,
subject however to Section 512. No recovery of any such judgment upon any
property of the Company or any Guarantor shall affect or impair any rights,
powers or remedies of the Trustee or the Holders.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon
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the Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims without Possession of
Securities.
All rights of action and claims under this Indenture, the
Securities or the Guarantees may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name and as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
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Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or
in lieu of any proceeding contemplated by this Article shall be applied,
subject to applicable law, in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal, premium, if any, or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid
upon the Securities for principal, premium, if any, and interest, in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled thereto,
including the Company, provided that all sums due and owing to the Holders and
the Trustee have been paid in full as required by this Indenture.
Section 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an
indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
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(e) no direction inconsistent with such written request has
been given to the Trustee during such 15-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Security or any Guarantee to affect, disturb or prejudice
the rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Security or any Guarantee, except in the manner provided in this Indenture
and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right based on the terms stated herein,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 309) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption or repurchase, on the Redemption Date or the repurchase date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, any Guarantor, any other obligor on the Securities, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
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Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 512. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture (including, without limitation, Section 507) or any
Guarantee, expose the Trustee to personal liability, or be unduly prejudicial
to Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all
Outstanding Securities waive any past Default hereunder and its consequences,
except a Default
(a) in the payment of the principal of, premium, if any, or
interest on any Security; or
(b) in respect of a covenant or a provision hereof which
under this Indenture cannot be modified or amended without the consent of the
Holder of each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
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Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant, but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, premium, if any, or interest
on, any Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on or after the Redemption Date).
Section 515. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury or other law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company or any
Guarantor from paying all or any portion of the principal of, premium, if any,
or interest on the Securities contemplated herein or in the Securities or which
may affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 516. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article Five
may be exercised only to the extent that the exercise thereof does not violate
any applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
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ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee.
Subject to the provisions of Trust Indenture Act Sections
315(a) through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are
adverse to the Trustee; and
(2) in the absence of bad faith or willful misconduct
on its part, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of
Subsection (b) of this Section 601;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith, in
accordance with a direction of the Holders of a majority in
principal amount of Outstanding Securities relating to the
time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or
power confirmed upon the Trustee under this Indenture;
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(d) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it;
(e) whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to Subsections (a), (b), (c) and (d) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
Section 602. Notice of Defaults.
Within 30 days after a Responsible Officer of the Trustee
receives notice of the occurrence of any Default, the Trustee shall transmit by
mail to all Holders and any other Persons entitled to receive reports pursuant
to Section 313(c) of the Trust Indenture Act, as their names and addresses
appear in the Security Register, notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of, premium, if any, or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as a trust committee of
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601 hereof and Trust
Indenture Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of Indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) the Trustee may consult with counsel and any written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection
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in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred
therein or thereby in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding;
provided that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities
as a condition to proceeding; the reasonable expenses of every such
investigation so requested by the Holders of not less than 25% in aggregate
principal amount of the Securities Outstanding shall be paid by the Company or,
if paid by the Trustee or any predecessor Trustee, shall be repaid by the
Company upon demand; provided, further, the Trustee in its discretion may make
such further inquiry or investigation into such facts or matters as it may deem
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney;
(g) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate; and
(h) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder.
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Section 604. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company and the Guarantor, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility and Qualification on Form
T-1 to be supplied to the Company will be true and accurate subject to the
qualifications set forth therein. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof nor
shall the Trustee be responsible for any statement in any registration
statement for the Securities under the Securities Act or responsible for the
determination as to which beneficial owners are entitled to receive notices
hereunder.
Section 605. Trustee and Agents May Hold Securities; Collections; etc.
The Trustee, any Paying Agent, Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities, with the same rights it would have if it were
not the Trustee, Paying Agent, Security Registrar or such other agent and,
subject to Sections 608 and 613 hereof and Trust Indenture Act Sections 310 and
311, may otherwise deal with the Company and receive, collect, hold and retain
collections from the Company with the same rights it would have if it were not
the Trustee, Paying Agent, Security Registrar or such other agent.
Section 606. Money Held in Trust.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Except for funds or securities
deposited with the Trustee pursuant to Article Four, the Trustee shall be
required to invest all moneys received by the Trustee, until used or applied as
herein provided, in Cash Equivalents in accordance with the directions of the
Company.
Section 607. Compensation and Indemnification of Trustee and Its Prior
Claim.
The Company covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to, reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard
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to the compensation of a trustee of an express trust) and the Company covenants
and agrees to pay or reimburse the Trustee and each predecessor Trustee upon
its request for all reasonable expenses, disbursements and advances incurred or
made by or on behalf of the Trustee in accordance with any of the provisions of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence, bad faith or willful misconduct. The Company also
covenants and agrees to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any claim, loss, liability, tax, assessment or
other governmental charge (other than taxes applicable to the Trustee's
compensation hereunder) or expense incurred without negligence, bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and its
duties hereunder, including enforcement of this Section 607 and also including
any liability which the Trustee may incur as a result of failure to withhold,
pay or report any tax, assessment or other governmental charge, and the costs
and expenses of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligations of the Company under this Section 607 to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for reasonable expenses,
disbursements and advances shall constitute an additional obligation hereunder
and shall survive the satisfaction and discharge of this Indenture and the
resignation or removal of the Trustee and each predecessor Trustee.
Section 608. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b)
of the Trust Indenture Act.
Section 609. Trustee Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $250,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have an office in The City of New York, the Trustee may appoint an
agent in The City of New York reasonably acceptable to the Company to conduct
any activities which the Trustee may be required under this Indenture to
conduct in The City of New York. If such Trustee publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 609, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance
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with the provisions of this Section 609, the Trustee shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor Trustee.
(a) No resignation or removal of the Trustee and no
appointment of a successor trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor trustee under
Section 611.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written notice thereof to the
Company no later than 20 Business Days prior to the proposed date of
resignation. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors of the Company, a copy of which shall be
delivered to the resigning Trustee and a copy to the successor trustee. If an
instrument of acceptance by a successor trustee shall not have been delivered
to the Trustee within 30 days after the giving of such notice of resignation,
the resigning Trustee may, or any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper, appoint and prescribe a successor
trustee.
(c) The Trustee may be removed at any time for any cause or
for no cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of Trust Indenture Act Section 310(b) after written
request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months,
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, the Holder of any Security who has
been a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor trustee and shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, the Company has not appointed a successor
Trustee, a successor trustee shall be appointed by the Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee. Such successor trustee so appointed shall
forthwith upon its acceptance of such appointment become the successor trustee
and supersede the successor trustee appointed by the Company. If no successor
trustee shall have been so appointed by the Company or the Holders of the
Securities and accepted appointment in the manner hereinafter provided, the
Holder of any Security who has been a bona fide Holder for at least six months
may, subject to Section 514, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor trustee.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor trustee by
mailing written notice of such event by first-class mail, postage prepaid, to
the Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 611. Acceptance of Appointment by Successor.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee as if originally
named as Trustee hereunder; but, nevertheless, on the written request of the
Company or the successor trustee, upon payment of its charges pursuant to
Section 607 then unpaid, such retiring Trustee shall pay over to the successor
trustee all moneys at the time held by it hereunder and shall execute and
deliver an instrument transferring to such successor trustee all such rights,
powers, duties and obligations. Upon request of any such successor trustee,
the Company shall execute any and all instruments for more fully
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and certainly vesting in and confirming to such successor trustee all such
rights and powers.
No successor trustee with respect to the Securities shall
accept appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $250,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as
provided in this Section 611, the Company shall give notice thereof to the
Holders of the Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security Register. If the acceptance of
appointment is substantially contemporaneous with the appointment, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 610. If the Company fails to give such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be given at the expense of the Company.
Section 612. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including the trust created by this
Indenture) shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under Trust Indenture Act Section 310(a) and this
Article Six and shall have a combined capital and surplus of at least
$250,000,000 and have a Corporate Trust Office or an agent selected in
accordance with Section 609, without the execution or filing of any paper or
any further act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall
have been authenticated but not delivered, any such successor to the Trustee
may adopt the certificate of authentication of any predecessor Trustee and
deliver such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee; and in all such cases such certificate
shall have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have; provided
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Securities in the name of any
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predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
Section 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the
Company (or other obligor under the Securities), the Trustee shall be subject
to the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the
Trustee
(a) semiannually, not more than 10 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in subsection (a) hereof as of a date
not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act
Section 312(b) with other Holders with respect to their rights under this
Indenture or the Securities, and the Trustee shall comply with Trust Indenture
Act Section 312(b). The Company, the Trustee, the Security Registrar and any
other Person shall have the protection of Trust Indenture Act Section 312(c).
Further, every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee or
any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with Trust Indenture Act Section 312, regardless of the source from
which such
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information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Trust Indenture
Act Section 312.
Section 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with
the first May 15 after the issuance of Securities, the Trustee, if so required
under the Trust Indenture Act, shall transmit by mail to all Holders, in the
manner and to the extent provided in Trust Indenture Act Section 313(c), a
brief report dated as of such May 15 in accordance with and with respect to the
matters required by Trust Indenture Act Section 313(a). The Trustee shall also
transmit by mail to all Holders, in the manner and to the extent provided in
Trust Indenture Act Section 313(c), a brief report in accordance with and with
respect to the matters required by Trust Indenture Act Section 313(b)(2). (b)A
copy of each report transmitted to Holders pursuant to this Section 703 shall,
at the time of such transmission, be mailed to the Company and filed with each
stock exchange, if any, upon which the Securities are listed and also with the
Commission. The Company will notify the Trustee promptly if the Securities are
listed on any stock exchange.
Section 704. Reports by Company and Guarantors.
The Company, and each Guarantor, as the case may be, shall:
(a) file with the Trustee, within 15 days after the Company
or any Guarantor, as the case may be, is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) which the
Company or any Guarantor may be required to file with the Commission pursuant
to Section 13 or Section 15(d) of the Exchange Act; or, if the Company or any
Guarantor, as the case may be, is not required to file information, documents
or reports pursuant to either of said Sections, then it shall (i) deliver to
the Trustee annual audited financial statements of the Company and its
Subsidiaries, prepared on a Consolidated basis in conformity with GAAP as then
in effect, within 120 days after the end of each fiscal year of the Company,
and (ii) file with the Trustee and, to the extent permitted by law, the
Commission, in accordance with the rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such additional
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information, documents and reports with respect to compliance by the Company or
any Guarantor, as the case may be, with the conditions and covenants of this
Indenture as are required from time to time by such rules and regulations
(including such information, documents and reports referred to in Trust
Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information,
documents and reports required to be filed by the Company or any Guarantor, as
the case may be, pursuant to Section 1019 hereunder and subsections (a) and (b)
of this Section as are required by rules and regulations prescribed from time
to time by the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company and Guarantors May Consolidate, etc., Only on
Certain Terms.
(a) The Company will not, in any transaction or series of
related transactions, merge or consolidate with or into, or sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any Person or Persons, and the Company
will not permit any of the Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries
(determined on a Consolidated basis for the Company and the Restricted
Subsidiaries), to any other Person or Persons, unless at the time and after
giving effect thereto (i) either (A)(1) if the transaction or transactions is a
merger or consolidation involving the Company, the Company shall be the
surviving Person of such merger or consolidation or (2) if the transaction or
transactions is a merger or consolidation involving a Restricted Subsidiary,
such Restricted Subsidiary shall be the surviving Person of such merger or
consolidation, or (B)(1) the Person formed by such consolidation or into which
the Company or such Restricted Subsidiary is merged or to which the properties
and assets of the Company or such Restricted Subsidiary, as the case may be,
substantially as an entirety, are transferred (any such surviving Person or
transferee Person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and (2)(x) in the case of a
transaction involving the Company, the Surviving Entity shall expressly assume
by a supplemental indenture executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture and, in each case,
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the Securities and this Indenture shall remain in full force and effect, or (y)
in the case of a transaction involving a Restricted Subsidiary that is a
Guarantor, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, all the obligations of such Restricted Subsidiary
under its Guarantee and this Indenture and, in each case, such Guarantee and
Indenture shall remain in full force and effect; (ii) immediately after giving
effect to such transaction or series of related transactions on a pro forma
basis, no Default shall have occurred and be continuing; and (iii) if the
Company is then subject to Section 1008 hereof, the Company, or the Surviving
Entity, as the case may be, immediately after giving effect to such transaction
or series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under Section 1008
hereof.
(b) No Guarantor (other than a Guarantor whose Guarantee
is to be released in accordance with the terms of its Guarantee and this
Indenture as provided in paragraph (b) of Section 1013 hereof) shall, in any
transaction or series of related transactions, consolidate with or merge with
or into another Person, whether or not such Person is affiliated with such
Guarantor and whether or not such Guarantor is the Surviving Entity, unless (i)
the Surviving Entity (if other than such Guarantor) is a corporation organized
and validly existing under the laws of the United States, any State thereof or
the District of Columbia; (ii) the Surviving Entity (if other than such
Guarantor) expressly assumes by a supplemental indenture all the obligations of
such Guarantor under its Guarantee and the performance and observance of every
covenant of the Indenture and the Registration Rights Agreement to be performed
or observed by such Guarantor and (iii) immediately after giving effect to such
transaction or series of related transactions on a pro forma basis, no Default
shall have occurred and be continuing.
(c) In connection with any consolidation, merger, transfer,
lease or other disposition contemplated hereby, the Company shall deliver, or
cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, transfer, lease or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under this Indenture. In addition, each Guarantor, unless it is
the other party to the transaction or unless its Guarantee will be released and
discharged in accordance with its terms as a result of the transaction, will be
required to confirm, by supplemental indenture, that its Guarantee will
continue to apply to the obligations of the Company or the Surviving Entity
under this Indenture.
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Section 802. Successor Substituted.
Upon any consolidation or merger of the Company or any
Guarantor or any transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, in which the Company or a Guarantor
is not the continuing corporation, the successor corporation formed by such a
consolidation or into which the Company or such Guarantor is merged or to which
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture and the
Securities, as the case may be, or such Guarantor, as the case may be, under
the Indenture and the Guarantee of such Guarantor, as the case may be, with the
same effect as if such successor corporation had been named as the Company or
Guarantor, as the case may be, therein; and thereafter, except in the case of
(a) a lease or (b) any sale, assignment, conveyance, transfer, lease or other
disposition to a Restricted Subsidiary of the Company or such Guarantor, the
Company or such Guarantor, as the case may be, shall be discharged from all
obligations and covenants under the Indenture and the Notes and/or the
Guarantee of such Guarantor, as the case may be.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without Consent of
Holders.
Without the consent of any Holders, the Company and the
Guarantor, and any other obligor upon the Securities, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto or agreements or other
instruments with respect to the Indenture, the Securities or any Guarantee, in
form and substance satisfactory to the Trustee, for any of the following
purposes:
(a) to evidence the succession of another Person to the
Company, any Guarantor or any other obligor upon the Securities, and the
assumption by any such successor of the covenants of the Company or such
Guarantor or obligor herein and in the Securities and in any Guarantee in
accordance with Article Eight;
(b) to add to the covenants of the Company, any Guarantor or
any other obligor upon the Securities for the benefit of the Holders, or to
surrender any right or power conferred upon the Company or any Guarantor or any
other obligor upon the Securities, as applicable, herein, in the Securities or
in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any
provision herein or in any supplemental indenture, the Securities or any
Guarantee which may be
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defective or inconsistent with any other provision herein or in the Securities
or any Guarantee or to make any other provisions with respect to matters or
questions arising under this Indenture, the Securities or the Guarantees;
provided that, in each case, such provisions shall not materially adversely
affect the interest of the Holders;
(d) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 905 hereof or otherwise;
(e) to add a Guarantor pursuant to the requirements of
Section 1013 hereof or otherwise;
(f) to evidence and provide the acceptance of the appointment
of a successor trustee hereunder; or
(g) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders as additional
security for the payment and performance of the Company's or any Guarantor's
Indenture Obligations, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to this Indenture or
otherwise;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the legal rights of any Holder.
Section 902. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 901, with the consent of the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company, each Guarantor, if
any, and the Trustee, the Company and each Guarantor (if a party thereto) when
authorized by Board Resolutions, and the Trustee may (i) enter into an
indenture or indentures supplemental hereto or agreements or other instruments
with respect to any Guarantee in form and substance satisfactory to the
Trustee, for the purpose of adding any provisions to or amending, modifying or
changing in any manner or eliminating any of the provisions of this Indenture,
the Securities or any Guarantee (including but not limited to, for the purpose
of modifying in any manner the rights of the Holders under this Indenture, the
Securities or any Guarantee) or (ii) waive compliance with any provision in
this Indenture, the Securities or any Guarantee (other than waivers of past
Defaults covered by Section 513 and waivers of covenants which are covered by
Section 1020); provided, however, that no such supplemental indenture,
agreement or instrument shall, without the consent of the Holder of each
Outstanding Security affected thereby:
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(a) reduce the principal of or change the Stated Maturity of
any Security, or alter the provisions with respect to the redemption or
repurchase of the Notes in any manner adverse to the Holders of the Securities;
(b) reduce the rate of or change the time for payment of
interest on any such Security;
(c) change the place or currency of payment of principal of
(or premium) or interest on any such Security;
(d) modify any provisions of this Indenture relating to the
waiver of past defaults (including Sections 513 and 1020) (other than to add
sections of this Indenture or the Securities subject thereto) or the right of
the Holders to institute suit for the enforcement of any payment on or with
respect to any such Security or Guarantee in respect thereof or the
modification and amendment provisions of this Indenture and the Securities
(other than to add sections of this Indenture or the Securities which may not
be amended, supplemented or waived without the consent of each Holder therein
affected);
(e) modify any of the provisions of this Section 902 or
reduce the percentage of the principal amount of outstanding Securities
necessary for amendment to or waiver of compliance with any provision of this
Indenture or the Securities or for waiver of any Default in respect thereof;
(f) waive a default in the payment of principal of, interest
on, or redemption payment with respect to, the Securities (except a rescission
of acceleration of the Securities by the Holders thereof as provided in this
Indenture and a waiver of the payment default that resulted from such
acceleration);
(g) modify the ranking or priority of any Security or the
Guarantee in respect thereof of any Guarantor in any manner adverse to the
Holders of the Securities;
(h) modify the provisions of Sections 1011 or 1014 or modify
any of the provisions or definitions with respect thereto in a manner
materially adverse to the Holders of Notes affected thereby otherwise than in
accordance with this Indenture; or
(i) release any Guarantor from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with this
Indenture.
Upon the written request of the Company and each Guarantor, if
any, accompanied by a copy of Board Resolutions authorizing the execution of
any such supplemental indenture or Guarantee, and upon the filing with the
Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall
join with the Company and each Guarantor in the execution of such supplemental
indenture or Guarantee.
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It shall not be necessary for any Act of Holders under this
Section 902 to approve the particular form of any proposed supplemental
indenture or Guarantee or agreement or instrument relating to any Guarantee,
but it shall be sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 602 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture,
agreement or instrument (a) is authorized or permitted by this Indenture and
(b) does not violate the provisions of any agreement or instrument evidencing
any other Indebtedness of the Company, any Guarantor or any other Restricted
Subsidiary. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture, agreement or instrument which affects the
Trustee's own rights, duties or immunities under this Indenture, any Guarantee
or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article Nine may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Company and each Guarantor and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
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Section 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any Guarantor and
the Trustee of any supplemental indenture pursuant to the provisions of Section
902, the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture.
Section 908. Revocation and Effects of Consents.
Until an amendment or waiver becomes effective, a consent to
it by a Holder of a Security is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the
same Indebtedness as the consenting Holder's Security, even if a notation of
the consent is not made on any Security. However, any such Holder, or
subsequent Holder, may revoke the consent as to his Security or portion of a
Security if the Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. An amendment or waiver shall become
effective in accordance with its terms and thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
The Company shall maintain an office or agency where
Securities may be presented or surrendered for payment. The Company also will
maintain in The City of New York an office or agency where Securities may be
surrendered for registration of transfer, redemption or exchange and where
notices and demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location and any change in the location of any such offices
or agencies. If at any time the Company shall fail to maintain any such
required offices or agencies or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the office of the agent of the Trustee and the Company hereby
appoints the Trustee such agent as its agent to receive all such presentations,
surrenders, notices and demands.
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The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes, and
may from time to time rescind such designation. The Company will give prompt
written notice to the Trustee of any such designation or rescission and any
change in the location of any such office or agency.
The Trustee shall initially act as Paying Agent for the
Securities.
Section 1003. Money for Security Payments to Be Held in Trust.
If the Company or any of its Affiliates shall at any time act
as Paying Agent, it will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, segregate and hold in
trust for the benefit of the Holders entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
If the Company or any of its Affiliates is not acting as
Paying Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, deposit with a Paying
Agent a sum in same day funds sufficient to pay the principal, premium, if any,
or interest so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on the Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or
any Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
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(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Security and remaining unclaimed for two
years after such principal and premium, if any, or interest has become due and
payable shall promptly be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in the New York Times
and The Wall Street Journal (national edition), and mail to each such Holder,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
notification, publication and mailing, any unclaimed balance of such money then
remaining will promptly be repaid to the Company.
Section 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence and related rights and franchises (charter and statutory)
of the Company and each Restricted Subsidiary; provided, however, that the
Company shall not be required to preserve any such right or franchise or the
corporate existence of any such Restricted Subsidiary if the Board of Directors
of the Company shall determine that the preservation thereof is no longer
necessary or desirable in the conduct of the business of the Company and its
Restricted Subsidiaries as a whole and that the loss thereof would not
reasonably be expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder; and provided, further, however,
that the foregoing shall not prohibit a sale, transfer or conveyance of a
Restricted Subsidiary or any of its assets in compliance with the terms of this
Indenture.
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Section 1005. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a)
all taxes, assessments and governmental charges levied or imposed upon the
Company or any of its Restricted Subsidiaries shown to be due on any return of
the Company or any of its Restricted Subsidiaries or otherwise assessed or upon
the income, profits or property of the Company or any of its Restricted
Subsidiaries if failure to pay or discharge the same could reasonably be
expected to have a material adverse effect on the ability of the Company or any
Guarantor to perform any of their obligations hereunder and (b) all lawful
claims for labor, materials and supplies, which, if unpaid, would by law become
a Lien upon the property of the Company or any of its Restricted Subsidiaries,
except for any Lien permitted to be incurred under Section 1012, if failure to
pay or discharge the same could reasonably be expected to have a material
adverse effect on the ability of the Company or any Guarantor to perform any of
their obligations hereunder; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted and in respect of which appropriate reserves (in the good
faith judgment of management of the Company) are being maintained in accordance
with GAAP.
Section 1006. Maintenance of Properties.
The Company shall cause all material properties owned by the
Company and any of its Restricted Subsidiaries or used or held for use in the
conduct of its business or the business of any of its Restricted Subsidiaries
to be maintained and kept in good condition, repair and working order (ordinary
wear and tear excepted) and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of the Company may be
consistent with sound business practice and necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the reasonable judgment of the Company, desirable in the conduct of its
business or the business of any of its Restricted Subsidiaries and not
reasonably expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder.
Section 1007. Insurance.
The Company shall at all times keep all of its and its
Restricted Subsidiaries' properties which are of an insurable nature insured
with insurers, believed
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by the Company in good faith to be financially sound and responsible, against
loss or damage to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in the
same general geographic areas in which the Company and its Restricted
Subsidiaries operate, except where the failure to do so could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or prospects of the Company and its
Restricted Subsidiaries, taken as a whole.
Section 1008. Limitation on Indebtedness.
(a) The Company will not, and will not cause or permit any of
the Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
issue, guarantee or in any manner become liable for or with respect to the
payment of, contingently or otherwise (in each case, to "incur"), any
Indebtedness (including any Acquired Indebtedness but excluding any Permitted
Indebtedness); provided, however, that (i) the Company and any Guarantor may
incur Indebtedness (including Acquired Indebtedness) and (ii) any Restricted
Subsidiary may incur Acquired Indebtedness, if, in either case, immediately
after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage
Ratio of the Company is at least equal to 2.00:1.
(b) Notwithstanding the foregoing, the Company and, to the
extent specifically set forth below, the Restricted Subsidiaries may incur each
and all of the following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of the Company and Zale Delaware,
Inc. under the Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed $325,000,000;
(ii) Indebtedness of the Company or any Guarantor
under this Indenture, the Securities (including any Additional
Securities) and the Guarantees;
(iii) Indebtedness of the Company or any Restricted
Subsidiary not otherwise referred to in this paragraph (b)
that is outstanding on the Issue Date and is set forth on a
schedule hereto;
(iv) Indebtedness of the Company or any Restricted
Subsidiary in respect of performance bonds, bankers'
acceptances, trade letters of credit of the Company or any
Restricted Subsidiary and surety bonds provided by the Company
or any Restricted Subsidiary in the ordinary course of
business;
(v) Indebtedness of the Company owing to a Restricted
Subsidiary; provided that any Indebtedness for borrowed money
of the Company owing to a Restricted Subsidiary is made
pursuant to an intercompany note in the form of Exhibit A
attached hereto and is subordinated in accordance with
provisions set
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forth in the intercompany note attached hereto; provided,
further, that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or
transfer to a Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the Company not permitted
by this clause (v);
(vi) Indebtedness of a Wholly-Owned Restricted
Subsidiary or a Guarantor owing to the Company or another
Wholly-Owned Restricted Subsidiary; provided that any such
Indebtedness for borrowed money is made pursuant to an
intercompany note in the form of Exhibit A attached hereto;
provided, further, that (a) any disposition, pledge or
transfer of any such Indebtedness to a Person (other than the
Company or a Wholly- Owned Restricted Subsidiary) shall be
deemed to be an incurrence of such Indebtedness by the obligor
not permitted by this clause (vi), and (b) any transaction
pursuant to which any Wholly-Owned Restricted Subsidiary or
Guarantor, as the case may be, which has Indebtedness owing to
the Company or any other Wholly-Owned Restricted Subsidiary,
ceases to be a Wholly-Owned Restricted Subsidiary or
Guarantor, as the case may be, shall be deemed to be the
incurrence of Indebtedness by such Wholly-Owned Restricted
Subsidiary that is not permitted by this clause (vi);
(vii) Any guarantees of Indebtedness by a Restricted
Subsidiary incurred in compliance with Section 1013 hereof;
(viii) Interest Rate Protection Obligations of the
Company or any Restricted Subsidiary covering Indebtedness of
the Company or any Restricted Subsidiary (which Indebtedness
is otherwise permitted to be incurred under this covenant) to
the extent the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of
the Indebtedness to which such Interest Rate Protection
Obligations relate;
(ix) Indebtedness of the Company or any Restricted
Subsidiary under any Commodity Price Protection Agreements
which do not increase the amount of obligations of the Company
or any Restricted Subsidiary outstanding other than as a
result of fluctuations in commodity prices or by reason of
fees, indemnities and compensation payable thereunder;
(x) Indebtedness of the Company or any Restricted
Subsidiary under Currency Agreements relating to (a)
Indebtedness of the Company or any Restricted Subsidiary
and/or (b) obligations to purchase or sell assets or
properties, in each case, incurred in the ordinary course of
business of the Company or any Restricted Subsidiary;
provided, however, that such Currency Agreements do not
increase the Indebtedness or other obligations of the Company
or any Restricted Subsidiary outstanding other than as a
result of fluctuations in foreign currency
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exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(xi) Purchase Money Indebtedness (other than
Indebtedness incurred in connection with an Asset Acquisition)
and Capitalized Lease Obligations of the Company or any
Restricted Subsidiary, together in an aggregate amount not
exceeding $25,000,000 outstanding at any time;
(xii) (a) Indebtedness of the Company or any Guarantor
to the extent the proceeds thereof are used to Refinance
Indebtedness of the Company or any Guarantor or any
Restricted Subsidiary referred to under clause (ii) or (iii)
above and (b) Indebtedness of any Restricted Subsidiary used
to Refinance Indebtedness of such Restricted Subsidiary
referred to under clause (iii) above; provided, however, that,
in the case of either clause (a) or (b), the principal amount
of Indebtedness incurred pursuant to this clause (xii) (or, if
such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accreted
value attributable thereto since the original issuance of such
Indebtedness) shall not exceed the sum of the principal amount
of Indebtedness so Refinanced (or, if such Indebtedness
provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of
the maturity thereof, the original issue price of such
Indebtedness, plus any accreted value attributable thereto
since the original issuance of such Indebtedness), plus the
amount of any premium required to be paid in connection with
such Refinancing pursuant to the terms of such Indebtedness or
the amount of any premium reasonably determined by the Company
or a Restricted Subsidiary, as applicable, as necessary to
accomplish such Refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in
connection with such Refinancing; and
(xiii) in addition to the items referred to in clauses
(i) through (xii) above, additional Indebtedness of the
Company and the Restricted Subsidiaries not to exceed an
aggregate principal amount at any time outstanding of
$25,000,000.
For purposes of determining compliance with this Section 1008,
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness permitted by this covenant, the Company in its
sole discretion shall classify such item of Indebtedness and only be required
to include the amount of such Indebtedness as one of such types.
After the Securities have been assigned an Investment Grade
Rating by both Rating Agencies, and notwithstanding that the Securities may
later cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will not be
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subject to the provisions of this Section 1008; provided, that no Default has
occurred and is continuing at the time the Securities have been assigned such
rating.
Section 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not cause or permit
any of the Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution
or payment on or in respect of Capital Stock of the Company or any
Restricted Subsidiary or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any Restricted Subsidiary (other than dividends or distributions made to
the Company or a Restricted Subsidiary and dividends and distributions
payable solely in Capital Stock of the Company (other than Redeemable
Capital Stock) or in options, warrants or rights to purchase Capital Stock
of the Company (other than Redeemable Capital Stock) or dividends and
distributions made by a Restricted Subsidiary on a pro rata basis to all
stockholders of such Restricted Subsidiary); or
(ii) purchase, redeem, defease or otherwise acquire or retire
for value any Capital Stock of the Company or any Affiliate of the Company
(other than any such Capital Stock owned by the Company or a Restricted
Subsidiary that is a Guarantor); or
(iii) make any principal payment on, or purchase, defease,
repurchase, redeem or otherwise acquire or retire for value, prior to any
scheduled maturity, scheduled repayment, scheduled sinking fund payment or
other Stated Maturity, any Subordinated Indebtedness (other than any
Subordinated Indebtedness owed to and held by the Company or a Restricted
Subsidiary that is a Guarantor); or
(iv) make any Investment (other than a Permitted Investment)
(such payments or Investments (other than an exception thereto) described in
the preceding clauses (i), (ii), (iii) and (iv) are collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if
other than in cash, shall be the Fair Market Value of the asset(s) proposed to
be transferred by the Company or such Restricted Subsidiary, as the case may
be, pursuant to such Restricted Payment as determined by the Board of Directors
of the Company, whose determination shall be conclusive and evidenced by a
Board Resolution):
(A) no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event which is, or
after notice or lapse
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of time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Restricted Subsidiaries;
(B) the aggregate amount of all Restricted Payments declared
or made from and after the Issue Date and all Designation Amounts would
not exceed the sum of (1) 50% of cumulative Consolidated Net Income of
the Company during the period (treated as one accounting period)
beginning on the first day of the fiscal quarter beginning after the
Issue Date and ending on the last day of the fiscal quarter of the
Company immediately preceding the date of such proposed Restricted
Payment for which consolidated financial information of the Company is
available (or, if such cumulative Consolidated Net Income of the
Company for such period shall be a loss, minus 100% of such loss), plus
(2) the aggregate Net Cash Proceeds received by the Company either (x)
as capital contributions to the Company increasing its common equity
after the Issue Date or (y) from the issuance or sale of Capital Stock
(excluding Redeemable Capital Stock but including Capital Stock issued
upon the conversion of convertible Indebtedness in exchange for
outstanding Indebtedness of the Company issued after the Issue Date or
from the exercise of options, warrants or rights to purchase Capital
Stock (other than Redeemable Capital Stock)) of the Company to any
Person (other than to a Subsidiary of the Company) after the Issue Date
(excluding the Net Cash Proceeds from any issuance and sale of Capital
Stock financed, directly or indirectly, using funds borrowed from the
Company or any Restricted Subsidiary until and to the extent such
borrowing is repaid), plus (3) without duplication of any amounts
included in clause (1) above, in the case of the disposition or
repayment of any Investment constituting a Restricted Payment made
after the Issue Date, an amount (to the extent not included in
Consolidated Net Income) equal to the lesser of the return of capital
with respect to such Investment and the initial amount of such
Investment which was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment and net of taxes,
plus (4) without duplication of any amounts included in clause (1)
above so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after
the Issue Date in accordance with Section 1017 hereof, the Fair Market
Value of the Company's interest in such Restricted Subsidiary;
provided, however, that such amount shall not in any case exceed the
Designation Amount with respect to such Restricted Subsidiary at the
time of its Designation; and
(C) the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under Section 1008 hereof.
(b) None of the foregoing provisions of this covenant will
prohibit or restrict (i) the payment of any dividend within 60 days after the
date of its declaration, if at the date of declaration such payment would be
permitted by the provisions of this
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Indenture; (ii) so long as no Default shall have occurred and be continuing or
would arise therefrom, the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the Company in
exchange for, or out of the Net Cash Proceeds of, a substantially concurrent
issue and sale of other shares of Capital Stock (other than Redeemable Capital
Stock) of the Company to any Person (other than to a Subsidiary); provided,
however, that any such Net Cash Proceeds and the value of any Capital Stock
issued in exchange for such retired Capital Stock are excluded from clause
(B)(2) of the preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing or would arise therefrom, any redemption, repurchase
or other acquisition or retirement of Subordinated Indebtedness made by
exchange for, or out of the Net Cash Proceeds of, a substantially concurrent
issue and sale of (A) Capital Stock (other than Redeemable Capital Stock) of
the Company to any Person (other than to a Subsidiary); provided, however, that
any such Net Cash Proceeds and the value of any Capital Stock issued in
exchange for Subordinated Indebtedness are excluded from clause (B)(2) of the
preceding paragraph or (B) Indebtedness of the Company or any Guarantor so long
as such Indebtedness (1) is subordinated to the Securities or the Guarantee of
such Guarantor, as the case may be, at least to the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased,
acquired or retired and (2) does not have a Stated Maturity earlier than the
Stated Maturity for the Subordinated Indebtedness being redeemed, repurchased
or otherwise acquired or retired; (iv) so long as no Default shall have
occurred and be continuing, any purchase, redemption or other acquisition or
retirement for value of any Capital Stock (including any option, warrant or
right to purchase Capital Stock) (other than Redeemable Capital Stock) of the
Company for purposes of making contributions of such Capital Stock of the
Company to employees or directors of the Company or its Subsidiaries pursuant
to any employee benefit, stock purchase or similar plan; (v) a Restricted
Payment to pay for the repurchase, retirement or other acquisition or
retirement for value of Capital Stock (or warrants or options convertible into
or exchangeable for such Capital Stock) of the Company held by any future,
present or former employee, director or consultant of the Company or any
Subsidiary pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; provided, however, that
the aggregate amount of Restricted Payments made pursuant to this clause (v)
does not exceed in any calendar year $5,000,000 (with the unused amount in any
calendar year being carried over to succeeding calendar years subject to a
maximum of $10,000,000 in any calendar year); (vi) payments or distributions to
dissenting stockholders pursuant to applicable law, pursuant to or in
connection with an Asset Sale or Asset Acquisition that complies with the
provisions of this Indenture; (vii) repurchases of Capital Stock (or warrants
or options convertible into or exchangeable for such Capital Stock) deemed to
occur upon exercise of stock options to the extent that shares of such Capital
Stock (or warrants or options convertible into or exchangeable for such Capital
Stock) represent a portion of the exercise price of such options; and (viii)
any declaration of a dividend in connection with implementation of any
stockholders' right plan, or the issuance of rights,
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stock or other property under any such plan, or the redemption, repurchase or
other acquisition of any such rights pursuant thereto. In computing the amount
of Restricted Payments previously made for purposes of clause (B) of the
preceding paragraph, Restricted Payments (to the extent not otherwise included
therein) under the immediately preceding clauses (i), (iv), (v), (vi) and (vii)
shall be included.
After the Securities have been assigned an Investment Grade
Rating by both Rating Agencies, and notwithstanding that the Securities may
later cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will not be subject to the provisions of this Section 1009;
provided that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
Section 1010. Limitation on Transactions with Affiliates.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, conduct any business or
enter into any transaction or series of related transactions with, or for the
benefit of, any of their respective Affiliates or any officer or director of
the Company or any Subsidiary (each, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is entered into in good faith and on terms that are
no less favorable to the Company or the Restricted Subsidiary, as the case may
be, than those which could have been obtained in a comparable transaction at
such time from Persons who do not have such a relationship and (ii) with
respect to any Affiliate Transaction or series of Affiliate Transactions
involving aggregate payments or value equal to or greater than $5,000,000, the
Company shall have delivered an Officer's Certificate to the Trustee certifying
that such Affiliate Transaction or series of related Affiliate Transactions
complies with the preceding clause (i) and, with respect to any Affiliate
Transaction or series of Affiliate Transactions involving aggregate payments or
value equal to or greater than $10,000,000, further certifying that (a) such
Affiliate Transaction or series of Affiliate Transactions has been approved by
a majority of the Board of Directors of the Company, including a majority of
the Disinterested Directors of the Board of Directors of the Company or (b) the
Company has received a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transactions or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions with or among the Company and
its Wholly-Owned Restricted Subsidiaries; (ii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries,
bonuses or employment agreements, compensation or employee benefit arrangements
and incentive arrangements with any officer, director or employee of the
Company or any Restricted Subsidiary entered into in
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the ordinary course of business (including customary benefits thereunder) and
payments under any indemnification arrangements permitted by applicable law;
(iii) any dividends made in compliance with Section 1009 hereof; (iv) loans and
advances to officers, directors, employees and consultants of the Company or
any Restricted Subsidiary for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business; (v)
transactions with or by any Accounts Receivable Subsidiary made in the ordinary
course of business and transactions related to any proprietary credit card
issued by or for the benefit of the Company or an Affiliate of the Company in
the ordinary course of business; (vi) any agreement or Affiliate Transactions
as in effect on the Issue Date and any transaction contemplated thereby; and
(vii) tax sharing agreements between the Company and any of its Subsidiaries
providing for the payment by such Subsidiary of an amount equal to the
hypothetical United States tax liability of the Subsidiary as if such
Subsidiary had filed its own U.S. federal tax return for any given taxable
year.
After the Securities have been assigned an Investment Grade
Rating by both Rating Agencies, and notwithstanding that the Securities may
later cease to have an Investment Grade Rating, the Company and the Restricted
Subsidiaries will not be subject to the provisions of this Section 1010;
provided that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
Section 1011. Disposition of Proceeds of Asset Sales.
(a) The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (ii) at least 75% of such
consideration consists of cash or Cash Equivalents. The amount of any (i)
Indebtedness of a Restricted Subsidiary that is not a Guarantor that is
actually assumed by the transferee in such Asset Sale and from which the
Company and the Restricted Subsidiaries are fully released shall be deemed to
be cash for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries (and excluding any
liabilities that are incurred in connection with or in anticipation of such
Asset Sale) and (ii) notes or other similar obligations received by the Company
or any Restricted Subsidiary from such transferee that are immediately
converted, sold or exchanged (or are converted, sold or exchanged within thirty
days of the related Asset Sale) by the Company or the Restricted Subsidiaries
into cash shall be deemed to be cash, in an amount equal to the Net Cash
Proceeds realized upon such conversion, sale or exchange for purposes of
determining the percentage of cash consideration received by the Company or the
Restricted Subsidiaries.
(b) If all or a portion of the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay permanently any Senior
Indebtedness (other than the
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Securities), Senior Guarantor Indebtedness (other than the Guarantees) or
Indebtedness of a Wholly-Owned Restricted Subsidiary outstanding as required by
the terms thereof, or the Company determines not to apply such Net Cash
Proceeds to the permanent repayment of the Senior Indebtedness (other than the
Securities), Senior Guarantor Indebtedness (other than the Guarantees) or
Indebtedness of a Wholly-Owned Restricted Subsidiary, or if no Senior
Indebtedness (other than the Securities), Senior Guarantor Indebtedness (other
than the Guarantees) or Indebtedness of a Wholly-Owned Restricted Subsidiary is
outstanding, then the Company or a Restricted Subsidiary may, within 365 days
of such Asset Sale, invest the Net Cash Proceeds in capital expenditures,
properties and other assets that replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
the business of the Company or its Restricted Subsidiaries existing on the date
hereof or in businesses reasonably related thereto.
(c) To the extent all or part of the Net Cash Proceeds of any
Asset Sale are not applied within 365 days of such Asset Sale as described in
the immediately preceding paragraph (such Net Cash Proceeds, the "Unutilized
Net Cash Proceeds"), the Company will apply the Unutilized Net Cash Proceeds to
the repayment of the Securities and any other Pari Passu Indebtedness
outstanding with similar provisions requiring the Company to make an offer to
purchase such Indebtedness as follows: (A) the Company shall, within 20 days
after such 365th day, make an offer to purchase (the "Asset Sale Offer") all
outstanding Securities in the maximum principal amount (expressed as a multiple
of $1,000) of Securities that may be purchased out of an amount (the "Security
Amount") equal to the product of such Unutilized Net Cash Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount of
the Securities, and the denominator of which is the sum of the outstanding
principal amount of the Securities and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Securities tendered) and (B) to the extent required by
such Pari Passu Indebtedness to permanently reduce the principal amount of such
Pari Passu Indebtedness, the Company will make an offer to purchase or
otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer")
in an amount (the "Pari Passu Debt Amount") equal to the excess of the
Unutilized Net Cash Proceeds over the Security Amount; provided that in no
event will the Company be required to make a Pari Passu Offer in a Pari Passu
Debt Amount exceeding the principal amount of such Pari Passu Indebtedness plus
the amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price (the "Offered Price") for the Securities will be
payable in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of purchase, in
accordance with the procedures set forth herein. Notwithstanding the above,
the Asset Sale Offer may be deferred until there are aggregate Unutilized Net
Cash Proceeds equal to or in excess of $10,000,000, at which time the entire
amount of such Unutilized Net
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Cash Proceeds, and not just the amount in excess of $10,000,000, shall be
applied as required pursuant to this paragraph.
(d) With respect to any Asset Sale Offer effected pursuant to
this covenant, among the Securities, to the extent the aggregate principal
amount of Securities and Pari Passu Indebtedness tendered pursuant to such
Asset Sale Offer exceeds the Unutilized Net Cash Proceeds to be applied to the
repurchase, such Securities shall be purchased pro rata based on the aggregate
principal amount of such Securities and Pari Passu Indebtedness tendered by
each holder. To the extent the aggregate Offered Price of the Securities
tendered pursuant to the Asset Sale Offer is less than the Security Amount
relating thereto or the aggregate principal amount of Pari Passu Indebtedness
that is purchased in a Pari Passu Offer is less than the Pari Passu Debt
Amount, the Company may retain and utilize any portion of the Unutilized Net
Cash Proceeds not applied to repurchase the Securities and Pari Passu
Indebtedness for any purpose consistent with the other terms of this Indenture.
Upon the completion of the purchase of all the Securities tendered pursuant to
an Asset Sale Offer and the completion of a Pari Passu Offer, the amount of
Unutilized Net Cash Proceeds, if any, shall be reset at zero.
(e) If the Company becomes obligated to make an Asset Sale
Offer pursuant to this Section, the Securities and the Pari Passu Indebtedness
shall be purchased by the Company, at the option of the holders thereof, in
whole or in part in integral multiples of $1,000, on a date (the "Offer Date")
that is not earlier than 45 days and not later than 60 days from the date the
notice of the Asset Sale Offer is given to holders, or such later date as may
be necessary for the Company to comply with the requirements of the Exchange
Act.
(f) In the event that the Company makes an Asset Sale Offer,
the Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other applicable securities laws or
regulations and any applicable requirements of any securities exchange on which
the Securities are listed, and any violation of the provisions of this
Indenture relating to such Asset Sale Offer occurring as a result of such
compliance shall not be deemed a Default or an Event of Default.
(g) Subject to paragraph (f) above, within 20 days after the
date on which the amount of Unutilized Net Cash Proceeds equals or exceeds
$10,000,000, the Company shall send or cause to be sent by first-class mail,
postage prepaid, to the Trustee and to each Holder, at his address appearing in
the Security Register, a notice stating or including:
(1) that the Holder has the right to require the
Company to repurchase, subject to proration, such Holder's
Securities at the Offered Price;
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(2) the Offer Date;
(3) the instructions a Holder must follow in order
to have his Securities purchased in accordance with paragraph
(c) of this Section;
(4) (i) the most recently filed Annual Report on Form
10-K (including audited consolidated financial statements) of
the Company, the most recent subsequently filed Quarterly
Report on Form 10-Q, as applicable, and any Current Report on
Form 8- K of the Company filed subsequent to such Quarterly
Report, other than Current Reports describing Asset Sales
otherwise described in the offering materials (or
corresponding successor reports) (or in the event the Company
is not required to prepare any of the foregoing Forms, the
comparable information required pursuant to Section 1020),
(ii) a description of material developments, if any, in the
Company's business subsequent to the date of the latest of
such Reports, (iii) if material, appropriate pro forma
financial information, and (iv) such other information, if
any, concerning the business of the Company which the Company
in good faith believes will enable such Holders to make an
informed investment decision regarding the Asset Sale Offer;
(5) the Offered Price;
(6) the names and addresses of the Paying Agent and
the offices or agencies referred to in Section 1002;
(7) that Securities must be surrendered prior to the
Offer Date to the Paying Agent at the office of the Paying
Agent or to an office or agency referred to in Section 1002 to
collect payment;
(8) that any Securities not tendered will continue
to accrue interest and that unless the Company defaults in the
payment of the Offered Price, any Security accepted for
payment pursuant to the Asset Sale Offer shall cease to accrue
interest on and after the Offer Date;
(9) the procedures for withdrawing a tender; and
(10) that the Offered Price for any Security which
has been properly tendered and not withdrawn and which has
been accepted for payment pursuant to the Asset Sale Offer
will be paid promptly following the Offer Date.
(h) Holders electing to have Securities purchased hereunder
will be required to surrender such Securities at the address specified in the
notice on or prior to the Offer Date. Holders will be entitled to withdraw
their election to have their Securities
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purchased pursuant to this Section 1013 if the Company receives, not later than
the Offer Date, a telegram, telex, facsimile transmission or letter setting
forth (1) the name of the Holder, (2) the certificate number of the Security in
respect of which such notice of withdrawal is being submitted, (3) the
principal amount of the Security (which shall be $1,000 or an integral multiple
thereof) delivered for purchase by the Holder as to which his election is to be
withdrawn, (4) a statement that such Holder is withdrawing his election to have
such principal amount of such Security purchased, and (5) the principal amount,
if any, of such Security (which shall be $1,000 or an integral multiple
thereof) that remains subject to the original notice of the Asset Sale Offer
and that has been or will be delivered for purchase by the Company.
(i) The Company shall (i) not later than the Offer Date,
accept for payment Securities or portions thereof tendered pursuant to the
Asset Sale Offer, (ii) not later than 10:00 a.m. (New York time) on the
Business Day following the Offer Date, deposit with the Trustee or with a
Paying Agent an amount of money in same day funds (or New York Clearing House
funds if such deposit is made prior to the Offer Date) sufficient to pay the
aggregate Offered Price of all the Securities or portions thereof which are to
be purchased on that date and (iii) not later than 10:00 a.m. (New York time)
on the Business Day following the Offer Date, deliver to the Paying Agent an
Officers' Certificate stating the Securities or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the Offered
Price of the Securities purchased from each such Holder, and the Company shall
execute and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Paying Agent at the Company's expense to the Holder
thereof. For purposes of this Section 1011, the Company shall choose a Paying
Agent which shall not be the Company.
Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together
with interest, if any, thereon, held by them for the payment of the Offered
Price; provided, however, that (x) to the extent that the aggregate amount of
cash deposited by the Company with the Trustee in respect of an Offer exceeds
the aggregate Offered Price of the Securities or portions thereof to be
purchased, then the Trustee shall hold such excess for the Company and (y)
unless otherwise directed by the Company in writing, promptly after the
Business Day following the Offer Date the Trustee shall return any such excess
to the Company together with interest or dividends, if any, thereon.
(j) Securities to be purchased shall, on the Offer Date,
become due and payable at the Offered Price and from and after such date
(unless the Company shall default in the payment of the Offered Price) such
Securities shall cease to bear interest. Such Offered Price shall be paid to
such Holder promptly following the later of the Offer
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Date and the time of delivery of such Security to the relevant Paying Agent at
the office of such Paying Agent by the Holder thereof in the manner required.
Upon surrender of any such Security for purchase in accordance with the
foregoing provisions, such Security shall be paid by the Company at the Offered
Price; provided, however, that installments of interest whose Stated Maturity
is on or prior to the Offer Date shall be payable to the Person in whose name
the Securities (or any Predecessor Securities) is registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 309; provided, further, that Securities to be purchased are subject to
proration in the event the Unutilized Net Cash Proceeds are less than the
aggregate Offered Price of all Securities tendered for purchase, with such
adjustments as may be appropriate by the Trustee so that only Securities in
denominations of $1,000 or integral multiples thereof, shall be purchased. If
any Security tendered for purchase shall not be so paid upon surrender thereof
by deposit of funds with the Trustee or a Paying Agent in accordance with
paragraph (h) above, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Offer Date at the rate borne by such
Security. Any Security that is to be purchased only in part shall be
surrendered to a Paying Agent at the office of such Paying Agent (with, if the
Company, the Security Registrar or the Trustee so requires, due endorsement by,
or a written instrument of transfer in form satisfactory to the Company and the
Security Registrar or the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute
and the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge, one or more new Securities of any authorized
denomination as requested by such Holder in an aggregate principal amount equal
to, and in exchange for, the portion of the principal amount of the Security so
surrendered that is not purchased. The Company shall publicly announce the
results of the Offer on or as soon as practicable after the Offer Date.
(k) After the Securities have been assigned an Investment
Grade Rating by both Rating Agencies, and notwithstanding that the Securities
may later cease to have an Investment Grade Rating, the Company and the
Restricted Subsidiaries will not be subject to the provisions of this Section
1011; provided, that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
Section 1012. Limitation on Liens.
The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create, incur or assume, any
Lien of any kind (other than Permitted Liens), upon any of its property or
assets, whether now owned or acquired after the Issue Date, or any proceeds
therefrom, or assign or convey any right to receive income therefrom to secure
either (i) Subordinated Indebtedness, unless the Securities, in the case of the
Company, and the Guarantees, in the case of a Restricted Subsidiary that is a
Guarantor, are secured by a Lien on such property, assets or proceeds that is
senior in priority to the Liens securing such Subordinated Indebtedness or (ii)
any other
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Indebtedness, unless the Securities and the Guarantees, in the case of a
Restricted Subsidiary that is a Guarantor, are equally and ratably secured
thereby.
Section 1013. Limitation on Guarantees by Restricted Subsidiaries.
(a) The Company will not cause or permit any of the
Restricted Subsidiaries, directly or indirectly, to guarantee the payment of
any Indebtedness of the Company or any Restricted Subsidiary ("Other
Indebtedness"), except for guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers incurred in the ordinary course of
business, unless such Restricted Subsidiary (A) is a Guarantor or (B)
simultaneously executes and delivers a supplemental indenture to this Indenture
pursuant to which it will become a Guarantor hereunder; provided, however,
that if such Other Indebtedness is (i) Indebtedness that is ranked pari passu
in right of payment with the Securities or the Guarantee of such Restricted
Subsidiary, as the case may be, the Guarantee of such Restricted Subsidiary
shall be pari passu in right of payment with the guarantee of the Other
Indebtedness; or (ii) Subordinated Indebtedness, the Guarantee of such
Restricted Subsidiary shall be senior in right of payment to the guarantee of
the Other Indebtedness (which guarantee of such Subordinated Indebtedness shall
provide that such guarantee is subordinated to the Guarantees of such
Restricted Subsidiary to the same extent and in the same manner as the other
Indebtedness is subordinated to the Securities or the Guarantee of such
Restricted Subsidiary, as the case may be).
(b) Notwithstanding the above, any Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Capital Stock of such Restricted
Subsidiary held by the Company, or all or substantially all the assets of such
Restricted Subsidiary, which transaction is in compliance with the terms of
this Indenture and in which such Restricted Subsidiary is released from all
guarantees, if any, by it of Other Indebtedness of the Company or any
Restricted Subsidiaries or (ii) (with respect to any Guarantees created after
the date of this Indenture) the release by the holders of the Indebtedness of
the Company described above of their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness), at a time when (A) no Other Indebtedness of the Company has
been guaranteed by such Restricted Subsidiary or (B) the holders of all such
Other Indebtedness which is guaranteed by such Restricted Subsidiary also
release their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness).
Section 1014. Purchase of Securities upon a Change of Control Triggering
Event.
(a) If a Change of Control Triggering Event shall occur at
any time (the date of such occurrence being the "Change of Control Date"), then
each Holder shall have
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the right to require that the Company purchase such Holder's Securities in
whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Purchase Date"), pursuant to
the offer described below in this Section 1014 (the "Change of Control Offer")
and in accordance with the other procedures set forth in subsections (b), (c),
(d), (e), (f) and (g) of this Section 1014.
(b) Within 20 days after the Change of Control Date, the
Company shall notify the Trustee thereof and give written notice (a "Change of
Control Purchase Notice") of such Change of Control to each Holder by first-
class mail, postage prepaid, at his address appearing in the Security Register,
stating among other things:
(1) that a Change of Control has occurred, the date
of such event, and that such Holder has the right to require
the Company to repurchase such Holder's Securities at the
Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding
such Change of Control (including but not limited to
information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of
Control);
(3) (i) the most recently filed Annual Report on
Form 10-K (including audited consolidated financial
statements) of the Company, the most recent subsequently filed
Quarterly Report on Form 10-Q, as applicable, and any Current
Report on Form 8- K of the Company filed subsequent to such
Quarterly Report (or in the event the Company is not required
to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any
Guarantor pursuant to Section 1018), (ii) a description of
material developments, if any, in the Company's business
subsequent to the date of the latest of such reports and (iii)
such other information, if any, concerning the business of the
Company which the Company in good faith believes will enable
such Holders to make an informed investment decision regarding
the Change of Control Offer;
(4) that the Change of Control Offer is being made
pursuant to this Section 1014 and that all Securities properly
tendered pursuant to the Change of Control Offer will be
accepted for payment at the Change of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall
be a Business Day no earlier than 30 days nor later than 60
days from the date
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such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and
the offices or agencies referred to in Section 1002;
(8) that Securities must be surrendered prior to the
Change of Control Purchase Date to the Paying Agent at the
office of the Paying Agent or to an office or agency referred
to in Section 1002 to collect payment;
(9) that the Change of Control Purchase Price for
any Security which has been properly tendered and not
withdrawn will be paid promptly following the Change of
Control Offer Purchase Date;
(10) the procedures that a Holder must follow to
accept a Change of Control Offer or to withdraw such
acceptance;
(11) that any Security not tendered will continue to
accrue interest; and
(12) that, unless the Company defaults in the payment
of the Change of Control Purchase Price, any Securities
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date.
(c) Upon receipt by the Company of the proper tender of
Securities, the Holder of the Security in respect of which such proper tender
was made shall (unless the tender of such Security is properly withdrawn)
thereafter be entitled to receive solely the Change of Control Purchase Price
with respect to such Security. Upon surrender of any such Security for
purchase in accordance with the foregoing provisions, such Security shall be
paid by the Company at the Change of Control Purchase Price; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Change of Control Purchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 309. If any Security tendered for purchase in accordance with the
provisions of this Section 1014 shall not be so paid upon surrender thereof,
the principal thereof (and premium, if any, thereon) shall, until paid, bear
interest from the Change of Control Purchase Date at the rate borne by such
Security. Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Change of Control Purchase Notice on or prior to the Change of Control Purchase
Date. Any Security that is to be
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purchased only in part shall be surrendered to a Paying Agent at THE office of
such Paying Agent (with, if the Company, the Security Registrar or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Security Registrar or the Trustee, as the
case may be, duly executed by, the Holder thereof or such Holder's attorney
duly authorized in writing), and the Company shall execute and the Trustee
shall authenticate and deliver to the Holder of such Security, without service
charge, one or more new Securities of any authorized denomination as requested
by such Holder in an aggregate principal amount equal to, and in exchange for,
the portion of the principal amount of the Security so surrendered that is not
purchased.
(d) The Company shall (i) not later than the Change of
Control Purchase Date, accept for payment Securities or portions thereof
tendered pursuant to the Change of Control Offer, (ii) not later than 10:00
a.m. (New York time) on the Business Day following the Change of Control
Purchase Date, deposit with the Trustee or with a Paying Agent an amount of
money in same day funds (or New York Clearing House funds if such deposit is
made prior to the Change of Control Purchase Date) sufficient to pay the
aggregate Change of Control Purchase Price of all the Securities or portions
thereof which are to be purchased as of the Change of Control Purchase Date and
(iii) not later than 10:00 a.m. (New York time) on the Business Day following
the Change of Control Purchase Date, deliver to the Paying Agent an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Change of Control
Purchase Price of the Securities purchased from each such Holder, and the
Company shall execute and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Paying Agent at the
Company's expense to the Holder thereof. The Company will publicly announce
the results of the Change of Control Offer on the Change of Control Purchase
Date. For purposes of this Section 1014, the Company shall choose a Paying
Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase
Notice may be withdrawn if the Company receives, not later than one Business
Day prior to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect
of which such notice of withdrawal is being submitted;
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(3) the principal amount of the Security (which shall
be $1,000 or an integral multiple thereof) delivered for
purchase by the Holder as to which such notice of withdrawal
is being submitted;
(4) a statement that such Holder is withdrawing his
election to have such principal amount of such Security
purchased; and
(5) the principal amount, if any, of such Security
(which shall be $1,000 or an integral multiple thereof) that
remains subject to the original Change of Control Purchase
Notice and that has been or will be delivered for purchase by
the Company.
(f) Subject to applicable escheat laws, the Trustee and the
Paying Agent shall return to the Company any cash that remains unclaimed,
together with interest or dividends, if any, thereon, held by them for the
payment of the Change of Control Purchase Price; provided, however, that, (x)
to the extent that the aggregate amount of cash deposited by the Company
pursuant to clause (ii) of paragraph (d) above exceeds the aggregate Change of
Control Purchase Price of the Securities or portions thereof to be purchased,
then the Trustee shall hold such excess for the Company and (y) unless
otherwise directed by the Company in writing, promptly after the Business Day
following the Change of Control Purchase Date the Trustee shall return any such
excess to the Company together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act, and any other applicable
securities laws or regulations and any applicable requirements of any
securities exchange on which the Securities are listed, in connection with the
repurchase of Securities pursuant to a Change of Control Offer, and any
violation of the provisions of this Indenture relating to such Change of
Control Offer occurring as a result of such compliance, shall not be deemed a
Default or Event of Default hereunder.
Section 1015. Restrictions on Preferred Stock of Restricted Subsidiaries.
(a) The Company will not sell, and will not cause or permit
any of the Restricted Subsidiaries to issue, sell or transfer, any Preferred
Stock of any Restricted Subsidiary (other than (i) to the Company or to a
Wholly-Owned Restricted Subsidiary and (ii) Preferred Stock issued by a Person
prior to the time (A) such Person becomes a Restricted Subsidiary, (B) such
Person merges with or into a Restricted Subsidiary or (C) a Restricted
Subsidiary merges with or into such Person; provided that such Preferred Stock
was not issued or incurred by such Person in anticipation of the type of
transaction contemplated by subclause (A), (B) or (C)).
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(b) The Company will not permit any Person (other than the
Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of
any Restricted Subsidiary except upon the acquisition of all of the outstanding
Capital Stock of such Restricted Subsidiary in accordance with the terms of
this Indenture.
(c) After the Securities have been assigned an Investment
Grade Rating by both Rating Agencies, and notwithstanding that the Securities
may later cease to have an Investment Grade Rating, the Company and the
Restricted Subsidiaries will not be subject to the provisions of this Section
1015; provided, that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
Section 1016. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
(a) The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause, or
enter into any agreement with any Person that would cause to become effective,
any consensual encumbrance or restriction of any kind, on the ability of any
Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make any
other distribution on or in respect of its Capital Stock or any other interest
or participation in, or measured by, its profits, to the Company or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (iv) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except any encumbrance or restriction (A) with
respect to a Restricted Subsidiary that is not a Restricted Subsidiary on the
Issue Date, in existence at the time such Person becomes a Restricted
Subsidiary (but not created in contemplation thereof); provided, however, that
such encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than such Person; (B) arising as a result of
customary non-assignment provisions in leases entered into in the ordinary
course of business; (C) existing under any agreement governing the terms of or
otherwise arising as a result of Purchase Money Indebtedness (other than
Indebtedness incurred to finance an Asset Acquisition) for property acquired in
the ordinary course of business that only imposes encumbrances and restrictions
on the property so acquired; (D) contained in any agreement for the sale or
disposition of the Capital Stock or assets of any Restricted Subsidiary;
provided, however, that such encumbrances and restrictions described in this
clause (D) are only applicable to such Restricted Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with Section
1011 hereof to the extent applicable thereto; (E) existing under any agreement
that Refinances the agreements containing the encumbrance or restrictions in
the foregoing clause (A); provided, however, that the terms and conditions of
any such restrictions permitted under this clause (E) are not materially less
favorable to the holders
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of the Securities than those under or pursuant to the agreement evidencing the
Indebtedness Refinanced; or (F) in existence as a result of applicable law.
(b) After the Securities have been assigned an Investment
Grade Rating by both Rating Agencies, and notwithstanding that the Securities
may later cease to have an Investment Grade Rating, the Company and the
Restricted Subsidiaries will not be subject to the provisions of this Section
1016; provided, that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
Section 1017. Limitation on Designations of Unrestricted Subsidiaries.
(a) The Company may designate after the Issue Date any
Subsidiary (other than a Guarantor) as an "Unrestricted Subsidiary" under this
Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) the Company would be permitted to make an
Investment (other than a Permitted Investment) at the time of
Designation (assuming the effectiveness of such Designation)
pursuant to the first paragraph of Section 1009 in an amount
(the "Designation Amount") equal to the greater of (1) the net
book value of the Company's interest in such Subsidiary
calculated in accordance with GAAP or (2) the Fair Market
Value of the Company's interest in such Subsidiary as
determined in good faith by the Company's Board of Directors;
(iii) if the Company is then subject to Section 1008
hereof, the Company would be permitted under the Indenture to
incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 1008 at the time of such
Designation (assuming the effectiveness of such Designation);
and
(iv) such Unrestricted Subsidiary does not own any
Capital Stock in any Restricted Subsidiary of the Company
which is not simultaneously being designated an Unrestricted
Subsidiary.
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to Section 1009 hereof
for all purposes of this Indenture in the Designation Amount.
(b) (i) The Company shall not and shall not cause or permit
any Restricted Subsidiary to at any time (x) provide credit support for, or
subject any of its property or assets (other than the Capital Stock of any
Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness) (other than
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Permitted Investments in Unrestricted Subsidiaries) or (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary and (ii)
no Unrestricted Subsidiary shall at any time guarantee or otherwise provide
credit support for any obligation of the Company or any Restricted Subsidiary.
For purposes of the foregoing, the Designation of a Subsidiary of the Company
as an Unrestricted Subsidiary shall be deemed to be the Designation of all of
the Subsidiaries of such Subsidiary.
(c) The Company may revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation
would, if incurred at such time, have been permitted to be
incurred for all purposes of the Indenture;
(iii) if the Company is then subject to Section 1008
hereof, unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would
be Permitted Indebtedness), immediately after giving effect to
such proposed Revocation, and after giving pro forma effect to
the incurrence of any such Indebtedness of such redesignated
Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to
Section 1008 hereof; and
(iv) any transaction (or series of related transactions)
between such Subsidiary and any of its Affiliates that
occurred while such Subsidiary was an Unrestricted Subsidiary
would be permitted by Section 1010 hereof as if such
transaction (or series of related transactions) had occurred
at the time of such Revocation.
(d) All Designations and Revocations must be evidenced by
Board Resolutions of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
(e) After the Securities have been assigned an Investment
Grade Rating by both Rating Agencies, and notwithstanding that the Securities
may later cease to have an Investment Grade Rating, the Company and the
Restricted Subsidiaries will not be subject to the provisions of this Section
1017; provided, that no Default has occurred and is continuing at the time the
Securities have been assigned such rating.
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Section 1018. Reporting Requirements.
The Company and each Guarantor will file with the Commission,
the Trustee and the Initial Purchasers, the annual reports, quarterly reports
and other documents required to be filed with the Commission pursuant to
Sections 13 and 15 of the Exchange Act, whether or not the Company or such
Guarantor has a class of securities registered under the Exchange Act, such
documents to be filed with the Commission on or prior to the date (the
"Required Filing Date") by which the Company and each Guarantor would have been
required so to file such document if the Company and such Guarantor were so
subject. The Company and each Guarantor will also in any event (x) within 15
days of each Required Filing Date file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company and each
Guarantor would have been required to file with the Commission pursuant to
Sections 13 or 15 of the Exchange Act if the Company and such Guarantor were
subject to either of such Sections and (y) if filing such documents by the
Company and such Guarantor with the Commission is not permitted under the
Exchange Act, (i) within 15 days of each Required Filing Date, transmit by mail
to all Holders, as their names and addresses appear in the Security Register,
without cost to such Holder, copies of the annual reports, quarterly reports
and other documents which the Company and each Guarantor would have been
required to file with the Commission pursuant to Sections 13 or 15 of the
Exchange Act if the Company and such Guarantor were subject to either of such
Sections, and (ii) promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any Holder
or prospective Holder at the Company's cost. If any Guarantor's or other
Subsidiaries' financial statements would be required to be included in the
financial statements filed or delivered pursuant hereto if the Company were
subject to Sections 13 or 15 of the Exchange Act, the Company shall include
such Guarantor's or other Subsidiaries' financial statements in any filing or
delivery pursuant hereto.
Section 1019. Statement by Officers as to Default.
(a) The Company and the Guarantors will deliver to the
Trustee, on or before a date not more than 60 days after the end of each fiscal
quarter and not more than 120 days after the end of each fiscal year of the
Company ending after the date hereof, a written statement signed by two
executive officers of the Company and each Guarantor, one of whom shall be the
principal executive officer, principal financial officer or principal
accounting officer of the Company and such Guarantor, as to compliance
herewith, including whether or not, after a review of the activities of the
Company during such year or such quarter and of the Company's and each
Guarantor's performance under this Indenture, to the best knowledge, based on
such review, of the signers thereof, the Company and each Guarantor have
fulfilled all of their respective obligations and are in compliance with all
conditions and covenants under this Indenture throughout such year or quarter,
as the case may be, and, if there has been a Default specifying each Default
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and the nature and status thereof and any actions being taken by the Company
and the Guarantors with respect thereto.
(b) When any Default or Event of Default, or event which
after notice or lapse of time or both would become an Event of Default, has
occurred and is continuing, or if the Trustee or any Holder or the trustee for
or the holder of any other evidence of Indebtedness of the Company or any
Restricted Subsidiary gives any notice or takes any other action with respect
to a claimed default, the Company and the Guarantors shall deliver to the
Trustee by registered or certified mail or facsimile transmission followed by
hard copy an Officers' Certificate specifying such Default, Event of Default,
notice or other action, the status thereof and what actions the Company and the
Guarantors are taking or propose to take with respect thereto, within five
Business Days of its occurrence.
Section 1020. Waiver of Certain Covenants.
The Company and the Guarantors may omit in any particular
instance to comply with any covenant or condition set forth in Sections 1006
through 1010, 1012, 1013, and 1015 through 1018, if, before or after the time
for such compliance, the Holders of not less than a majority in aggregate
principal amount of the Securities at the time Outstanding shall, by Act of
such Holders, waive such compliance in such instance with such covenant or
provision, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such covenant or condition shall remain in full force
and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption.
The Securities are subject to redemption at any time on or
after October 1, 2002, at the option of the Company, in whole or in part,
subject to the conditions, and at the Redemption Prices, specified in the form
of Security, together with accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on relevant Regular
Record Dates and Special Record Dates to receive interest due on relevant
Interest Payment Dates and Special Payment Dates).
In addition, at any time or from time to time on or prior to
October 1, 2000, the Company may, at its option, use all or any portion of the
net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Securities originally
issued under this Indenture at a redemption price equal to
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108.5% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date; provided that at least
seventy percent of the aggregate principal amount of Securities (including any
Additional Securities) originally issued under this Indenture remains
outstanding immediately after the occurrence of such redemption. In order to
effect the foregoing redemption, the Company must mail a notice of redemption
no later than 60 days after the related Public Equity Offering and must
consummate such redemption within 90 days of the closing of the Public Equity
Offering.
Section 1102. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall
be made in accordance with such provision and this Article Eleven.
Section 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, not less than 30 nor more than 60 days prior to the Redemption
Date fixed by the Company (unless a shorter notice period shall be satisfactory
to the Trustee), notify the Trustee in writing of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities or portions thereof to be redeemed shall be selected not
more than 30 days prior to the Redemption Date. The Trustee shall select the
Securities or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable. The amounts to be redeemed
shall be equal to $1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
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Section 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to
the Redemption Date, to each Holder of Securities to be redeemed, at its
address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the Redemption
Date upon surrender of such Security, new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after said
date;
(g) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002 where such Securities are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities;
and
(i) the procedures that a Holder must follow to surrender
the Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
written request, by the Trustee in the name and at the expense of the Company.
If the Company elects to give notice of redemption, it shall provide the
Trustee with a certificate stating that such notice has been given in
compliance with the requirements of this Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any
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case, failure to give such notice by mail or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall
not affect the validity of the proceedings for the redemption of any other
Security.
Section 1106. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company or any of its
Affiliates is acting as Paying Agent, segregate and hold in trust as provided
in Section 1003) an amount of money in same day funds sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date or Special Payment Date) accrued interest on, all the Securities
or portions thereof which are to be redeemed on that date. The Paying Agent
shall promptly mail or deliver to Holders of Securities so redeemed payment in
an amount equal to the Redemption Price of the Securities purchased from each
such Holder. All money, if any, earned on funds held in trust by the Trustee
or any Paying Agent shall be remitted to the Company. For purposes of this
Section 1106, the Company shall choose a Paying Agent which shall not be the
Company.
Section 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price together with
accrued interest to the Redemption Date; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Redemption Date shall
be payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such on the relevant Regular Record Dates and Special
Record Dates according to the terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any,
shall, until paid, bear interest from the Redemption Date at the rate borne by
such Security.
Section 1108. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part
shall be surrendered to the Paying Agent at the office or agency maintained for
such purpose pursuant to Section 1002 (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company, the Security
Registrar or the Trustee, as the case may be, duly executed by,
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the Holder thereof or such Holder's attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Security without service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to, and in exchange for, the unredeemed
portion of the principal of the Security so surrendered that is not redeemed or
purchased.
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ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture.
This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of registration or transfer of
the Securities, as expressly provided for herein) as to all outstanding
Securities when
(i) either
(a) all the Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which
have been replaced or paid as provided in Section 308 and
Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged
from such trust as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all Securities not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at their Stated Maturity within
one year or (z) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company; and the Company or any
Guarantor has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Securities not
theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Securities
to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may
be;
(ii) the Company or any Guarantor has paid all other sums
payable under this Indenture by the Company and the Guarantors; and
(iii) the Company and each of the Guarantors have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel each stating
that all conditions precedent herein relating to the satisfaction and discharge
hereof have been complied with and that such satisfaction and discharge will
not result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to
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which the Company, any Guarantor or any Subsidiary is a party or by which the
Company, any Guarantor or any Subsidiary is bound.
Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 607 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 1201, the obligations of the Trustee
under Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all United States dollars deposited with the Trustee pursuant to Section
1201 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal of, premium, if any, and interest on, the Securities for whose
payment such United States dollars have been deposited with the Trustee.
ARTICLE THIRTEEN
GUARANTEES
Section 1301. Guarantor's Guarantee.
For value received, the Guarantor, in accordance with this
Article Thirteen, hereby absolutely, fully, unconditionally and irrevocably
guarantees, jointly and severally with each other Person which may become a
Guarantor hereunder, to the Trustee and the Holders, as if the Guarantor were
the principal debtor, the punctual payment and performance when due of all
Indenture Obligations (which for purposes of this Guarantee shall also be
deemed to include all commissions, fees, charges, costs and other expenses
(including reasonable legal fees and disbursements of one counsel) arising out
of or incurred by the Trustee or the Holders in connection with the enforcement
of this Guarantee).
Section 1302. Continuing Guarantee; No Right of Set-Off; Independent
Obligation.
(a) This Guarantee shall be a continuing guarantee of the
payment and performance of all Indenture Obligations and shall remain in full
force and effect until the payment in full of all of the Indenture Obligations
and shall apply to and secure any ultimate balance due or remaining unpaid to
the Trustee or the Holders; and this
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Guarantee shall not be considered as wholly or partially satisfied by the
payment or liquidation at any time or from time to time of any sum of money for
the time being due or remaining unpaid to the Trustee or the Holders. Each
Guarantor, jointly and severally, covenants and agrees to comply with all
obligations, covenants, agreements and provisions applicable to it in this
Indenture including those set forth in Article Eight. Without limiting the
generality of the foregoing, each Guarantor's liability shall extend to all
amounts which constitute part of the Indenture Obligations and would be owed by
the Company under this Indenture and the Securities but for the fact that they
are unenforceable, reduced, limited, impaired, suspended or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding
involving the Company.
(b) Each Guarantor, jointly and severally, hereby guarantees
that the Indenture Obligations will be paid to the Trustee without set-off or
counterclaim or other reduction whatsoever (whether for taxes, withholding or
otherwise) in lawful currency of the United States of America.
(c) Each Guarantor, jointly and severally, guarantees that
the Indenture Obligations shall be paid strictly in accordance with their terms
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the holders of the
Securities.
(d) Each Guarantor's liability to pay or perform or cause the
performance of the Indenture Obligations under this Guarantee shall arise
forthwith after demand for payment or performance by the Trustee has been given
to the Guarantors in the manner prescribed in Section 106 hereof.
(e) Except as provided herein, the provisions of this Article
Thirteen cover all agreements between the parties hereto relative to this
Guarantee and none of the parties shall be bound by any representation,
warranty or promise made by any Person relative thereto which is not embodied
herein; and it is specifically acknowledged and agreed that this Guarantee has
been delivered by each Guarantor free of any conditions whatsoever and that no
representations, warranties or promises have been made to any Guarantor
affecting its liabilities hereunder, and that the Trustee shall not be bound by
any representations, warranties or promises now or at any time hereafter made
by the Company to any Guarantor.
(f) This Guarantee is a guarantee of payment, performance and
compliance and not of collectibility and is in no way conditioned or contingent
upon any attempt to collect from or enforce performance or compliance by the
Company or upon any event or condition whatsoever.
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(g) The obligations of the Guarantors set forth herein
constitute the full recourse obligations of the Guarantors enforceable against
them to the full extent of all their assets and properties.
Section 1303. Guarantee Absolute.
The obligations of the Guarantors hereunder are independent of
the obligations of the Company under the Securities and this Indenture and a
separate action or actions may be brought and prosecuted against any Guarantor
whether or not an action or proceeding is brought against the Company and
whether or not the Company is joined in any such action or proceeding. The
liability of the Guarantors hereunder is irrevocable, absolute and
unconditional and (to the extent permitted by law) the liability and
obligations of the Guarantors hereunder shall not be released, discharged,
mitigated, waived, impaired or affected in whole or in part by:
(a) any defect or lack of validity or enforceability in
respect of any Indebtedness or other obligation of the
Company or any other Person under this Indenture or the
Securities, or any agreement or instrument relating to
any of the foregoing;
(b) any grants of time, renewals, extensions, indulgences,
releases, discharges or modifications which the Trustee
or the Holders may extend to, or make with, the Company,
any Guarantor or any other Person, or any change in the
time, manner or place of payment of, or in any other
term of, all or any of the Indenture Obligations, or any
other amendment or waiver of, or any consent to or
departure from, this Indenture or the Securities,
including any increase or decrease in the Indenture
Obligations;
(c) the taking of security from the Company, any Guarantor or
any other Person, and the release, discharge or
alteration of, or other dealing with, such security;
(d) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any
present or future action of any governmental authority
or court amending, varying, reducing or otherwise
affecting, or purporting to amend, vary, reduce or
otherwise affect, any of the Indenture Obligations and
the obligations of any Guarantor hereunder;
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<PAGE> 142
(e) the abstention from taking security from the Company, any
Guarantor or any other Person or from perfecting,
continuing to keep perfected or taking advantage of any
security;
(f) any loss, diminution of value or lack of enforceability
of any security received from the Company, any Guarantor
or any other Person, and including any other guarantees
received by the Trustee;
(g) any other dealings with the Company, any Guarantor or any
other Person, or with any security;
(h) the Trustee's or the Holders' acceptance of compositions
from the Company or any Guarantor;
(i) the application by the Holders or the Trustee of all
monies at any time and from time to time received from
the Company, any Guarantor or any other Person on
account of any indebtedness and liabilities owing by the
Company or any Guarantor to the Trustee or the Holders,
in such manner as the Trustee or the Holders deems best
and the changing of such application in whole or in part
and at any time or from time to time, or any manner of
application of collateral, or proceeds thereof, to all
or any of the Indenture Obligations, or the manner of
sale of any collateral;
(j) the release or discharge of the Company or any
Guarantor of the Securities or of any Person liable
directly as surety or otherwise by operation of law or
otherwise for the Securities, other than an express
release in writing given by the Trustee, on behalf of
the Holders, of the liability and obligations of any
Guarantor hereunder;
(k) any change in the name, business, capital structure or
governing instrument of the Company or any Guarantor or
any refinancing or restructuring of any of the Indenture
Obligations;
(l) the sale of the Company's or any Guarantor's business or
any part thereof;
(m) subject to Section 1314, any merger or consolidation,
arrangement or reorganization of the Company, any
Guarantor, any Person resulting from the merger or
consolidation of the Company or any Guarantor with any
other Person or any other successor to such Person or
merged or consolidated Person or any other change in the
corporate
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<PAGE> 143
existence, structure or ownership of the Company or any
Guarantor or any change in the corporate relationship
between the Company and any Guarantor, or any
termination of such relationship;
(n) the insolvency, bankruptcy, liquidation, winding-up,
dissolution, receivership, arrangement, readjustment,
assignment for the benefit of creditors or distribution
of the assets of the Company or its assets or any
resulting discharge of any obligations of the Company
(whether voluntary or involuntary) or of any Guarantor
(whether voluntary or involuntary) or the loss of
corporate existence;
(o) subject to Section 1314, any arrangement or plan of
reorganization affecting the Company or any Guarantor;
(p) any failure, omission or delay on the part of the Company
to conform or comply with any term of this Indenture;
(q) any limitation on the liability or obligations of the
Company or any other Person under this Indenture, or any
discharge, termination, cancellation, distribution,
irregularity, invalidity or unenforceability in whole or
in part of this Indenture;
(r) any other circumstance (including any statute of
limitations) that might otherwise constitute a defense
available to, or discharge of, the Company or any
Guarantor; or
(s) any modification, compromise, settlement or release by
the Trustee, or by operation of law or otherwise, of the
Indenture Obligations or the liability of the Company or
any other obligor under the Securities, in whole or in
part, and any refusal of payment by the Trustee, in
whole or in part, from any other obligor or other
guarantor in connection with any of the Indenture
Obligations, whether or not with notice to, or further
assent by, or any reservation of rights against, each of
the Guarantors.
Section 1304. Right to Demand Full Performance.
In the event of any demand for payment or performance by the
Trustee from any Guarantor hereunder, the Trustee or the Holders shall have the
right to demand its full claim and to receive all dividends or other payments
in respect thereof until the Indenture Obligations have been paid in full, and
the Guarantors shall continue to be jointly and severally liable hereunder for
any balance which may be owing to the Trustee
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<PAGE> 144
or the Holders by the Company under this Indenture and the Securities. The
retention by the Trustee or the Holders of any security, prior to the
realization by the Trustee or the Holders of its rights to such security upon
foreclosure thereon, shall not, as between the Trustee and any Guarantor, be
considered as a purchase of such security, or as payment, satisfaction or
reduction of the Indenture Obligations due to the Trustee or the Holders by the
Company or any part thereof. Each Guarantor, promptly after demand, will
reimburse the Trustee and the Holders for all costs and expenses of collecting
such amount under, or enforcing this Guarantee, including, without limitation,
the reasonable fees and expenses of counsel.
Section 1305. Waivers.
(a) Each Guarantor hereby expressly waives (to the extent
permitted by law) notice of the acceptance of this Guarantee and notice of the
existence, renewal, extension or the non-performance, non-payment, or non-
observance on the part of the Company of any of the terms, covenants,
conditions and provisions of this Indenture or the Securities or any other
notice whatsoever to or upon the Company or such Guarantor with respect to the
Indenture Obligations, whether by statute, rule of law or otherwise. Each
Guarantor hereby acknowledges communication to it of the terms of this
Indenture and the Securities and all of the provisions therein contained and
consents to and approves the same. Each Guarantor hereby expressly waives (to
the extent permitted by law) diligence, presentment, protest and demand for
payment with respect to (i) any notice of sale, transfer or other disposition
of any right, title to or interest in the Securities by the Holders or in this
Indenture, (ii) any release of any Guarantor from its obligations hereunder
resulting from any loss by it of its rights of subrogation hereunder and (iii)
any other circumstances whatsoever that might otherwise constitute a legal or
equitable discharge, release or defense of a guarantor or surety or that might
otherwise limit recourse against such Guarantor.
(b) Without prejudice to any of the rights or recourses which
the Trustee or the Holders may have against the Company, each Guarantor hereby
expressly waives (to the extent permitted by law) any right to require the
Trustee or the Holders to:
(i) enforce, assert, exercise, initiate or exhaust
any rights, remedies or recourse against the
Company, any Guarantor or any other Person under
this Indenture or otherwise;
(ii) value, realize upon, or dispose of any security
of the Company or any other Person held by the
Trustee or the Holders;
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<PAGE> 145
(iii) initiate or exhaust any other remedy which the
Trustee or the Holders may have in law or equity;
or
(iv) mitigate the damages resulting from any default
under this Indenture;
before requiring or becoming entitled to demand payment from such Guarantor
under this Guarantee.
Section 1306. The Guarantor Remains Obligated in Event the Company Is No
Longer Obligated to Discharge Indenture Obligations.
It is the express intention of the Trustee and the Guarantors
that if for any reason the Company has no legal existence, is or becomes under
no legal obligation to discharge the Indenture Obligations owing to the Trustee
or the Holders by the Company or if any of the Indenture Obligations owing by
the Company to the Trustee or the Holders becomes irrecoverable from the
Company by operation of law or for any reason whatsoever, this Guarantee and
the covenants, agreements and obligations of the Guarantors contained in this
Article Thirteen shall nevertheless be binding upon the Guarantors, as
principal debtor, until such time as all such Indenture Obligations have been
paid in full to the Trustee and all Indenture Obligations owing to the Trustee
or the Holders by the Company have been discharged, or such earlier time as
Section 402 shall apply to the Securities and the Guarantors shall be
responsible for the payment thereof to the Trustee or the Holders upon demand.
Section 1307. Fraudulent Conveyance; Contribution; Subrogation.
(a) Each Guarantor that is a Subsidiary of the Company,
and by its acceptance hereof each Holder, hereby confirms that it is the
intention of all such parties that the Guarantee by such Guarantor pursuant to
its Guarantee not constitute a fraudulent transfer or conveyance for purposes
of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state law. To effectuate the
foregoing intention, the Holders and such Guarantor hereby irrevocably agree
that the obligations of such Guarantor under its Guarantee shall be limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, will result in the obligations
of such Guarantor under its Guarantee not constituting such fraudulent transfer
or conveyance.
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<PAGE> 146
(b) Each Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Guarantor, if
any, in a pro rata amount based on the net assets of each Guarantor, determined
in accordance with GAAP.
(c) Each Guarantor hereby waives all rights of subrogation or
contribution, whether arising by contract or operation of law (including,
without limitation, any such right arising under federal bankruptcy law) or
otherwise by reason of any payment by it pursuant to the provisions of this
Article Thirteen.
Section 1308. Guarantee Is in Addition to Other Security.
This Guarantee shall be in addition to and not in substitution
for any other guarantees or other security which the Trustee may now or
hereafter hold in respect of the Indenture Obligations owing to the Trustee or
the Holders by the Company and (except as may be required by law) the Trustee
shall be under no obligation to marshal in favor of each of the Guarantors any
other guarantees or other security or any moneys or other assets which the
Trustee may be entitled to receive or upon which the Trustee or the Holders may
have a claim.
Section 1309. Release of Security Interests.
Without limiting the generality of the foregoing and except as
otherwise provided in this Indenture, each Guarantor hereby consents and
agrees, to the fullest extent permitted by applicable law, that the rights of
the Trustee hereunder, and the liability of the Guarantors hereunder, shall not
be affected by any and all releases for any purpose of any collateral, if any,
from the Liens and security interests created by any collateral document and
that this Guarantee shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Indenture Obligations is
rescinded or must otherwise be returned by the Trustee upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, all as though such
payment had not been made.
Section 1310. No Bar to Further Actions.
Except as provided by law, no action or proceeding brought or
instituted under Article Thirteen and this Guarantee and no recovery or
judgment in pursuance thereof shall be a bar or defense to any further action
or proceeding which may be brought under Article Thirteen and this Guarantee by
reason of any further default or defaults under Article Thirteen and this
Guarantee or in the payment of any of the Indenture Obligations owing by the
Company.
135
<PAGE> 147
Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver;
No Suspension of Remedies.
(a) No failure to exercise and no delay in exercising, on the
part of the Trustee or the Holders, any right, power, privilege or remedy under
this Article Thirteen and this Guarantee shall operate as a waiver thereof, nor
shall any single or partial exercise of any rights, power, privilege or remedy
preclude any other or further exercise thereof, or the exercise of any other
rights, powers, privileges or remedies. The rights and remedies herein
provided for are cumulative and not exclusive of any rights or remedies
provided in law or equity.
(b) Nothing contained in this Article Thirteen shall limit
the right of the Trustee or the Holders to take any action to accelerate the
maturity of the Securities pursuant to Article Five or to pursue any rights or
remedies hereunder or under applicable law.
Section 1312. Trustee's Duties; Notice to Trustee.
(a) Any provision in this Article Thirteen or elsewhere in
this Indenture allowing the Trustee to request any information or to take any
action authorized by, or on behalf of any Guarantor, shall be permissive and
shall not be obligatory on the Trustee except as the Holders may direct in
accordance with the provisions of this Indenture or where the failure of the
Trustee to request any such information or to take any such action arises from
the Trustee's negligence, bad faith or willful misconduct.
(b) The Trustee shall not be required to inquire into the
existence, powers or capacities of the Company, any Guarantor or the officers,
directors or agents acting or purporting to act on their respective behalf.
Section 1313. Successors and Assigns.
All terms, agreements and conditions of this Article Thirteen
shall extend to and be binding upon each Guarantor and its successors and
permitted assigns and shall enure to the benefit of and may be enforced by the
Trustee and its successors and assigns; provided, however, that the Guarantors
may not assign any of their rights or obligations hereunder other than in
accordance with Article Eight.
Section 1314. Release of Guarantee.
Concurrently with the payment in full of all of the Indenture
Obligations, the Guarantors shall be released from and relieved of their
obligations under this Article Thirteen. Upon the delivery by the Company to
the Trustee of an Officers' Certificate and, if requested by the Trustee, an
Opinion of Counsel to the effect that the transaction
136
<PAGE> 148
giving rise to the release of this Guarantee was made by the Company in
accordance with the provisions of this Indenture and the Securities, the
Trustee shall execute any documents reasonably required in order to evidence
the release of the Guarantors from their obligations under this Guarantee. If
any of the Indenture Obligations are revived and reinstated after the
termination of this Guarantee, then all of the obligations of the Guarantors
under this Guarantee shall be revived and reinstated as if this Guarantee had
not been terminated until such time as the Indenture Obligations are paid in
full, and each Guarantor shall enter into an amendment to this Guarantee,
reasonably satisfactory to the Trustee, evidencing such revival and
reinstatement.
This Guarantee shall terminate with respect to each Guarantor
and shall be automatically and unconditionally released and discharged as
provided in Section 1013(b).
Section 1315. Execution of Guarantee.
(a) To evidence the Guarantee, each Guarantor hereby agrees
to execute the guarantee substantially in the form set forth in Section 205, to
be endorsed on each Security authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of each Guarantor by its
Chairman of the Board, its President, its Chief Executive Officer, Chief
Operating Officer or one of its Vice Presidents, under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
(b) Any person that was not a Guarantor on the date of this
Indenture may become a Guarantor by executing and delivering to the Trustee (i)
a supplemental indenture in form and substance satisfactory to the Trustee,
which subjects such person to the provisions (including the representations and
warranties) of this Indenture as a Guarantor, (ii) in the event that as of the
date of such supplemental indenture any Registrable Securities are outstanding,
an instrument in form and substance satisfactory to the Trustee which subjects
such person to the provisions of the Registration Rights Agreement with respect
to such outstanding Registrable Securities, and (iii) an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such person and constitutes the legal, valid and binding obligation
of such person (subject to such customary assumptions and exceptions as may be
acceptable to the Trustee in its reasonable discretion).
(c) If an officer whose signature is on this Indenture no
longer holds that office at the time the Trustee authenticates a Security on
which this Guarantee is endorsed, such Guarantee shall be valid nevertheless.
137
<PAGE> 149
* * *
138
<PAGE> 150
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
ZALE CORPORATION
By: /s/ ALAN P. SHOR
--------------------------------------
Name: Alan P. Shor
Title: Executive Vice President and Chief
Accounting Officer
Attest: /s/ STEVE MASSANELLI
--------------------------
Name: Steve Massanelli
Title: Senior Vice President
and Treasurer
ZALE DELAWARE, INC.
By: /s/ ALAN P. SHOR
--------------------------------------
Name: Alan P. Shor
Title: Executive Vice President and Chief
Accounting Officer
Attest:/s/ STEVE MASSANELLI
--------------------------
Name: Steve Massanelli
Title: Senior Vice President
and Treasurer
139
<PAGE> 151
BANK ONE, N.A.
By: /s/ JON A. BEACHAM
---------------------------------
Name: Jon A. Beacham
Title:
Attest:/s/ MICHAEL DOCKMAN
---------------------------
Name: Michael Dockman
Title:
140
<PAGE> 152
STATE OF __________________ )
) ss.:
COUNTY OF _________________ )
On the _____ day of September, 1997, before me personally came
______________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _________________________; that he is
_______________ of Zale Corporation and Zale Delaware, Inc., each of which is a
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto pursuant to authority of the Board of Directors of
each such corporation.
(NOTARIAL
SEAL)
______________________________
<PAGE> 153
STATE OF __________________ )
) ss.:
COUNTY ____________________ )
On the _____ day of September, 1997, before me personally came
___________, to me known, who, being by me duly sworn, did depose and say that
he resides at _____________________________________; that he is
_________________ of Bank One, N.A., a _____________ banking corporation
described in and which executed the foregoing instrument; and that he signed
his name thereto pursuant to authority of the Board of Directors of such
banking corporation.
(NOTARIAL
SEAL)
______________________________
<PAGE> 154
SCHEDULE I
Existing Indebtedness
Construction Loan dated as of September 1988 with HCV-V Venture for $157,500
<PAGE> 155
SCHEDULE II
Excluded Assets
1. 50% interest in Meta Vertag Diamond (438 carat yellow diamond)
2. Antique Watch Collection (consists of approximately 150 antique
watches and clocks)
3. Light of Peace Satellite Stone
4. Star of Texas (48.17 carat diamond, natural sherry color, set with
nine 5.5 mm white round diamonds and nine 4.5 mm yellow round diamonds
in 18K mounting)
5. Tiara (consists of 240 carat (total weight) turquoise stones and 10
carats total weight diamonds)
6. Broach (27.92 carat (total weight) diamonds consisting of 36 marquise
cut, 16 round cut, 22 pear cut and 23 baguette cut diamonds set in
platinum)
7. Art Collection
8. Richey Road, Houston, Texas
Approximately 17.7 acres land
9. 900 W. Texas Ave., Baytown, Texas
99,315 s.f. land, 1.5 story, 22,400 s.f. building
10. Approximately 31 acres in Irving, Texas
<PAGE> 156
EXHIBIT A
INTERCOMPANY NOTE
____________, 19______
Evidences of all loans or advances ("Loans") made hereunder
shall be reflected on the grid attached hereto. FOR VALUE RECEIVED,
______________, a ________________ corporation (the "Maker"), HEREBY PROMISES
TO PAY ON DEMAND to the order of ________________ (the "Holder") the principal
sum of the aggregate unpaid principal amount of all Loans (plus accrued
interest thereon) at any time and from time to time made hereunder which has
not been previously paid.
All capitalized terms used herein that are defined in, or by
reference in, the Indenture between Zale Corporation, a Delaware corporation
(the "Company"), Zale Delaware, Inc., a Delaware corporation (the "Guarantor"),
and Bank One, N.A., as trustee, dated as of September 30, 1997 (the
"Indenture"), have the meanings assigned to such terms therein, or by reference
therein, unless otherwise defined.
ARTICLE I
TERMS OF INTERCOMPANY NOTE
Section 1.01 Note Not Forgivable. Unless the Maker of the
Loan hereunder is the Company or any Guarantor, the Holder may not forgive any
amounts owing under this intercompany note.
Section 1.02 Interest: Prepayment. (a) The interest rate
("Interest Rate") on the Loans shall be a rate per annum reflected on the grid
attached hereto.
(b) The interest, if any, payable on each of the
Loans shall accrue from the date such Loan is made and, subject to Section
2.01, shall be payable upon demand of the Holder.
(c) If the principal or accrued interest, if any,
of the Loans is not paid on the date demand is made, interest on the unpaid
principal and interest will accrue at a rate equal to the Interest Rate, if
any, plus 100 basis points per annum from maturity until the principal and
interest on such Loans are fully paid.
(d) Subject to Section 2.01, any amounts hereunder may be
repaid at any time by the Maker.
Section 1.03 Subordination. All Loans made to the Company
OR any Guarantor shall be subordinated in right of payment to the payment and
performance of
<PAGE> 157
the obligations of the Company, the Guarantors and any Restricted Subsidiary
under the Indenture, the Securities, the Guarantees or any other Indebtedness
ranking pari passu with the Securities or the Guarantees, including, without
limitation, any Indebtedness incurred under the Credit Facility; provided, that
with respect to a Subsidiary in any specific instance, such Restricted
Subsidiary is also an obligor under the Indenture, the Securities, the
Guarantees or such other pari passu Indebtedness, as the case may be, whether
as a borrower, guarantor or pledgor of collateral.
ARTICLE II
EVENTS OF DEFAULT
Section 2.01 Events of Default. If after the date of issuance of
this Loan (i) an Event of Default has occurred under the Indenture, (ii) an
Event of Default (as defined) has occurred under the Credit Facility or any
refinancing of the Credit Facility or (iii) an "event of default" (as defined)
has occurred under any other Indebtedness of the Company or any Guarantor, then
(x) in the event the Maker is not either one of the Company or a Guarantor, all
amounts owing under the Loans hereunder shall be immediately due and payable to
the Holder, and (y) in the event the Maker is either the Company or a
Guarantor, the amounts owing under the Loans hereunder shall not be due and
payable; provided, however, that if such Event of Default or event of default
has been waived, cured or rescinded, such amounts shall no longer be due and
payable in the case of clause (x), and such amounts may be payable in the case
of clause (y). If the Holder is a Subsidiary, then the Holder hereby agrees
that if it receives any payments or distributions on any Loan from the Company
or a Guarantor which is not payable pursuant to clause (y) of the prior
sentence after any Event of Default or event of default described in clauses
(i), (ii) or (iii) above has occurred, is continuing and has not been waived,
cured or rescinded, it will pay over and deliver forthwith to the Company or
such Guarantor, as the case may be, all such payments and distributions.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments, Etc. No amendment or waiver of any
provision of this intercompany note, or consent to depart herefrom is permitted
at any time for any reason, except with the consent of the Holders of not less
than a majority in aggregate principal amount of the Outstanding Securities.
Section 3.02 Assignment. No party to this Agreement may
assign, in whole or in part, any of its rights and obligations under this
intercompany note, except to its legal successor in interest.
A-2
<PAGE> 158
Section 3.03 Third Party Beneficiaries. The holders of the
Securities or any other Indebtedness ranking pari passu with or senior to, the
Securities or any Guarantees, including without limitation, any Indebtedness
incurred under the Credit Facility, shall be third party beneficiaries to this
intercompany note and upon an Event of Default shall have the right to enforce
this intercompany note against the Company or any of its Subsidiaries.
Section 3.04 Headings. Article and Section headings in this
intercompany note are included for convenience of reference only and shall not
constitute a part of this intercompany note for any other purpose.
Section 3.05 Entire Agreement. This intercompany note sets
forth the entire agreement of the parties with respect to its subject matter
and supersedes all previous understandings, written or oral, in respect
thereof.
Section 3.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
A-3
<PAGE> 159
Section 3.07 Waivers. The Maker hereby waives presentment,
demand for payment, notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement hereof.
By:______________________________________
A-4
<PAGE> 160
BORROWINGS, MATURITIES, AND PAYMENTS OF PRINCIPAL
<TABLE>
<S> <C> <C> <C> <C> <C>
Amount of Maturity of Amount
Borrowing/ Borrowing/ Principal Paid Unpaid Principal Notation
Date Principal Principal or Prepaid Balance Made by
- ---------- --------------- ------------------- ----------------------- ------------------- -----------------------
</TABLE>
A-5
<PAGE> 161
Exhibit B
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
________________, _____
Bank One, N.A.
100 East Broad Street
Columbus, Ohio 43215
Attention: Corporate Trust Division
Re: Zale Corporation (the "Company")
8 1/2% Senior Notes due 2007 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the U.S. Securities Act of 1933, as
amended.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
<PAGE> 162
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ___________________________
Authorized Signature
<PAGE> 163
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- -------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- -------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to
the date which is the earlier of the date of an effective Registration
Statement or September 30, 1999, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
or
[ ] (b) this Security is being transferred other than in accordance
with (a) above and documents are being furnished which comply
with the conditions of transfer set forth in this Security and
the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless
<PAGE> 164
and until the conditions to any such transfer of registration set forth herein
and in Section 307 of the Indenture shall have been satisfied.
Date: _______________________ _______________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument
in every particular, without alteration or
any change whatsoever.
Signature Guarantee: _____________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: _________ ___________________________________________________
NOTICE: To be executed by an authorized signatory
I-2
<PAGE> 165
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Print or type name, address and zip code of assignee and irrevocably
appoint________________________________________________________________
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated ____________________ Signed _____________________________
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
<PAGE> 1
EXHIBIT 4.2
================================================================================
ZALE CORPORATION
(a Delaware corporation)
ZALE DELAWARE, INC.
(a Delaware corporation)
$100,000,000
8 1/2% Senior Notes due 2007
PURCHASE AGREEMENT
Dated: September 23, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 3
(a) Representations and Warranties by the Company and the Guarantor . . . . . . 3
(i) Similar Offerings . . . . . . . . . . . . . . . . . . . . . . . . 3
(ii) Offering Memorandum . . . . . . . . . . . . . . . . . . . . . . . 3
(iii) Independent Accountants . . . . . . . . . . . . . . . . . . . . . 4
(iv) Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4
(v) No Material Adverse Change in Business . . . . . . . . . . . . . .4
(vi) Good Standing of the Company . . . . . . . . . . . . . . . . . . 4
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . . . . . 5
(viii) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 5
(ix) Authorization of Agreements . . . . . . . . . . . . . . . . . . . 6
(x) Authorization of the Indenture . . . . . . . . . . . . . . . . . 6
(xi) Authorization of the Securities and the Guarantees . . . . . . . 6
(xii) Description of the Securities, the Guarantees and the Indenture . 7
(xiii) Absence of Defaults and Conflicts . . . . . . . . . . . . . . . . 7
(xiv) Absence of Labor Disputes . . . . . . . . . . . . . . . . . . . . 8
(xv) Absence of Proceedings . . . . . . . . . . . . . . . . . . . . . 9
(xvi) Possession of Intellectual Property . . . . . . . . . . . . . . . 9
(xvii) Absence of Further Requirements . . . . . . . . . . . . . . . . . 9
(xviii) Possession of Licenses and Permits . . . . . . . . . . . . . . . 10
(xix) Title to Property . . . . . . . . . . . . . . . . . . . . . . . . 10
(xx) Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(xxi) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(xxii) Stabilization or Manipulation . . . . . . . . . . . . . . . . . . 11
(xxiii) Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(xxiv) Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . 12
(xxv) Registration Rights . . . . . . . . . . . . . . . . . . . . . . . 13
(xxvi) Accounting Controls . . . . . . . . . . . . . . . . . . . . . . . 13
(xxvii) Investment Company Act . . . . . . . . . . . . . . . . . . . . . 13
(xxviii) Rule 144A Eligibility . . . . . . . . . . . . . . . . . . . . . . 13
(xxix) No General Solicitation . . . . . . . . . . . . . . . . . . . . . 13
(xxx) No Registration Required . . . . . . . . . . . . . . . . . . . . 14
(xxxi) No Directed Selling Efforts . . . . . . . . . . . . . . . . . . . 14
(xxxii) PORTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2. Sale and Delivery to Initial Purchasers; Closing . . . . . . . . . . . . . 15
(a) Securities and Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Qualified Institutional Buyer . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Denominations; Registration . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3. Covenants of the Company and the Guarantor . . . . . . . . . . . . . . . . 16
(a) Offering Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Notice and Effect of Material Events . . . . . . . . . . . . . . . . . . . 16
(c) Amendment to Offering Memorandum and Supplements . . . . . . . . . . . . . 17
(d) Qualification of Securities and Guarantees for
Offer and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Rating of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Rule 144A Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Restriction on Resales . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(j) Restriction on Sale of Securities . . . . . . . . . . . . . . . . . . . . . 18
(k) DTC Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(l) Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(m) Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 19
(n) Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5. Conditions of Initial Purchasers' Obligations . . . . . . . . . . . . . . 20
(a) Opinion of Counsel for the Company and the Guarantor . . . . . . . . . . . 20
(b) Opinion of Counsel for the Initial Purchasers . . . . . . . . . . . . . . 20
(c) Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Accountant's Comfort Letter and Consent . . . . . . . . . . . . . . . . . 21
(e) Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Maintenance of Rating . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(g) PORTAL 22
(h) Chief Financial Officer's Certificate . . . . . . . . . . . . . . . . . . 22
(i) Registration Rights Agreement and Indenture . . . . . . . . . . . . . . . 22
(j) Bank Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
(k) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . 22
(l) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Indemnification of Initial Purchasers . . . . . . . . . . . . . . . . 23
(b) Indemnification of Company, Guarantor and Directors . . . . . . . . . 24
(c) Actions against Parties; Notification . . . . . . . . . . . . . . . . 24
(d) Settlement without Consent if Failure to Reimburse . . . . . . . . . . 25
SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Termination; General . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10. Default by One or More of the Initial Purchasers . . . . . . . . . . . 28
SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 13. Governing Law and Time . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 14. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
Schedule A--Initial Purchasers
Schedule B--Subsidiaries
Schedule C--Securities
Exhibit A--Form of Opinion
Exhibit B--Form of Comfort Letter
- iii -
<PAGE> 5
$100,000,000
ZALE CORPORATION
(a Delaware corporation)
ZALE DELAWARE, INC.
(a Delaware corporation)
PURCHASE AGREEMENT
September 23, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
BancBoston Securities Inc.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Zale Corporation, a Delaware corporation (the "Company"), and Zale
Delaware, Inc., a Delaware corporation (the "Guarantor"), confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "Initial Purchasers", which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch is acting as representative (in such
capacity, the "Representative"), with respect to the issue and sale by the
Company and the purchase by the Initial Purchasers, acting severally and not
jointly, of the respective principal amounts set forth in said Schedule A of
$100,000,000 aggregate principal amount of the Company's 8 1/2% Senior Notes
due 2007 (the "Securities"). The Company's obligations under the Securities
will be guaranteed (the "Guarantees") by the Guarantor. The Securities and the
Guarantees are to be issued pursuant to an indenture dated as of September 30,
1997 (the "Indenture") among the
- 1 -
<PAGE> 6
Company, the Guarantor and Bank One, N.A., as trustee (the "Trustee").
Securities issued in book-entry form will be issued to Cede & Co. as nominee of
The Depository Trust Company ("DTC") pursuant to a letter agreement, to be
dated as of the Closing Time (as defined in Section 2(b)) (the "DTC
Agreement"), among the Company, the Guarantor, the Trustee and DTC.
The Company and the Guarantor understand that the Initial Purchasers
propose to make an offering of the Securities and the Guarantees on the terms
and in the manner set forth herein and agree that the Initial Purchasers may
resell, subject to the conditions set forth herein, all or a portion of the
Securities and the Guarantees to purchasers ("Subsequent Purchasers") at any
time after the date of this Agreement. The Securities and the Guarantees are to
be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities, the Guarantees
and the Indenture, investors that acquire Securities and Guarantees may only
resell or otherwise transfer such Securities and Guarantees if such Securities
and Guarantees are hereafter registered under the 1933 Act or if an exemption
from the registration requirements of the 1933 Act is available (including the
exemption afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation S")
of the rules and regulations promulgated under the 1933 Act by the Securities
and Exchange Commission (the "Commission")).
The Company and the Guarantor have prepared and delivered to each
Initial Purchaser copies of a preliminary offering memorandum dated September
9, 1997 (the "Preliminary Offering Memorandum") and have prepared and will
deliver to each Initial Purchaser, on the date hereof or the next succeeding
day, copies of a final offering memorandum dated September 23, 1997 (the "Final
Offering Memorandum"), each to be used by such Initial Purchaser in connection
with its solicitation of, purchases of, or offering of, the Securities and the
Guarantees. "Offering Memorandum" means, with respect to any date or time
referred to in this Agreement, the most recent offering memorandum (whether the
Preliminary Offering Memorandum or the Final Offering Memorandum, or any
amendment or supplement to either such document), including any documents
incorporated therein by reference, which has been prepared and delivered by the
Company and the Guarantor to the Initial Purchasers in connection with their
solicitation of purchases of, or offering of, the Securities and the
Guarantees.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other
information which is incorporated by reference in the Offering Memorandum; and
all references in this Agreement to amendments or supplements to the Offering
Memorandum shall be deemed to mean and include the filing
- 2 -
<PAGE> 7
of any document under the Securities Exchange Act of 1934 (the "1934 Act")
which is incorporated by reference in the Offering Memorandum.
The holders of the Securities and the Guarantees will be entitled to
the benefits of the registration rights agreement to be dated as of the Closing
Time (the "Registration Rights Agreement"), among the Company, the Guarantor
and the Initial Purchasers, pursuant to which the Company will agree to file,
within 35 days of the Closing Time, a registration statement with the
Commission registering the Exchange Securities (as defined in the Registration
Rights Agreement) under the 1933 Act.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the
Guarantor. The Company and the Guarantor, jointly and severally, represent and
warrant to each Initial Purchaser as of the date hereof and as of the Closing
Time referred to in Section 2(b) hereof, and agree with each Initial Purchaser
as follows:
(i) Similar Offerings. The Company and the Guarantor and
their respective affiliates (as such term is defined in Rule 501(b)
under the 1933 Act) have not, directly or indirectly, solicited any
offer to buy or offered to sell, and will not, directly or indirectly,
solicit any offer to buy or offer to sell, in the United States or to
any United States citizen or resident, any security which is or would
be integrated with the sale of the Securities and the Guarantees in a
manner that would require the Securities or the Guarantees to be
registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does
not, and at the Closing Time will not, include an untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, that this
representation, warranty and agreement shall not apply to statements
in or omissions from the Offering Memorandum made in reliance upon and
in conformity with information furnished to the Company and the
Guarantor in writing by any Initial Purchaser through Merrill Lynch
expressly for use in the Offering Memorandum. The documents
incorporated by reference or deemed to be incorporated by reference in
the Offering Memorandum at the time they were or hereafter are filed
with the Commission complied or will comply in all material respects
with the applicable requirements of the 1934 Act and the applicable
rules and regulations of the Commission thereunder and, when read
together with the other information in the Offering Memorandum, at the
date of the Offering Memorandum and at the Closing Time, did not and
will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
- 3 -
<PAGE> 8
(iii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included
or incorporated by reference in the Offering Memorandum are
independent certified public accountants with respect to the Company,
the Guarantor and their respective subsidiaries within the meaning of
Regulation S-X under the 1933 Act.
(iv) Financial Statements. The financial statements,
together with the related schedules and notes, included in the
Offering Memorandum and the documents incorporated by reference
therein present fairly the financial position of the Company and its
consolidated Subsidiaries at the dates indicated and the statements of
income, stockholders' investment and cash flows of the Company and its
consolidated Subsidiaries for the periods specified; except as
otherwise disclosed therein, said financial statements have been
prepared in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The selected financial data and the
summary financial information included in the Offering Memorandum and
the documents incorporated by reference therein present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Offering
Memorandum and the documents incorporated by reference therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein or contemplated
thereby, (A) there has been no material adverse change in the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company or any of its Subsidiaries,
other than those in the ordinary course of business, which are
material with respect to the Company and its Subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock.
(vi) Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and to
enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Indenture, the Securities, the
Exchange Securities, and the DTC Agreement and to enter into and
consummate all the transactions in connection therewith as
contemplated in the Offering Memorandum; and the Company is duly
qualified as a foreign corporation to
- 4 -
<PAGE> 9
transact business and is in good standing in each other jurisdiction
in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and collectively the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum
and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; all of the issued and outstanding capital
stock of each Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is owned by the Company, directly
or through the Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of the Subsidiaries was issued in
violation of any preemptive or similar rights arising by operation of
law, or under the charter or by- laws of any Subsidiary or under any
agreement to which the Company or any Subsidiary is a party. All of
the Subsidiaries of the Company are listed on Schedule B attached
hereto.
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company was at the date indicated in
the Offering Memorandum in the table at page F-6 entitled "Zale
Corporation and Subsidiaries-Consolidated Statements of Stockholders'
Investment" under the column labeled "Number of Common Shares
Outstanding" (except for subsequent issuances, if any, pursuant to
employee benefit plans referred to in the Offering Memorandum or
pursuant to the exercise of convertible securities or options referred
to in the Offering Memorandum). The shares of issued and outstanding
capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, under the
charter or by-laws of the Company or under any agreement to which the
Company or any of the Subsidiaries is a party.
(ix) Authorization of Agreements. This Agreement has been
duly authorized, executed and delivered by the Company and the
Guarantor. The Registration Rights Agreement has been duly authorized
by the Company and the Guarantor and as of the Closing Time will have
been duly executed and delivered
- 5 -
<PAGE> 10
by the Company and the Guarantor and will constitute valid and binding
obligations of the Company and the Guarantor, enforceable against the
Company and the Guarantor in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law). The DTC Agreement has
been duly authorized by the Company and as of the Closing Time will
have been duly executed and delivered by the Company and will
constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(x) Authorization of the Indenture. The Indenture has
been duly authorized by the Company and the Guarantor and, at the
Closing Time, will have been duly executed and delivered by the
Company and the Guarantor and will constitute a valid and binding
agreement of the Company and the Guarantor, enforceable against the
Company and the Guarantor in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xi) Authorization of the Securities and the Guarantees.
The Securities have been duly authorized by the Company and, at the
Closing Time, will have been duly executed by the Company and, when
authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price therefor, will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, and will be in the
form contemplated by, and entitled to the benefits of, the Indenture,
except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law). The
Guarantees have been duly authorized by the Guarantor and, at the
Closing Time, will have been duly
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<PAGE> 11
executed by the Guarantor and will constitute valid and binding
obligations of the Guarantor, enforceable against the Guarantor in
accordance with their terms, and will be in the form contemplated by,
and entitled to the benefits of, the Indenture. The Exchange
Securities have been duly authorized by the Company and the Guarantor
and, when executed and authenticated and issued and delivered by the
Company and the Guarantor in exchange for the Securities and the
Guarantees pursuant to the Exchange Offer (as defined in the
Registration Rights Agreement), will constitute valid and binding
obligations of the Company and the Guarantor, enforceable against the
Company and the Guarantor in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xii) Description of the Securities, the Guarantees and the
Indenture. The Securities, the Guarantees, the Indenture and the
Registration Rights Agreement will conform in all material respects to
the respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms
previously delivered to the Initial Purchasers. The Exchange
Securities will conform in all material respects to the statements
relating thereto contained in the Offering Memorandum and the
Registration Statement (as defined in the Registration Rights
Agreement) at the time it becomes effective. There are no contracts or
documents which are required to be described in a registration
statement on Form S-1 under the 1933 Act which have not been described
in the Offering Memorandum.
(xiii) Absence of Defaults and Conflicts. Neither the
Company nor any of the Subsidiaries is in violation of its charter or
by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which any of them
may be bound, or to which any of the property or assets of the Company
or any of the Subsidiaries is subject (collectively, "Agreements and
Instruments") or has violated or is in violation of any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of the Subsidiaries or any
of their assets or properties, except in each case for such defaults
or violations that would not result in a Material Adverse Effect; and
the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Indenture, the DTC Agreement, the
Securities, the Guarantees, the Exchange Securities and
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<PAGE> 12
any other agreement or instrument entered into or issued or to be
entered into or issued by the Company or the Guarantor in connection
with the transactions contemplated hereby or thereby or in connection
with the consummation of the transactions contemplated herein
(including the issuance and sale of the Securities and the Guarantees
and the use of the proceeds from the sale of the Securities and the
Guarantees as described in the Offering Memorandum under the caption
"Use of Proceeds") and compliance by the Company and the Guarantor
with their respective obligations hereunder have been duly authorized
by all necessary corporate action and do not and will not, whether
with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or a Repayment
Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to, the
Agreements and Instruments, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company
or any of the Subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or any of
their assets or properties. As used herein, a "Repayment Event" means
any event or condition which gives the holder of any note, debenture
or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or
any of the Subsidiaries.
(xiv) Absence of Labor Disputes. No labor dispute with the
employees of the Company or any of the Subsidiaries exists or, to the
knowledge of the Company and the Guarantor, is imminent, and the
Company and the Guarantor are not aware of any existing or imminent
labor disturbance by the employees of any of their or any of the
Subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xv) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation, in each case before or by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company or the Guarantor,
threatened, against or affecting the Company or any Subsidiary thereof
which, singly or in the aggregate, might reasonably be expected to
result in a Material Adverse Effect, or which, singly or in the
aggregate, might reasonably be expected to materially and adversely
affect the properties or assets of the Company or any of the
Subsidiaries or the consummation of this Agreement or the performance
by the Company and the Guarantor of their respective obligations
hereunder or under the Securities, the Guarantees or the Exchange
Securities. The aggregate of all pending legal or governmental
proceedings to which the Company or any Subsidiary thereof is a party
or of which any of their
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<PAGE> 13
respective property or assets is the subject which are not described
in the Offering Memorandum, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xvi) Possession of Intellectual Property. The Company and
the Subsidiaries own, possess or license, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property")
necessary to carry on the business now operated by them, and neither
the Company nor any of the Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property (including
Intellectual Property which is licensed) or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of the
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(xvii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company or
the Guarantor of their respective obligations hereunder, in connection
with the offering, issuance or sale of the Securities and the
Guarantees hereunder or the consummation of the transactions
contemplated by or for the due execution, delivery or performance of
this Agreement, the Registration Rights Agreement, the Indenture, the
DTC Agreement, the Securities, the Guarantees, the Exchange Securities
or any other agreement or instrument entered into or issued or to be
entered into or issued by the Company or any of the Subsidiaries in
connection with the consummation of the transactions contemplated
herein (including the issuance and sale of the Securities and the
Guarantees and the use of the proceeds from the sale of the Securities
and the Guarantees as described in the Offering Memorandum under the
caption "Use of Proceeds").
(xviii) Possession of Licenses and Permits. The Company and
the Subsidiaries possess all governmental permits, licenses,
approvals, consents, certificates and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them respectively;
the Company and the Subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses and with the rules and
regulations of the regulatory authorities and governing bodies having
jurisdiction with respect
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<PAGE> 14
thereto, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses, nor are
there, to the knowledge of the Company or the Guarantor, pending or
threatened actions, suits, claims or proceedings against the Company
or any Subsidiary before any court, governmental agency or body or
otherwise that, if successful, would limit, revoke, cancel, suspend or
cause not to be renewed any Governmental License, in each case, which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xix) Title to Property. The Company and the Subsidiaries
have good and marketable title to all real property owned by the
Company and the Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Offering Memorandum or
(b) do not, singly or in the aggregate, materially affect the value of
such property and do not materially interfere with the use made and
proposed to be made of such property by the Company or any of the
Subsidiaries; and all of the leases and subleases material to the
business of the Company and the Subsidiaries, considered as one
enterprise, and under which the Company or any of the Subsidiaries
holds properties described in the Offering Memorandum, are in full
force and effect, and neither the Company nor any of the Subsidiaries
has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any of the
Subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or any Subsidiary
to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xx) Tax Returns. All United States federal income tax
returns of the Company and the Subsidiaries required by law to be
filed have been filed and all taxes shown by such returns or otherwise
assessed, which are due and payable, have been paid, except
assessments against which appeals have been or will be promptly taken
and as to which adequate reserves have been provided. The Company and
the Subsidiaries have filed all other tax returns that are required to
have been filed by them pursuant to applicable foreign, federal,
state, local or other law except insofar as the failure to file such
returns would not result in a Material Adverse Effect, and have paid
all taxes due pursuant to such returns or pursuant to any assessment
received by the Company and the Subsidiaries, except for such taxes,
if any, as are being contested in good faith and by appropriate
proceedings
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<PAGE> 15
and as to which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Company in respect of all
federal, state, local and foreign tax liabilities of the Company and
each Subsidiary for any years not finally determined are adequate to
meet any assessments or re-assessments for additional income tax for
any years not finally determined, except to the extent of any
inadequacy that would not result in a Material Adverse Effect.
(xxi) Solvency. The Company and the Guarantor are, and
immediately after the Closing will be, Solvent. As used herein, the
term "Solvent" means, with respect to the Company and the Guarantor,
as the case may be, on a particular date, that on such date (A) the
fair market value of the assets of the Company or the Guarantor is
greater than the total amount of liabilities (including contingent
liabilities) of the Company or the Guarantor, (B) the present fair
salable value of the assets of the Company or the Guarantor is greater
than the amount that will be required to pay the probable liabilities
of the Company or the Guarantor on its debts as they become absolute
and mature, (C) the Company or the Guarantor is able to realize upon
its assets and pay its debts and other liabilities, including
contingent obligations, as they mature, and (D) the Company or the
Guarantor does not have unreasonably small capital.
(xxii) Stabilization or Manipulation. Neither the Company
nor the Guarantor nor any of their respective officers, directors or
controlling persons has taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company or the
Guarantor in order to facilitate the sale or resale of the Securities
or the Guarantees. The Company and the Guarantor have not distributed
and, prior to the later to occur of (i) the Closing Time and (ii)
completion of the distribution of the Securities and the Guarantees,
will not distribute any offering material in connection with the
offering and sale of the Securities and the Guarantees other than the
Offering Memorandum or other materials, if any, permitted by the 1933
Act and approved by the Representative.
(xxiii) Suppliers. No supplier of merchandise to the Company
or any of the Subsidiaries has ceased shipments of merchandise to the
Company or any of the Subsidiaries, other than in the normal and
ordinary course of business consistent with past practices, which
cessation would not result in a Material Adverse Effect.
(xxiv) Environmental Laws. Except as described in the
Offering Memorandum and except such matters as would not, singly or in
the aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of the Subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule,
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<PAGE> 16
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products or nuclear or radioactive material (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and
the Subsidiaries have all permits, licenses, authorizations and
approvals currently required for their respective businesses under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or
any of the Subsidiaries and (D) there are no events, facts or
circumstances that might reasonably be expected to form the basis of
any liability or obligation of the Company or any of the Subsidiaries,
including, without limitation, any order, decree, plan or agreement
requiring clean-up or remediation, or any action, suit or proceeding
by any private party or governmental body or agency, against or
affecting the Company or any of the Subsidiaries relating to any
Hazardous Materials or Environmental Laws.
(xxv) Registration Rights. There are no holders of
securities (debt or equity) of the Company or the Guarantor, or
holders of rights (including, without limitation, preemptive rights),
warrants or options to obtain securities of the Company or the
Guarantor, who in connection with the issuance, sale and delivery of
the Securities, the Guarantees and the Exchange Securities, if any,
and the execution, delivery and performance of this Agreement and the
Registration Rights Agreement, have the right to request the Company
or the Guarantor to register securities held by them under the 1933
Act.
(xxvi) Accounting Controls. The Company and its consolidated
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared
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<PAGE> 17
with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvii) Investment Company Act. Neither the Company nor the
Guarantor is, and upon the issuance and sale of the Securities and the
Guarantees as herein contemplated and the application of the net
proceeds therefrom as described in the Offering Memorandum will be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xxviii) Rule 144A Eligibility. The Securities and the
Guarantees are eligible for resale pursuant to Rule 144A and will not
be, at the Closing Time, of the same class as securities listed on a
national securities exchange registered under Section 6 of the 1934
Act, or quoted in a U.S. automated interdealer quotation system.
(xxix) No General Solicitation. None of the Company, the
Guarantor, any of their respective affiliates, as such term is defined
in Rule 501(b) under the 1933 Act ("Affiliates"), or any person acting
on any of their behalf (other than the Initial Purchasers, as to whom
the Company and the Guarantor make no representation) has engaged or
will engage, in connection with the offering of the Securities and the
Guarantees, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the 1933 Act.
(xxx) No Registration Required. Subject to compliance by
the Initial Purchasers with the representations and warranties set
forth in Section 2, it is not necessary in connection with the offer,
sale and delivery of the Securities and the Guarantees to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated
by this Agreement and the Offering Memorandum to register the
Securities and the Guarantees under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended (the "1939
Act").
(xxxi) No Directed Selling Efforts. With respect to those
Securities and Guarantees sold in reliance on Regulation S, (A) none
of the Company, the Guarantor, any of their respective Affiliates or
any person acting on their behalf (other than the Initial Purchasers,
as to whom the Company and the Guarantor make no representation) has
engaged or will engage in any directed selling efforts within the
meaning of Regulation S and (B) each of the Company, the Guarantor,
any of their respective Affiliates and any person acting on their
behalf (other than the Initial Purchasers, as to whom the Company and
the Guarantor make no representation) has complied and will comply
with the offering restrictions requirement of Regulation S.
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<PAGE> 18
(xxxii) PORTAL. There are no securities of the Company or the
Guarantor which are of the same class as the Securities or the
Guarantees that are listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a United
States automated interdealer quotation system. The Company and the
Guarantor have been advised by the National Association of Securities
Dealers, Inc. PORTAL Market that the Securities and the Guarantees
will be designated PORTAL eligible securities in accordance with the
rules and regulations of the National Association of Securities
Dealers, Inc.
(b) Officer's Certificates. Any certificate signed by any officer
of the Company or any of the Subsidiaries delivered to the Initial Purchasers
or to counsel for the Initial Purchasers shall be deemed a representation and
warranty by the Company or any of the Subsidiaries to each Initial Purchaser as
to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities and Guarantees. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Guarantor agree to sell to each Initial
Purchaser, severally and not jointly, and each Initial Purchaser, severally and
not jointly, agrees to purchase from the Company and the Guarantor, at the
price set forth in Schedule C, the aggregate principal amount of Securities
(including the Guarantees) set forth in Schedule A opposite the name of such
Initial Purchaser, plus any additional principal amount of Securities
(including the Guarantees) which such Initial Purchaser may become obligated to
purchase pursuant to the provisions of Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities and the Guarantees shall be made at the office
of Fried, Frank, Harris, Shriver & Jacobson, or at such other place as shall be
agreed upon by the Representative, the Company and the Guarantor at 9:00 A.M.
(New York Time) on the fifth business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representative, the Company and the Guarantor (such time and date of payment
and delivery being herein called the "Closing Time").
Payment shall be made to the Company and the Guarantor by wire
transfer of immediately available funds to a bank account designated by the
Company and the Guarantor, against delivery to the respective accounts of the
Initial Purchasers of certificates for the Securities and the Guarantees to be
purchased by them. It is understood that each Initial Purchaser has authorized
the Representative, for its account,
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<PAGE> 19
to accept delivery of, receipt for, and make payment of the purchase price for,
the Securities and the Guarantees which it has agreed to purchase. Merrill
Lynch, individually and not as representative of the Initial Purchasers, may
(but shall not be obligated to) make payment of the purchase price for the
Securities and the Guarantees to be purchased by any Initial Purchaser whose
funds have not been received by the Closing Time, but such payment shall not
relieve such Initial Purchaser from its obligations hereunder. A certificate or
certificates representing the Securities and the Guarantees shall be registered
in the name of Cede & Co. pursuant to the DTC Agreement, or physical
certificates representing the Securities and the Guarantees shall be registered
in the names and denominations requested by the Initial Purchasers, and in
either case shall be made available for examination and packaging by the
Initial Purchasers in The City of New York not later than 9:00 A.M. on the last
business day prior to the Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser
severally and not jointly represents and warrants to, and agrees with, the
Company and the Guarantor that it (i) is a "qualified institutional buyer"
within the meaning of Rule 144A under the 1933 Act (a "Qualified Institutional
Buyer") and an "accredited investor" within the meaning of Rule 501(a) under
the 1933 Act (an "Accredited Investor"); (ii) has not and will not solicit
offers for, or offer or sell, Securities or Guarantees by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under
Regulation D under the 1933 Act; (iii) will offer and sell the Securities and
Guarantees only to (A) institutional investors that are reasonably believed by
it to qualify as Qualified Institutional Buyers or (B) non-U.S. persons in
offshore transactions in reliance upon Regulation S under the 1933 Act; and
(iv) will otherwise act in accordance with the terms and conditions set forth
in this Agreement and in the Offering Memorandum in connection with the
placement of the Securities contemplated hereby.
(d) Denominations; Registration. Certificates for the Securities
(including the Guarantees) shall be in such denominations ($1,000 or integral
multiples thereof) and registered in such names as the Representative may
request in writing at least one full business day before the Closing Time.
SECTION 3. Covenants of the Company and the Guarantor. The
Company and the Guarantor, jointly and severally, covenant with each Initial
Purchaser as follows:
(a) Offering Memorandum. The Company and the Guarantor, as
promptly as possible, will furnish to each Initial Purchaser, without charge,
such number of copies of the Preliminary Offering Memorandum, the Final
Offering Memorandum and any amendments and supplements thereto and documents
incorporated by reference therein as such Initial Purchaser may reasonably
request.
(b) Notice and Effect of Material Events. The Company and the
Guarantor will promptly notify each Initial Purchaser, and confirm such notice
in writing, of (x) any
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<PAGE> 20
filing made by the Company or the Guarantor of information relating to the
offering of the Securities and the Guarantees with any securities exchange or
any other regulatory body in the United States or any other jurisdiction, and
(y) prior to the completion of the placement of the Securities and the
Guarantees by the Initial Purchasers as evidenced by a notice in writing from
the Initial Purchasers to the Company, any material changes in or affecting the
earnings, business affairs or business prospects of the Company and the
Subsidiaries which (i) make any statement in the Offering Memorandum or any
document incorporated by reference in the Offering Memorandum false or
misleading or (ii) are not disclosed in the Offering Memorandum. In such event
or if during such time any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of the Company and the
Guarantor, their counsel, the Initial Purchasers or counsel for the Initial
Purchasers, to amend or supplement the Final Offering Memorandum in order that
the Final Offering Memorandum not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances then existing, the
Company and the Guarantor will forthwith amend or supplement the Final Offering
Memorandum by preparing and furnishing to each Initial Purchaser an amendment
or amendments of, or a supplement or supplements to, the Final Offering
Memorandum (in form and substance satisfactory in the reasonable opinion of
counsel for the Initial Purchasers) so that, as so amended or supplemented, the
Final Offering Memorandum will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company
and the Guarantor will advise each Initial Purchaser promptly of any proposal
to amend or supplement the Offering Memorandum and will not effect such
amendment or supplement without the consent of the Representative on behalf of
the Initial Purchasers. Neither the consent of the Representative to, nor the
Initial Purchasers' delivery of, any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(d) Qualification of Securities and Guarantees for Offer and Sale.
The Company and the Guarantor will use their reasonable efforts to register or
qualify the Securities and the Guarantees for offering and sale under the
applicable securities laws of such jurisdictions as the Representative may
reasonably designate and will maintain such qualifications in effect as long as
required for the sale of the Securities and the Guarantees; provided, however,
that the Company and the Guarantor shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
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<PAGE> 21
(e) Integration. The Company and the Guarantor agree that they
will not and will cause their affiliates not to make any offer or sale of
securities of the Company or the Guarantor of any class if, as a result of the
doctrine of "integration" referred to in Rule 502 under the 1933 Act, such
offer or sale could be deemed to render invalid (for the purpose of (i) the
sale of the Securities and the Guarantees by the Company and the Guarantor to
the Initial Purchasers, (ii) the resale of the Securities and the Guarantees by
the Initial Purchasers to Subsequent Purchasers or (iii) the resale of the
Securities and the Guarantees by such Subsequent Purchasers to others) the
exemption from the registration requirements of the 1933 Act provided by
Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or
otherwise.
(f) Rating of Securities. The Company and the Guarantor shall take
all reasonable action necessary to enable Standard & Poor's Rating Group
("S&P"), and Moody's Investors Service, Inc. ("Moody's"), to provide their
respective credit ratings of the Securities and the Guarantees.
(g) Rule 144A Information. The Company and the Guarantor agree
that, in order to render the Securities and the Guarantees eligible for resale
pursuant to Rule 144A under the 1933 Act, while any of the Securities and the
Guarantees remain outstanding, they will make available, upon request, to any
holder of Securities and Guarantees or prospective purchasers of Securities and
Guarantees the information specified in Rule 144A(d)(4), unless the Company and
the Guarantor furnish information to the Commission pursuant to Section 13 or
15(d) of the 1934 Act (such information, whether made available to holders or
prospective purchasers or furnished to the Commission, is hereinafter referred
to as "Additional Information").
(h) Restriction on Resales. Until the expiration of two years
after the original issuance of the Securities and the Guarantees, the Company
and the Guarantor will not, and will cause their "affiliates" (as such term is
defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities and
Guarantees which are "restricted securities" (as such term is defined under
Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them and
shall immediately upon any purchase of any such Securities and Guarantees
submit such Securities and Guarantees to the Trustee for cancellation.
(i) Use of Proceeds. The Company and the Guarantor will use the
net proceeds received by them from the sale of the Securities and the
Guarantees in the manner specified in the Offering Memorandum under "Use of
Proceeds."
(j) Restriction on Sale of Securities. During a period of 120 days
from the date of the Offering Memorandum, the Company and the Guarantor will
not, without the prior written consent of Merrill Lynch, directly or
indirectly, issue, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any debt securities or guarantees of debt securities of
the Company, or file a registration statement under the 1933 Act with respect
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to the foregoing (other than borrowings under the Company's revolving bank
credit agreement, the Securities, the Guarantees and the Exchange Securities
and other than the filing of an Exchange Offer Registration Statement or a
Shelf Registration Statement pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing, the Company may issue pursuant to the Indenture
and sell up to $25,000,000 of additional Notes (and related Guarantees) to the
Initial Purchasers, if the Company, the Guarantor and the Initial Purchasers so
agree at such time in their individual sole discretion, which will have the
same terms (including interest rate) and shall be of the same series as the
Notes originally issued and sold hereunder, during the period from the date
hereof until the 30th day after the date hereof, pursuant to a separate
Purchase Agreement containing substantially the same terms as this Agreement
(including the same allocation among Initial Purchasers and Initial Purchaser
discount), at a purchase price per Note to be determined at the time of sale;
provided, however, that the Company may not sell such additional Notes unless
the Company's Revolving Bank Credit Agreement has been amended to permit the
incurrence of such additional indebtedness represented by such additional
Notes.
(k) DTC Clearance. The Company and the Guarantor will use all
reasonable efforts in cooperation with the Initial Purchasers to permit the
Securities and the Guarantees to be eligible for clearance and settlement
through DTC.
(l) Legends. Each certificate for a Security (including the
Guarantee) will bear the legend contained in "Notices to Investors" in the
Offering Memorandum for the time period and upon the other terms stated in the
Offering Memorandum.
(m) Interim Financial Statements. Prior to the Closing Time, the
Company shall furnish to the Initial Purchasers copies of any unaudited interim
financial statements of the Company, promptly after they have been completed,
for any periods subsequent to the periods covered by the financial statements
appearing in the Offering Memorandum.
(n) Periodic Reports. For a period of three years after the
Closing Time, the Company and the Guarantor will furnish to the Initial
Purchasers copies of all annual reports, quarterly reports and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar
forms as may be designated by the Commission, and such other documents, reports
and information as shall be furnished by the Company and the Guarantor
generally to the holders of the Securities and the Guarantees or to security
holders of its publicly issued securities generally.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company and the Guarantor, jointly and
severally, will pay all expenses incident to the performance of their
respective obligations under this Agreement, including (i) the preparation,
printing and any filing of the Offering
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<PAGE> 23
Memorandum and the Registration Statement (including financial statements and
any schedules or exhibits) and of each amendment or supplement thereto,
including the preliminary prospectuses and the prospectus to be contained in
the Registration Statement, (ii) the preparation, printing and delivery to the
Initial Purchasers of this Agreement, the Registration Rights Agreement, the
Indenture and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities and the Guarantees,
(iii) the preparation, issuance and delivery of the certificates for the
Securities and the Guarantees to the Initial Purchasers, including any charges
of DTC in connection therewith, (iv) the fees and disbursements of the
Company's and the Guarantor's counsel, accountants and other advisors, (v) the
qualification of the Securities and the Guarantees under securities laws in
accordance with the provisions of Section 3(d) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the Initial Purchasers
in connection therewith and in connection with the preparation of the Blue Sky
Survey, any supplement thereto and any Legal Investment Survey, (vi) the fees
and expenses of the Trustee, including the fees and disbursements of counsel
for the Trustee in connection with the Indenture, the Securities and the
Guarantees, (vii) any fees payable in connection with the rating of the
Securities and the Guarantees and the listing of the Securities and the
Guarantees with the Private Offerings, Resales and Trading Through Automated
Linkages ("PORTAL") market, and (viii) any filing fees incident to, and any
reasonable fees and disbursements of counsel to the Initial Purchasers in
connection with, the review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Securities and the Guarantees.
(b) Termination of Agreement. If this Agreement is terminated by
the Representative in accordance with the provisions of Section 5 or Section
9(a)(i) or 9(a)(ii) hereof, the Company and the Guarantor, jointly and
severally, shall reimburse the Initial Purchasers for all of their out-of-
pocket expenses, including the reasonable fees and disbursements of counsel for
the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company and the Guarantor
contained in Section 1 hereof or in certificates of any officer of the Company
or any of the Subsidiaries delivered pursuant to the provisions hereof, to the
performance by the Company and the Guarantor of their covenants and other
obligations hereunder, and to the following further conditions:
(a) Opinion of Counsel for the Company and the Guarantor. At the
Closing Time, the Initial Purchasers shall have received the favorable opinion,
dated as of the Closing Time, of Troutman Sanders LLP, counsel for the Company
and the Guarantor, in form and substance satisfactory to counsel for the
Initial Purchasers, together with signed or reproduced copies of such letters
for each of the other Initial Purchasers to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the Initial Purchasers
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<PAGE> 24
may reasonably request. Troutman Sanders LLP will rely on Fried, Frank, Harris,
Shriver & Jacobson with respect to matters governed by New York law.
(b) Opinion of Counsel for the Initial Purchasers. At the Closing
Time, the Initial Purchasers shall have received the favorable opinion, dated
as of the Closing Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel
for the Initial Purchasers, together with signed or reproduced copies of such
letter for each of the other Initial Purchasers, with respect to certain
matters set forth in paragraphs (i), (ii), (vi) through (x), inclusive, (xiv)
(solely as to the information in the Offering Memorandum under "Description of
the Notes") and the third from the last paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the State
of Delaware, upon the opinions of counsel satisfactory to the Representative.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Company, the Guarantor and the Subsidiaries and certificates of
public officials.
(c) Officers' Certificate. At the Closing Time, (i) the Offering
Memorandum, as it may then be amended or supplemented, including the documents
incorporated by reference therein, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) there shall not
have been, since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company and
of the Subsidiaries, considered as one enterprise, whether or not arising in
the ordinary course of business, except to the extent expressly disclosed in
the Preliminary Offering Memorandum; (iii) the Company and the Guarantor shall
have complied with all agreements and satisfied all conditions on their part to
be performed or satisfied at or prior to the Closing Time; and (iv) the
representations and warranties of the Company and the Guarantor in Section 1
shall be accurate and true and correct as though expressly made at and as of
the Closing Time. At the Closing Time, the Initial Purchasers shall have
received a certificate of the Chief Executive Officer of the Company and the
Chief Financial Officer of the Company, dated as of the Closing Time, to such
effect.
(d) Accountant's Comfort Letter and Consent. At the time of the
execution of this Agreement, the Initial Purchasers shall have received from
Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to the Representative or to counsel for the Initial Purchasers,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum and in the form of Exhibit B attached
hereto. Arthur Andersen LLP shall
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include either in such letter or in a separate writing a consent to the
inclusion of its report in the Offering Memorandum and to the reference to it
under the caption "Independent Public Accountants" in the Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the Initial
Purchasers shall have received from Arthur Andersen LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities and
the Guarantees shall be rated at least Ba3 by Moody's and BB by S&P, and the
Company and the Guarantor shall have delivered to the Representative a letter
dated the Closing Time, from each such rating agency, or other evidence
satisfactory to the Representative, confirming that the Securities and the
Guarantees have such ratings; and since the date of this Agreement, there shall
not have occurred a downgrading in the rating assigned to the Securities and
the Guarantees or any of the Company's and the Guarantor's other debt
securities by any nationally recognized securities rating agency, and no such
securities rating agency shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of the
Securities and the Guarantees or any of the Company's and the Guarantor's other
debt securities.
(g) PORTAL. At the Closing Time, the Securities and the Guarantees
shall have been designated for trading on PORTAL.
(h) Chief Financial Officer's Certificate. At the Closing Time,
the Initial Purchasers shall have received a certificate of the principal
financial officer of the Company and the Guarantor as to certain agreed upon
accounting matters.
(i) Registration Rights Agreement and Indenture. The Company and
the Guarantor shall have duly authorized, executed and delivered the
Registration Rights Agreement and the Indenture in a form and substance
satisfactory to the Representative and counsel to the Initial Purchasers.
(j) Bank Consent. The Company and the Guarantor shall have
obtained a valid consent and amendment from the lenders under the Company's and
the Guarantor's Revolving Credit Agreement, dated as of March 31, 1997, in form
and substance satisfactory to the Initial Purchasers.
(k) Additional Documents. At the Closing Time, counsel for the
Initial Purchasers shall have been furnished with such documents and opinions
as they may require for the purpose of enabling them to pass upon the issuance
and sale of the Securities and the Guarantees as herein contemplated, or in
order to evidence the
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<PAGE> 26
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Company
and the Guarantor in connection with the issuance and sale of the Securities
and the Guarantees as herein contemplated shall be satisfactory in form and
substance to the Initial Purchasers and counsel for the Initial Purchasers.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Representative by notice to the Company
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party except as provided in Section
4 and except that Sections 1, 6 and 7 shall survive any such termination and
remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Initial Purchasers. The Company and the
Guarantor, jointly and severally, agree to indemnify and hold harmless each
Initial Purchaser and each person, if any, who controls any Initial Purchaser
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Offering Memorandum or the Final Offering Memorandum
(or any amendment or supplement thereto (including any document
incorporated by reference into the Preliminary Offering Memorandum or
Final Offering Memorandum)), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
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<PAGE> 27
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company or the
Guarantor by any Initial Purchaser through Merrill Lynch expressly for use in
the Offering Memorandum (or any amendment or supplement thereto); provided,
further, however, that the Company and the Guarantor will not be liable to any
Initial Purchasers or any person controlling such Initial Purchasers with
respect to any such untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Offering Memorandum to the extent that
the Company and the Guarantor shall sustain the burden of proving that any such
loss, liability, claim, damage or expense resulted solely from the fact that
such Initial Purchaser sold Securities to a person to whom such Initial
Purchaser failed to send or give, at or prior to the written confirmation of
the sale of such Securities, a copy of the Final Offering Memorandum (as
amended or supplemented) if the Company has previously furnished copies thereof
(sufficiently in advance of the Closing Time to allow for distribution of the
Final Offering Memorandum in a timely manner) to the Initial Purchaser and the
loss, liability, claim, damage or expense of such Initial Purchaser resulted
solely from an untrue statement or omission or alleged untrue statement or
omission of a material fact contained in or omitted from such Preliminary
Offering Memorandum which was corrected in the Final Offering Memorandum..
(b) Indemnification of Company, Guarantor, and Directors. Each
Initial Purchaser severally agrees to indemnify and hold harmless the Company,
the Guarantor and their directors, any executive officer of the Company and the
Guarantor who would be required to sign the Offering Memorandum if it were a
registration statement on Form S-1, and each person, if any, who controls the
Company or the Guarantor within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum or
any amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company or the Guarantor by such Initial
Purchaser through Merrill Lynch expressly for use in the Offering Memorandum or
any amendment or supplement thereto.
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in
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any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its consent if such
indemnifying party (i) reimburses such indemnified party in accordance with
such request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein,
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<PAGE> 29
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Guarantor on the one hand and
the Initial Purchasers on the other hand from the offering of the Securities
and the Guarantees pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company and the Guarantor
on the one hand and of the Initial Purchasers on the other hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company and the Guarantor on the
one hand and the Initial Purchasers on the other hand in connection with the
offering of the Securities and the Guarantees pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities and the Guarantees pursuant to this
Agreement (before deducting expenses) received by the Company and the Guarantor
and the total underwriting discount received by the Initial Purchasers, bear to
the aggregate initial offering price of the Securities and the Guarantees.
The relative fault of the Company and the Guarantor on the one hand
and the Initial Purchasers on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company or the Guarantor, or by the
Initial Purchasers, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Guarantor and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at
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<PAGE> 30
which the Securities (including the Guarantees) sold by it were distributed to
the subsequent purchasers thereof exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company and the Guarantor, any executive
officer of the Company and the Guarantor who would be required to sign the
Offering Memorandum if it were a registration statement on Form S-1, and each
person, if any, who controls the Company and the Guarantor within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company and the Guarantor. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 7 are
several in proportion to the principal amount of Securities (including the
Guarantees) set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of the
Subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Initial Purchaser or controlling person, or by or on behalf of the Company or
the Guarantor, and shall survive delivery of the Securities (including the
Guarantees) to the Initial Purchasers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Company and the Guarantor, at any time at or prior
to the Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company and
the Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, except to the extent expressly disclosed in the
Preliminary Offering Memorandum, or (ii) if there shall have occurred a
downgrading in the rating assigned to the Securities or the Guarantees or any
of the Company's or the Guarantor's other debt securities by any nationally
recognized securities rating agency, or if such securities rating agency shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the
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<PAGE> 31
Securities, the Guarantees or any of the Company's or Guarantor's other debt
securities or guarantees of debt securities, or (iii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the Representative, impracticable to market the Securities or
the Guarantees or to enforce contracts for the sale of the Securities or the
Guarantees, or (iv) if trading in any securities of the Company or the
Guarantor has been suspended or limited by the Commission or the NASDAQ
National Market System, or if trading generally on the American Stock Exchange
or the New York Stock Exchange or in the NASDAQ National Market System has been
suspended or limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (v) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that
Sections 1, 6 and 7 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Initial Purchasers. If
one or more of the Initial Purchasers shall fail at Closing Time to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representative shall have the right, but not
the obligation, within 24 hours thereafter, to make arrangements for the non-
defaulting Initial Purchasers, or any other initial purchasers, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then this Agreement shall terminate without liability on the part of
any non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representative, the Company or the
Guarantor shall have the right to postpone the Closing Time for a period not
exceeding seven days in order to effect any required changes in the Offering
Memorandum or in any other documents or arrangements. As used herein, the term
"Initial Purchaser" includes any person substituted for an Initial Purchaser
under this Section 10.
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<PAGE> 32
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Initial Purchasers shall be directed to the Representative at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Amy Lane,
with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New
York, New York 10004, attention of Valerie Ford Jacob, Esq.; notices to the
Company or the Guarantor shall be directed to them at 901 West Walnut Hill
Lane, Irving, Texas 75038-1003, attention of Alan P. Shor, Esq., with a copy to
Troutman Sanders LLP, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia
30308-2216, attention of James L. Smith, III, Esq.
SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Initial Purchasers, the Company and the
Guarantor and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchasers, the Company and the Guarantor
and their respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Initial Purchasers, the Company and the Guarantor and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities and Guarantees
from any Initial Purchaser shall be deemed to be a successor by reason merely
of such purchase.
SECTION 13. Governing Law And Time. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY HEREIN REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Guarantor a
counterpart hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the Initial Purchasers, the Company and
the Guarantor in accordance with its terms.
Very truly yours,
ZALE CORPORATION
By /s/ STEPHEN C. MASSANELLI
------------------------------------
Name: Stephen C. Massanelli
Title: Senior Vice President and
Treasurer
ZALE DELAWARE, INC.
By /s/ STEPHEN C. MASSANELLI
------------------------------------
Name: Stephen C. Massanelli
Title: Senior Vice President and
Treasurer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
BANCBOSTON SECURITIES INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ LANI MARTIN
---------------------------------------
Authorized Signatory
For itself and the other Initial Purchasers
named in Schedule A hereto.
- 29 -
<PAGE> 34
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Securities
----------
Name of Initial Purchaser
-------------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . $60,000,000
Goldman, Sachs & Co.... . . . . . . . . . . . . . . . . . . . . . $30,000,000
BancBoston Securities Inc.... . . . . . . . . . . . . . . . . . . $10,000,000
Total . . . . . . . . . . . . . . . . . .. . . . . . . $100,000,000
============
</TABLE>
<PAGE> 35
SCHEDULE B
Subsidiaries
Zale Delaware, Inc.
Diamond Funding Corp.
Zale Acquisition Corporation
Jewel Recovery, Inc.
Jewel Recovery, L.P.
JHC Holding Corporation
Zale Holding Corporation
ZHCL Corporation
Zale Puerto Rico, Inc.
Dobbins Jewelers, Inc.
Jewelers Financial Services, Inc.
Zale Life Insurance Company
Zale Indemnity Company
Diamond Guaranty Insurance Company
Jewel Re-Insurance Company
Jewel Re-Insurance Ltd.
Zale Employees Child Care Association, Inc.
Karten's Jewelers, Inc.
Zale Funding Trust
Jewelers National Bank
<PAGE> 36
SCHEDULE C
ZALE CORPORATION
$100,000,000 8 1/2% Senior Notes due 2007
1. The initial offering price of the Securities (including the
Guarantees) shall be 99.53% of the principal amount thereof, plus accrued
interest, if any, from the date of issuance.
2. The purchase price to be paid by the Initial Purchasers for
the Securities and the Guarantees shall be 97.53% of the principal amount
thereof.
3. The interest rate on the Securities shall be 8 1/2% per annum.
4. The interest payment dates of the Securities shall be April 1
and October 1 of each year, commencing April 1, 1998.
5. The Securities will be subject to redemption at any time on or
after October 1, 2002, at the option of the Company, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning October 1 of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -------
<S> <C>
2002 104.250%
2003 102.833%
2004 101.417%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
6. At any time or from time to time on or prior to October 1,
2000, the Company may, at its option, use all or a portion of the net proceeds
of one or more Public Equity Offerings (as defined in the Indenture) to redeem
up to an aggregate of 30% of the aggregate principal amount of Securities
originally issued under the Indenture at a redemption price equal to 108.5% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date; provided that at least 70% of the
aggregate principal amount of the Securities (including any Additional Notes
(as defined in the Offering Memorandum)) originally issued under the Indenture
remains outstanding immediately after the occurrence of such redemption.
<PAGE> 37
Exhibit A
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
BancBoston Securities Inc.
As the Initial Purchasers
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower
250 Vesey Street
New York, New York 10128
Re: Zale Corporation
Ladies and Gentlemen:
We have acted as counsel to Zale Corporation, a Delaware corporation
(the "Company"), and Zale Delaware, Inc., a Delaware corporation (the
"Guarantor"), in connection with: (i) the issuance by the Company of
$100,000,000 aggregate principal amount of its Senior Notes due 2007 (the
"Securities"), pursuant to an Indenture dated as of September 30, 1997 among
the Company, the Guarantor and Bank One, N.A., as trustee (the "Indenture");
(ii) the sale of the Securities pursuant to the Purchase Agreement dated
September 23, 1997 (the "Purchase Agreement") among the Company, the Guarantor
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
and BancBoston Securities Inc. (the "Initial Purchasers"); (iii) the
Registration Rights Agreement dated as of September 30, 1997 among the Company,
the Guarantor and the Initial Purchasers (the "Registration Rights Agreement");
and (iv) the issuance of a guarantee (the "Guarantee") of the Company's
obligations under the Securities by the Guarantor pursuant to the terms of the
Indenture.
This opinion is being rendered pursuant to the requirements of Section
5(a) of the Purchase Agreement. Capitalized terms used herein and not othewise
defined shall have the meanings ascribed to them in the Purchase Agreement
unless the context otherwise requires.
In arriving at the opinions set forth below, we have examined and
relied upon, among other things, the offering memorandum pertaining to the
Securities and the Guarantees dated September 23, 1997 (the "Offering
Memorandum"), copies of the above-referenced documents and the exhibits and the
other documents referred to therein, such certificates of public officials and
officers of the Company and such originals or copies, certified or otherwise
identified to our satisfaction, of corporate documents and
- 1 -
<PAGE> 38
records of the Company and its subsidiaries, and such other information as we
have deemed necessary or appropriate for the purposes hereof. In giving this
opinion, we are assuming (1) that all documents and instruments examined by us,
including the Purchase Agreement, have been duly authorized by all requisite
action by each party thereto other than the Company and the Guarantor, and that
each such document has been duly executed and delivered by, and is a legal,
valid and binding obligation of, said parties and is enforceable against said
parties in accordance with its respective terms; (2) that the representations
and warranties of the Company and the Guarantor, as set forth in the Purchase
Agreement and the Registration Rights Agreement, are true and correct as to all
factual matters included therein; and (3) the authenticity of all instruments
presented to us as originals, the legal competency of natural persons, the
conformity to the originals of all instruments presented to us as copies and
the genuineness of all signatures.
On the basis of the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion, relying as to matters of New
York law for purposes of clauses (vii), (viii), (ix) and (x) upon the opinion
dated the date hereof rendered to you by Fried, Frank, Harris, Shriver &
Jacobson, that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under the
Purchase Agreement, the Registration Rights Agreement, the Indenture, the
Securities, the Exchange Securities and the DTC Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the table at page F-6
entitled "Zale Corporation and Subsidiaries-Consolidated Statements of
Stockholders' Investment" under the column labeled "Number of Common Shares
Outstanding" (except for subsequent issuances, if any, pursuant to
reservations, agreements, employee benefit plans or the exercise of convertible
securities or options referred to in the Offering Memorandum); the shares of
issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable [(except as to
[611,642] shares delivered to the Disbursing Agent pursuant to the Company's
Plan of Reorganization under Chapter 11 of the Bankruptcy Code, but not yet
delivered to former creditors of the Company who have not yet provided required
documentation or whose claims are
- 2 -
<PAGE> 39
disputed, as to which we express no opinion or belief]; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) Each subsidiary of the Company (including the Guarantor) has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; all of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and non-
assessable and, to the best of our knowledge, is owned by the Company, directly
or through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim [(except that, with respect to Dobbins
Jewelers, Inc. ("Dobbins"), a Guam corporation, for which Title 18, Section
2206 of the Guam Code requires each director of a corporation to own in his own
right at least one share of the capital stock of such corporation, [five]
shares of common stock of Dobbins are held by directors and former directors of
Dobbins)].
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company and by the Guarantor.
(vii) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and the Guarantor and (assuming the due
authorization, execution and delivery thereof by the Initial Purchasers)
constitutes the valid and binding obligation of the Company and the Guarantor,
enforceable against the Company and the Guarantor in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law). We express no opinion as to the validity or binding effect or
enforceability of any provision of the Registration Rights Agreement relating
to indemnification or contribution.
(viii) The Indenture has been duly authorized, executed and delivered
by the Company and the Guarantor and (assuming the due authorization, execution
and delivery thereof by the Trustee) constitutes a valid and binding agreement
of the Company and the Guarantor, enforceable against the Company and the
Guarantor in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights
- 3 -
<PAGE> 40
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(ix) The Securities and the Guarantees are in the form contemplated
by the Indenture, have been duly authorized by the Company and the Guarantor
and, when executed by the Company and the Guarantor and authenticated by the
Trustee in the manner provided in the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee) and
delivered against payment of the purchase price therefor, will constitute valid
and binding obligations of the Company and the Guarantor, enforceable against
the Company and the Guarantor in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium, or other similar laws relating to or affecting enforcement of
creditor's rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
will be entitled to the benefits of the Indenture.
(x) The Exchange Securities have been duly authorized by the
Company and the Guarantor and, when executed by the Company and the Guarantor
and authenticated by the Trustee in the manner provided in the Indenture
(assuming the due authorization, execution and delivery of the Indenture by the
Trustee) and issued and delivered in exchange for the Securities and the
Guarantees pursuant to the Exchange Offer, will constitute valid and binding
obligations of the Company and the Guarantor, enforceable against the Company
and the Guarantor in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium, or other similar laws relating to or affecting enforcement of
creditor's rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
will be entitled to the benefits of the Indenture.
(xi) The Securities, the Guarantees and the Indenture conform in
all material respects to the descriptions thereof contained in the Offering
Memorandum.
(xii) The documents incorporated by reference in the Offering
Memorandum (other than the financial statements, notes or schedules thereto and
other financial data and supplemental schedules therein, as to which we express
no opinion), when they were filed with the Commission, complied as to form in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation to which the
Company, the Guarantor or any subsidiary is a party, or to which the property
of the Company, the Guarantor or any subsidiary is subject, before or brought
by any court or governmental agency or body, which might reasonably be expected
to result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets
- 4 -
<PAGE> 41
thereof or the consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company or the Guarantor of their
respective obligations under the Purchase Agreement, the Securities, the
Guarantees or the Exchange Securities.
(xiv) The information in the Offering Memorandum under "Business--
Litigation," "Risk Factors--Regulation," "Exchange Offer; Registration Rights,"
"Description of the Notes" and "Description of Certain Indebtedness," to the
extent that it constitutes matters of law, summaries of legal matters or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in
all material respects.
(xv) All descriptions in the Offering Memorandum and in the
documents incorporated by reference therein of contracts and other documents to
which the Company, the Guarantor or any of their subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that would be required to be described in the Offering
Memorandum (if such Offering Memorandum were a prospectus included in a
registration statement on Form S-1) and in the documents incorporated by
reference therein that are not described or referred to in the Offering
Memorandum or in the documents incorporated by reference therein other than
those described or referred to therein, and the descriptions thereof or
references thereto are correct in all material respects.
(xvi) To the best of our knowledge, none of the Company, the
Guarantor, or any of their respective subsidiaries is in violation of its
charter or by-laws and no default by the Company, the Guarantor or any of their
respective subsidiaries exists in the due performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Offering Memorandum or filed
or incorporated by reference as an exhibit to any document incorporated by
reference therein and which violation or default might reasonably be expected
to result in a Material Adverse Effect.
(xvii) No authorization, approval, consent, license, order,
registration, qualification or decree of any court or governmental authority or
agency, domestic or foreign (other than with respect to the obligation imposed
by the Registration Rights Agreement to have a registration statement declared
effective or under the applicable securities laws of the various state and
local jurisdictions in which the Securities and Guarantees will be offered or
sold, as to which we express no opinion) is necessary or required in connection
with the due authorization, execution and delivery of the Purchase Agreement or
the due execution, delivery or performance of the Indenture by the Company or
the Guarantor or for the offering, issuance, sale or delivery of the Securities
and the Guarantees to the Initial Purchasers or the resale by the Initial
Purchasers in accordance with the Purchase Agreement or for the performance by
the Company or the Guarantor of their respective obligations thereunder, in
connection with the offering,
- 5 -
<PAGE> 42
issuance or sale of the Securities and the Guarantees or the consummation of
the transactions contemplated by the Purchase Agreement, the Registration
Rights Agreement, the Indenture, the DTC Agreement, the Securities, the
Guarantees and the Exchange Securities (including the issuance and sale of the
Securities and the Guarantees and the use of the proceeds from the sale of the
Securities and the Guarantees as described in the Offering Memorandum under the
caption "Use of Proceeds").
(xviii) It is not necessary in connection with the offer,
sale and delivery of the Securities and Guarantees to the Initial Purchasers
and to each Subsequent Purchaser in the manner contemplated by the Purchase
Agreement and the Offering Memorandum to register the Securities and Guarantees
under the 1933 Act or to qualify the Indenture under the Trust Indenture Act.
(xix) The execution, delivery and performance by the Company and the
Guarantor of the Purchase Agreement, the Registration Rights Agreement, the
Indenture, the DTC Agreement, the Securities, the Guarantees and the Exchange
Securities, the consummation of the transactions contemplated in the Purchase
Agreement (including the issuance and sale of the Securities and the Guarantees
and the use of the proceeds from the sale of the Securities and the Guarantees
as described in the Offering Memorandum under the caption "Use of Proceeds"),
and compliance by the Company and the Guarantor with their respective
obligations under the Purchase Agreement, the Registration Rights Agreement,
the DTC Agreement, the Indenture, the Securities, the Guarantees and the
Exchange Securities have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default or
a Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or the Guarantor or any of their respective subsidiaries pursuant
to, any agreement listed as an exhibit to the Company's Form 10-K for the year
ended July 31, 1997 or any other material contract, indenture, mortgage, deed
of trust, loan or credit agreement, note or lease, nor will such action result
in any violation of the provisions of the charter or by-laws or other
constituent documents of the Company or the Guarantor or any of their
respective subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government instrumentality
or court, domestic or foreign, having jurisdiction over the Company or the
Guarantor or any of their subsidiaries or any of their assets or properties. As
used herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Company, the
Guarantor or any of their subsidiaries.
(xx) Neither the Company nor the Guarantor is an "investment
company" or an entity "controlled" by an "investment company," as such terms
are defined in the 1940 Act.
- 6 -
<PAGE> 43
Nothing has come to our attention that would lead us to believe that
the Offering Memorandum or any amendment or supplement (except for the
financial statements, notes and schedules and other financial data and
supplemental schedules included or incorporated by reference therein, as to
which we express no belief), at the time the Offering Memorandum was issued, at
the time any such amended or supplemented Offering Memorandum was issued, or at
the Closing Time, included or includes an untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
We are members of the State Bar of Georgia and we do not express any
opinion herein concerning any law other than the law of the State of Georgia,
the general corporate law of the State of Delaware, the federal law of the
United States and, to the extent set forth herein, the law of the State of New
York.
This opinion is rendered to you in connection with the above-described
transaction. This opinion may not be relied upon by you for any other purpose
or relied upon by or furnished to any other person without our prior written
consent. This opinion is based upon the state of facts and law as in existence
on the date hereof and we disclaim any obligation to provide notice of any
changes with respect thereto.
Very truly yours,
TROUTMAN SANDERS LLP
- 7 -
<PAGE> 44
Exhibit B
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(d)]
(1) We are independent public accountants with respect to the
Company and the Guarantor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act") and the published rules and regulations thereunder.
(2) In our opinion, the audited financial statements and the
related financial statement schedules included or incorporated by reference in
the Offering Memorandum comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder.
(3) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of the latest available interim consolidated financial statements of the
Company, a reading of the minutes of all meetings of the stockholders and board
of directors and committees of the board of directors of the Company and the
Guarantor and their subsidiaries since January 1, 1997, inquiries of certain
officials of the Company and the Guarantor and their subsidiaries responsible
for financial and accounting matters, and such other inquiries and procedures
as may be specified in such letter, nothing came to our attention that caused
us to believe that:
(A) at August 31, 1997 and a specified date not
more than three business days prior to the date of this
Agreement, there was any change in the capital stock of the
Company and its subsidiaries or any decrease in the total
assets, working capital or total stockholders' investment of
the Company and its subsidiaries on a consolidated basis or
any increase in the long term debt of the Company and its
subsidiaries on a consolidated basis, in each case as compared
with amounts shown in the latest consolidated balance sheet
included in the Offering Memorandum, except in each case for
changes, decreases or increases that the Offering Memorandum
discloses have occurred or may occur; or
(C) for the period from August 1, 1997 to August
31, 1997, and from August 1, 1997 to a specified date not more
than three business days prior to the date of this Agreement,
there was any decrease in net sales, operating earnings,
earnings before extraordinary item or net earnings, in each
case as compared with the comparable period in the preceding
year, except in each case for any decreases that the Offering
Memorandum discloses have occurred or may occur.
<PAGE> 45
(4) Based upon the procedures set forth in clauses (2) and (3)
above and a reading of the Selected Financial Data included in the Offering
Memorandum and a reading of the financial statements from which such data were
derived, nothing came to our attention that caused us to believe that the
Selected Financial Data included in the Offering Memorandum do not comply as to
form in all material respects with the disclosure requirements of Item 301 of
Regulation S-K of the 1933 Act, that the amounts included in the Selected
Financial Data are not in agreement with the corresponding amounts in the
audited consolidated financial statements for the respective periods or that
the financial statements not included in the Offering Memorandum from which
certain of such data were derived are not in conformity with generally accepted
accounting principles.
(5) We have compared the information included or incorporated by
reference in the Offering Memorandum under selected captions with the
disclosure requirements of Regulation S-K of the 1933 Act and on the basis of
limited procedures specified herein, nothing came to our attention that caused
us to believe that this information does not comply as to form in all material
respects with the disclosure requirements of Items 302, 402 and 503(d),
respectively, of Regulation S-K.
(6) In addition to the procedures referred to in clause (2) above,
we have performed other procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial information
appearing in the Offering Memorandum and in documents incorporated by reference
therein, which are specified herein, and have compared certain of such items
with, and have found such items to be in agreement with, the accounting and
financial records of the Company.
(7) We hereby consent to the use in the Offering Memorandum of our
report dated September 3, 1997 relating to the audited financial statements of
the Company which appear in such Offering Memorandum. We also consent to the
reference to us under the heading "Independent Auditors" in such Offering
Memorandum.
- ii -
<PAGE> 1
EXHIBIT 4.4
--------------------------------------
Registration Rights Agreement
Dated As of September 30, 1997
among
Zale Corporation,
Zale Delaware, Inc.
and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Goldman, Sachs & Co.
and
BancBoston Securities Inc.
--------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 30th day of September, 1997, among Zale Corporation, a
Delaware corporation (the "Company"), Zale Delaware, Inc., a Delaware
corporation (the "Guarantor"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and BancBoston Securities, Inc.
(collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
September 23, 1997, among the Company, the Guarantor and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of an aggregate of $100 million principal amount of the
Company's 8 1/2% Senior Notes due 2007, Series A (the "Securities"). The
Securities will be guaranteed (the "Guarantees") by the Guarantor. In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
and the Guarantor have agreed to provide to the Initial Purchasers and their
direct and indirect transferees the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 Act" shall mean the Securities Exchange Act of l934, as
amended from time to time.
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company and the Guarantor, provided,
however, that such depositary must have an address in the Borough of
Manhattan, in the City of New York.
<PAGE> 3
"Exchange Offer" shall mean the exchange offer by the Company
and the Guarantor of Exchange Securities for Registrable Securities
pursuant to Section 2.1 hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such
registration statement, including the Prospectus contained therein, all
exhibits thereto and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section
2.1 hereof.
"Exchange Securities" shall mean, collectively the 8 1/2% Senior
Notes due 2007, Series B issued by the Company under the Indenture and
the related guarantees issued by the Guarantor under the Indenture,
containing terms identical to the Securities and the Guarantees in all
material respects (except for references to certain interest rate
provisions, restrictions on transfers and restrictive legends), to be
offered to Holders of Securities and Guarantees in exchange for
Registrable Securities pursuant to the Exchange Offer.
"Guarantor" shall have the meaning set forth in the preamble and
shall also include the Guarantor's successors.
"Holder" shall mean an Initial Purchaser, for so long as it owns
any Registrable Securities, and each of its successors, assigns and
direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture.
"Indenture" shall mean the Indenture relating to the Securities
and the Guarantees, dated as of September 30, 1997, among the Company,
the Guarantor and Bank One, N.A., as trustee, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Purchaser" or "Initial Purchasers" shall have the
meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable
2
<PAGE> 4
Securities; provided that whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company, the Guarantor and
any other obligors on the Securities or any Affiliate (as defined in the
Indenture) of the Company or the Guarantor shall be disregarded in
determining whether such consent or approval was given by the Holders of
such required percentage amount.
"Participating Broker-Dealer" shall mean any of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and BancBoston
Securities, Inc. and any other broker-dealer which makes a market in the
Securities and Guarantees and exchanges Registrable Securities in the
Exchange Offer for Exchange Securities.
"Person" shall mean an individual, partnership (general or
limited), corporation, limited liability company, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus supplement,
including any such prospectus supplement with respect to the terms of
the offering of any portion of the Registrable Securities covered by a
Shelf Registration Statement, and by all other amendments and
supplements to a prospectus, including post-effective amendments, and in
each case including all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Securities" shall mean, collectively, the
Securities and the Guarantees; provided, however, that Securities and
Guarantees shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Securities and Guarantees
shall have been declared effective under the 1933 Act and such
Securities and Guarantees shall have been disposed of pursuant to such
Registration Statement, (ii) such Securities and Guarantees have been
sold to the public pursuant to Rule l44 (or any similar provision then
in force, but not Rule 144A) under the 1933 Act, (iii) such Securities
and Guarantees shall have ceased to be outstanding or (iv) the Exchange
Offer is consummated (except in the case of Securities and Guarantees
purchased from the Company and the Guarantor and continued to be held by
the Initial Purchasers).
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance by the Company and the Guarantor with
this Agreement, including without limitation: (i) all SEC, stock
exchange or National
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<PAGE> 5
Association of Securities Dealers, Inc. (the "NASD") registration and
filing fees, including, if applicable, the fees and expenses of any
"qualified independent underwriter" (and its counsel) that is required
to be retained by any holder of Registrable Securities in accordance
with the rules and regulations of the NASD, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky
laws and compliance with the rules of the NASD (including reasonable
fees and disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange Securities
or Registrable Securities and any filings with the NASD), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all fees and
expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all
rating agency fees, (vi) the fees and disbursements of counsel for the
Company and the Guarantor and of the independent public accountants of
the Company and the Guarantor, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the Trustee,
and any escrow agent or custodian, (viii) the reasonable fees and
expenses (if any) of the Initial Purchasers in connection with the
Exchange Offer, including the reasonable fees and expenses of counsel to
the Initial Purchasers in connection therewith, (ix) the reasonable fees
and disbursements of Fried, Frank, Harris, Shriver & Jacobson, special
counsel representing the Holders of Registrable Securities and (x) any
fees and disbursements of the underwriters customarily required to be
paid by issuers or sellers of securities and the fees and expenses of
any special experts retained by the Company and the Guarantor in
connection with any Registration Statement, but excluding underwriting
discounts and commissions and transfer taxes, if any, relating to the
sale or disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement
of the Company and the Guarantor which covers any of the Exchange
Securities or Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
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<PAGE> 6
"Shelf Registration" shall mean a registration effected pursuant
to Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Guarantor pursuant to the provisions of
Section 2.2 of this Agreement which covers all of the Registrable
Securities on an appropriate form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities
under the Indenture.
2. Registration Under the 1933 Act.
2.1 Exchange Offer. The Company and the Guarantor shall
(A) prepare and, not later than 35 days following the Closing Date, file with
the SEC an Exchange Offer Registration Statement on an appropriate form under
the 1933 Act with respect to a proposed Exchange Offer and the issuance and
delivery to the Holders, in exchange for the Registrable Securities, of a like
principal amount of Exchange Securities, (B) use their reasonable efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the 1933 Act within 120 days of the Closing Date, (C) use their reasonable
efforts to keep the Exchange Offer Registration Statement effective until the
closing of the Exchange Offer and (D) use their reasonable efforts to cause the
Exchange Offer to be consummated not later than 150 days following the Closing
Date. The Exchange Securities will be issued under the Indenture. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company and the
Guarantor shall promptly commence the Exchange Offer, it being the objective of
such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a)
is not an affiliate of the Company or the Guarantor within the meaning of Rule
405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable
Securities acquired directly from the Company and the Guarantor for its own
account, (c) acquired the Exchange Securities in the ordinary course of such
Holder's business and (d) has no arrangements or understandings with any Person
to participate in the Exchange Offer for the purpose of distributing the
Exchange Securities) to transfer such Exchange Securities from and after their
receipt without any limitations or restrictions under the 1933 Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
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<PAGE> 7
In connection with the Exchange Offer, the Company and the
Guarantor shall:
(a) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for
a period of not less than 30 calendar days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law) (such period
referred to herein as the "Exchange Period");
(c) utilize the services of the Depositary for the
Exchange Offer;
(d) permit Holders to withdraw tendered Registrable
Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business
day of the Exchange Period, by sending to the institution specified in the
notice, a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Securities delivered
for exchange, and a statement that such Holder is withdrawing his election to
have such Securities exchanged;
(e) notify each Holder that any Registrable
Security not tendered will remain outstanding and continue to accrue interest,
but will not retain any rights under this Agreement (except in the case of the
Initial Purchasers and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all
applicable laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer,
the Company and the Guarantor shall:
(i) accept for exchange all Registrable Securities
duly tendered and not validly withdrawn pursuant to the Exchange
Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal which shall
be an exhibit thereto;
(ii) deliver to the Trustee for cancellation all
Registrable Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and
deliver Exchange Securities to each Holder of Registrable
Securities so accepted
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<PAGE> 8
for exchange in a principal amount equal to the principal amount
of the Registrable Securities of such Holder so accepted for
exchange.
Interest on each Exchange Security will accrue from the last
date on which interest was paid on the Registrable Securities surrendered in
exchange therefor or, if no interest has been paid on the Registrable
Securities, from the date of original issuance. The Exchange Offer shall not
be subject to any conditions, other than (i) that the Exchange Offer, or the
making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the SEC, (ii) the due tendering of
Registrable Securities in accordance with the Exchange Offer, (iii) that each
Holder of Registrable Securities exchanged in the Exchange Offer shall have
represented that all Exchange Securities to be received by it shall be acquired
in the ordinary course of its business and that at the time of the consummation
of the Exchange Offer it shall have no arrangement or understanding with any
Person to participate in the distribution (within the meaning of the 1933 Act)
of the Exchange Securities and shall have made such other representations as
may be reasonably necessary under applicable SEC rules, regulations or
interpretations to render the use of Form S-4 or other appropriate form under
the 1933 Act available and (iv) that no action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
with respect to the Exchange Offer which, in the Company's and the Guarantor's
judgment, would reasonably be expected to impair the ability of the Company and
the Guarantor to proceed with the Exchange Offer. The Company and the
Guarantor shall inform the Initial Purchasers of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Initial Purchasers shall
have the right to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
2.2 Shelf Registration. (i) If, because of any changes in
law, SEC rules or regulations or applicable interpretations thereof by the
staff of the SEC, the Company and the Guarantor are not permitted to effect the
Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other
reason the Exchange Offer Registration Statement is not declared effective
within 120 days following the original issue of the Registrable Securities or
the Exchange Offer is not consummated within 150 days after the original issue
of the Registrable Securities, (iii) upon the request of any of the Initial
Purchasers with respect to Registrable Securities held by it if in the
reasonable view of counsel to such Initial Purchaser registration is required
or (iv) if a Holder, in the reasonable view of counsel to such Holder, is not
permitted to participate in the Exchange Offer or does not receive fully
tradable Exchange Securities pursuant to the Exchange Offer, then in case of
each of clauses (i) through (iv) the Company and the Guarantor shall, at their
cost:
(a) As promptly as practicable, file with the SEC,
and thereafter shall use their reasonable efforts to file,
within 30 days after such filing obligation arises, and cause
such Shelf Registration Statement to be
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<PAGE> 9
declared effective no later than 90 days after such filing
obligation arises, a Shelf Registration Statement relating to
the offer and sale of the Registrable Securities by the Holders
from time to time in accordance with the methods of distribution
elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.
(b) Use their reasonable efforts to keep the Shelf
Registration Statement continuously effective in order to permit
the Prospectus forming part thereof to be usable by Holders for
a period of two years from the date of the original issuance of
the Registrable Securities, or for such shorter period that will
terminate when all Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise
to be Registrable Securities.
(c) Notwithstanding any other provisions hereof,
use their reasonable best efforts to ensure that (i) any Shelf
Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any supplement thereto
complies in all material respects with the 1933 Act and the
rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided that, clauses (i) through (iii) shall not apply to any
untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company or
the Guarantor by the Initial Purchasers or Holders expressly for
use therein.
The Company and the Guarantor further agree, if necessary, to
supplement or amend the Shelf Registration Statement, as required by Section
3(b) below, and to furnish to the Holders of Registrable Securities copies of
any such supplement or amendment promptly after its being used or filed with
the SEC.
2.3 Expenses. The Company and the Guarantor shall pay all
Registration Expenses in connection with the registration pursuant to Section
2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of such
Holder's Registrable Securities pursuant to the Shelf Registration Statement.
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<PAGE> 10
2.4. Effectiveness. (a) The Company and the Guarantor will
be deemed not to have used their reasonable best efforts to cause the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, to become, or to remain, effective during the requisite period if the
Company or the Guarantor voluntarily takes any action that would, or
voluntarily omits to take any action which omission would, result in any such
Registration Statement not being declared effective or in the Holders of
Registrable Securities covered thereby not being able to exchange or offer and
sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless such action or omission is required by applicable
law.
(b) An Exchange Offer Registration Statement pursuant to
Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or
court, such Registration Statement will be deemed not to have become effective
during the period of such interference, until the offering of Registrable
Securities pursuant to such Registration Statement may legally resume.
2.5 Interest. The Indenture executed in connection with
the Securities will provide that in the event that either (a) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to
the 35th calendar day following the date of original issue of the Securities,
(b) the Exchange Offer Registration Statement has not been declared effective
on or prior to the 120th calendar day following the date of original issue of
the Securities, (c) the Exchange Offer is not consummated on or prior to the
150th calendar day following the date of original issue of the Securities or
(d) the Shelf Registration Statement is not filed within 30 days of the date
such filing obligation arises or is not declared effective within 90 days of
the date such filing obligation arises (each such event referred to in clauses
(a) through (d) above, a "Registration Default"), the interest rate borne by
the Securities shall be increased by one-quarter of one percent per annum upon
the occurrence of each Registration Default, which rate will increase by one
quarter of one percent each 90-day period that such additional interest
continues to accrue under any such circumstance, with an aggregate maximum
increase in the interest rate equal to one percent (1%) per annum. Following
the cure of all Registration Defaults the accrual of additional interest will
cease and the interest rate will revert to the original rate.
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<PAGE> 11
3. Registration Procedures.
In connection with the obligations of the Company and the
Guarantor with respect to Registration Statements pursuant to Sections 2.1 and
2.2 hereof, the Company and the Guarantor shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company and the
Guarantor, (ii) shall, in the case of a Shelf Registration, be available for
the sale of the Registrable Securities by the selling Holders thereof, (iii)
shall comply as to form in all material respects with the requirements of the
applicable form and include or incorporate by reference all financial
statements required by the SEC to be filed therewith or incorporated by
reference therein, and (iv) shall comply in all material respects with the
requirements of Regulation S-T under the Securities Act, and use their
reasonable best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
under applicable law to keep such Registration Statement effective for the
applicable period; and cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the 1933 Act and comply with the provisions of the 1933 Act applicable to
them with respect to the disposition of all Registrable Securities covered by
each Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities, at least five business days prior to filing,
that a Shelf Registration Statement with respect to the Registrable Securities
is being filed and advising such Holders that the distribution of Registrable
Securities will be made in accordance with the method selected by the Majority
Holders participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or
other disposition of the Registrable Securities; and (iii) hereby consent to
the use of the Prospectus as amended or supplemented by each of the selling
Holders of Registrable Securities in connection
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<PAGE> 12
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(d) use their reasonable best efforts to register or
qualify the Registrable Securities under all applicable state securities or
"blue sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement and each underwriter of an underwritten
offering of Registrable Securities shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, and do any
and all other acts and things which may be reasonably necessary or advisable to
enable each such Holder and underwriter to consummate the disposition in each
such jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that the Company and the Guarantor shall not be required to
(i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where they would not otherwise be required to qualify but for this
Section 3(d), or (ii) take any action which would subject them to general
service of process or taxation in any such jurisdiction where they are not then
so subject;
(e) notify promptly each Holder of Registrable Securities
under a Shelf Registration or any Participating Broker-Dealer who has notified
the Company and the Guarantor that it is utilizing the Exchange Offer
Registration Statement as provided in paragraph (f) below and, if requested by
such Holder or Participating Broker- Dealer, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii) of any
request by the SEC or any state securities authority for post-effective
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration Statement and
the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company and the Guarantor contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects, (v) of the happening of any event known to the Company or
the Guarantor or the discovery by the Company or the Guarantor of any facts
during the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus untrue
in any material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein
not misleading in any material respect and (vi) of the receipt by the Company
or the Guarantor of any notification with respect to the suspension of the
qualification of the Registrable Securities or the Exchange Securities, as the
case may be, for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose;
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(f) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a section
entitled "Plan of Distribution" which section shall be reasonably acceptable to
the Initial Purchasers, and which shall contain a summary statement of the
positions taken or policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer that holds Registrable
Securities acquired for its own account as a result of market-making activities
or other trading activities and that will be the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by
such broker- dealer in the Exchange Offer, whether such positions or policies
have been publicly disseminated by the staff of the SEC or such positions or
policies, in the reasonable judgment of the Initial Purchasers and its counsel,
represent the prevailing views of the staff of the SEC, including a statement
that any such broker-dealer who receives Exchange Securities for Registrable
Securities pursuant to the Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Securities, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company and the Guarantor
the notice referred to in Section 3(e), without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
Participating Broker- Dealer may reasonably request, (iii) hereby consent to
the use of the Prospectus forming part of the Exchange Offer Registration
Statement as it may be amended or supplemented, by any person subject to the
prospectus delivery requirements of the SEC, including all Participating
Broker-Dealers, in connection with the sale or transfer of the Exchange
Securities covered by the Prospectus or any amendment or supplement thereto,
and (iv) include in the transmittal letter or similar documentation to be
executed by an exchange offeree in order to participate in the Exchange Offer
(x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of Exchange Securities received in
respect of such Registrable Securities pursuant to the Exchange
Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable Securities, the broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration
Statement, the Company and the Guarantor agree to deliver to the Initial
Purchasers on
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<PAGE> 14
behalf of the Participating Broker-Dealers upon the effectiveness of the
Exchange Offer Registration Statement (i) an opinion of counsel or opinions of
counsel substantially in the form attached hereto as Exhibit A, (ii) an
officers' certificate substantially in the form customarily delivered in a
public offering of debt securities and (iii) a comfort letter or comfort
letters in customary form if permitted by Statement on Auditing Standards No.
72 of the American Institute of Certified Public Accountants (or if such a
comfort letter is not permitted, an agreed upon procedures letter in customary
form) at least as broad in scope and coverage as the comfort letter or comfort
letters delivered to the Initial Purchasers in connection with the initial sale
of the Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel
for the Initial Purchasers and (ii) in the case of a Shelf Registration,
furnish counsel for the Holders of Registrable Securities copies of any comment
letters received from the SEC or any other request by the SEC or any state
securities authority for amendments or supplements to a Registration Statement
and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, and each underwriter, if any, without charge,
at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
(without documents incorporated therein by reference and all exhibits thereto,
unless reasonably requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends; and enable such Registrable Securities to
be in such denominations (consistent with the provisions of the Indenture) and
registered in such names (consistent with the provisions of the Indenture) as
the selling Holders or the underwriters, if any, may reasonably request at
least three business days prior to the closing of any sale of Registrable
Securities;
(k) in the case of a Shelf Registration, upon the
occurrence of any event or the discovery of any facts, each as contemplated by
Sections 3(e)(v) and 3(e)(vi) hereof, use their reasonable best efforts to
prepare a supplement or post-effective amendment to the Registration Statement
or the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities or Participating Broker-Dealers, such
Prospectus will not contain at the time of such delivery any untrue statement
of a material fact or omit to state a material fact necessary to make the
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<PAGE> 15
statements therein, in light of the circumstances under which they were made,
not misleading or will remain so qualified;
(l) in the case of a Shelf Registration, a reasonable time
prior to the filing of any Registration Statement, any Prospectus, any
amendment to a Registration Statement or amendment or supplement to a
Prospectus or any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after initial filing of a Registration
Statement, provide copies of such document to the Initial Purchasers on behalf
of such Holders; and make representatives of the Company and the Guarantor as
shall be reasonably requested by the Holders of Registrable Securities, or the
Initial Purchasers on behalf of such Holders, available for discussion of such
document;
(m) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the effective date
of a Registration Statement, and provide the Trustee with printed certificates
for the Exchange Securities or the Registrable Securities, as the case may be,
in a form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939 (the "TIA") in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and (iii) execute, and use their reasonable best
efforts to cause the Trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into
customary agreements (including underwriting agreements) and take all other
customary and appropriate actions in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection whether or
not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in similar underwritten offerings as may
be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and the
Guarantor and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority
in principal amount of the Registrable
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<PAGE> 16
Securities being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested
by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's and the Guarantor's independent certified
public accountants addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the
selling Holders of Registrable Securities (to the extent
consistent with Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accounts), such letters
to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such agent for the selling Holders
for the purpose of soliciting purchases of Registrable
Securities, which agreement shall be in form, substance and
scope customary for similar offerings;
(v) if an underwriting agreement is entered into,
cause the same to set forth indemnification provisions and
procedures substantially equivalent to the indemnification
provisions and procedures set forth in Section 4 hereof with
respect to the underwriters and all other parties to be
indemnified pursuant to said Section or, at the request of any
underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of
the Registrable Securities being sold and the managing
underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Securities and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any counsel or accountant retained by such Holders
or underwriters, all financial and other records, pertinent corporate documents
and properties of the Company and the
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<PAGE> 17
Guarantor reasonably requested by any such persons, and cause the respective
officers, directors, employees, and any other agents of the Company and the
Guarantor to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection with a
Registration Statement, and make such representatives of the Company and the
Guarantor available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers;
(q) (i) in the case of an Exchange Offer Registration
Statement, a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any amendment to
an Exchange Offer Registration Statement or amendment or supplement to such
Prospectus, provide copies of such document to the Initial Purchasers and make
such changes in any such document prior to the filing thereof as the Initial
Purchasers may reasonably request and, except as otherwise required by
applicable law, not file any such document in a form to which the Initial
Purchasers on behalf of the Holders of Registrable Securities shall reasonably
object, and make the representatives of the Company and the Guarantor available
for discussion of such documents as shall be reasonably requested by the
Initial Purchasers; and
(ii) in the case of a Shelf Registration, a reasonable
time prior to filing any Shelf Registration Statement, any Prospectus forming a
part thereof, any amendment to such Shelf Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to the
Holders of Registrable Securities, to the Initial Purchasers, to counsel on
behalf of the Holders and to the underwriter or underwriters of an underwritten
offering of Registrable Securities, if any, make such changes in any such
document prior to the filing thereof as the Initial Purchasers, the counsel to
the Holders or the underwriter or underwriters reasonably request (except as
otherwise required by applicable law) and not file any such document in a form
to which the Majority Holders or the Initial Purchasers on behalf of the
Holders of Registrable Securities or any underwriter may reasonably object and
make the representatives of the Company and the Guarantor available for
discussion of such document as shall be reasonably requested by the Holders of
Registrable Securities, the Initial Purchasers on behalf of such Holders, or
any underwriter;
(r) in the case of a Shelf Registration, use their
reasonable best efforts to cause the Registrable Securities to be rated by the
appropriate rating agencies, if so requested by the Majority Holders, or if
requested by the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any;
(s) otherwise use their reasonable best efforts to comply
with all applicable rules and regulations of the SEC and make available to
security holders, as soon as reasonably practicable, an earnings statement
covering at least 12 months which shall satisfy the provisions of Section 11(a)
of the 1933 Act and Rule 158 thereunder;
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<PAGE> 18
(t) cooperate and assist in any filings required to be made
with the NASD and, in the case of a Shelf Registration, in the performance of
any due diligence investigation by any underwriter and its counsel (including
any "qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(u) upon consummation of an Exchange Offer, obtain a
customary opinion of counsel to the Company and the Guarantor addressed to the
Trustee for the benefit of all Holders of Registrable Securities participating
in the Exchange Offer, and which includes an opinion that (i) the Company and
the Guarantor have both duly authorized, executed and delivered the Exchange
Securities and the related indenture, and (ii) each of the Exchange Securities
and related indenture constitute a legal, valid and binding obligation of the
Company and the Guarantor, enforceable against the Company and the Guarantor in
accordance with its respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company and
the Guarantor may (as a condition to such Holder's participation in the Shelf
Registration) require each Holder of Registrable Securities to furnish to the
Company and the Guarantor such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company and the Guarantor may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company or the Guarantor of
the happening of any event or the discovery of any facts, each of the kind
described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(k) hereof, and, if so directed by the
Company or the Guarantor, such Holder will deliver to the Company and the
Guarantor (at its expense) all copies in such Holder's possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company or the Guarantor shall give any such notice to suspend
the disposition of Registrable Securities pursuant to a Shelf Registration
Statement as a result of the happening of any event or the discovery of any
facts, each of the kind described in Section 3(e)(v) hereof, the Company and
the Guarantor shall be deemed to have used their reasonable best efforts to
keep the Shelf Registration Statement effective during such period of
suspension provided that the Company and the Guarantor shall use their
reasonable best efforts to file and have declared effective (if an amendment)
as soon as practicable an amendment or supplement to the Shelf Registration
Statement and shall extend the period during which the Shelf Registration
Statement shall be maintained effective pursuant to this
17
<PAGE> 19
Agreement by the number of days during the period from and including the date
of the giving of such notice to and including the date when the Holders shall
have received copies of the supplemented or amended Prospectus necessary to
resume such dispositions.
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Majority Holders of such Registrable
Securities included in such offering and shall be acceptable to the Company and
the Guarantor. No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
4. Indemnification; Contribution.
(a) The Company and the Guarantor, jointly and severally,
agree to indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter (any
such Person being an "Underwriter") and each Person, if any, who controls any
Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto) pursuant
to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission;
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<PAGE> 20
provided that (subject to Section 4(d) below) any such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company or the
Guarantor by the Initial Purchasers, such Holder or Underwriter expressly for
use in a Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto); provided, further, however, that in
the case of a Shelf Registration Statement, if the Company and the Guarantor
amend or supplement a prospectus contained in the Shelf Registration Statement
at the time it became effective, and notify the Holders of such amendment or
supplement, and give the Holders a reasonable number of copies of such
prospectuses and the amendment or supplement to such prospectus, and the
Holders have an obligation to deliver such prospectus and such amendment or
supplement, the Company and the Guarantor will not be liable to any Holder or
any person controlling such Holder with respect to any such untrue statement or
alleged untrue statement or omission or alleged omission made in any prospectus
to the extent that the Company and the Guarantor shall sustain the burden of
proving that any such loss, liability, claim, damage or expense resulted solely
from the fact that such Holder sold Securities to a person to whom such Holder
failed to send or give, at or prior to the written confirmation of the sale of
such Securities, a copy of the prospectus (as amended or supplemented) if the
Company has previously furnished copies thereof (to allow for distribution of
the Prospectus in a timely manner) to the Holder and the loss, liability,
claim, damage or expense of such Holder resulted solely from an untrue
statement or omission or alleged untrue statement or omission of a material
fact contained in or omitted from such Prospectus which was corrected in the
amendment or supplement.
(b) Each Holder severally, but not jointly, agrees to
indemnify and hold harmless the Company, the Guarantor, the Initial Purchasers,
each Underwriter and the other selling Holders, and each of their respective
directors and officers, and each Person, if any, who controls the Company, the
Guarantor, the Initial Purchasers, any Underwriter or any other selling Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 4(a) hereof, as incurred, but
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<PAGE> 21
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus included therein (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished by such Holder to the Company or the Guarantor expressly for use in
the Shelf Registration Statement (or any amendment thereto) or such Prospectus
(or any amendment or supplement thereto); provided, however, that no such
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced or threatened against it in respect of which indemnity may be sought
hereunder, but failure so to notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at its own expense
in the defense of such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
party or parties be liable for the fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 4 (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from
all liability arising out of such litigation, investigation, proceeding or
claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
20
<PAGE> 22
accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 4(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4
is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, in such proportion as is
appropriate to reflect the relative fault of the Company and the Guarantor on
the one hand and the Holders and the Initial Purchasers on another hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative fault of the Company and the Guarantor on the one hand
and of the Holders and the Initial Purchasers on another hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Guarantor, the Holders or the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Guarantor, the Holders and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 4. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 4 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which
21
<PAGE> 23
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company and the
Guarantor, any executive officer of the Company and the Guarantor who signs the
applicable Registration Statement, and each person, if any, who controls the
Company or the Guarantor within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company and the Guarantor. The Initial Purchasers' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
principal amount of Securities set forth opposite their respective names in
Schedule A to the Purchase Agreement and not joint.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company or
the Guarantor is subject to the reporting requirements of Section 13 or 15 of
the 1934 Act, the Company and the Guarantor covenant that they will file the
reports required to be filed by them under the 1933 Act and Section 13(a) or
15(d) of the 1934 Act and the rules and regulations adopted by the SEC
thereunder. If the Company or the Guarantor ceases to be so required to file
such reports, the Company and the Guarantor covenant that they will upon the
request of any Holder of Registrable Securities (a) make publicly available
such information as is necessary to permit sales pursuant to Rule 144 under the
1933 Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will
take such further action as any Holder of Registrable Securities may reasonably
request, and (c) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Securities without registration under the
1933 Act within the limitation of the exemptions provided by (i) Rule 144 under
the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A
under the 1933 Act, as such Rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Securities, the Company and the Guarantor will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
5.2 No Inconsistent Agreements. Neither the Company nor the
Guarantor has entered into and the Company and the Guarantor will not after the
date of
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<PAGE> 24
this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company's and the Guarantor's other issued and outstanding securities under
any such agreements.
5.3 Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure; provided, however, that notwithstanding the
foregoing, this Agreement may be amended to include as Registrable Securities
up to $25 million of additional 8 1/2% Senior Notes due 2007 (containing the
same terms as the Securities) which may be issued pursuant to the Indenture by
the Company to the Initial Purchasers within 30 days of the date of the
Purchase Agreement.
5.4 Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery (a) if to a Holder, at the most current address given by
such Holder to the Company and the Guarantor by means of a notice given in
accordance with the provisions of this Section 5.4, which address initially is
the address set forth in the Purchase Agreement with respect to the Initial
Purchasers; and (b) if to the Company and the Guarantor, initially at the
Company's and the Guarantor's address set forth in the Purchase Agreement, and
thereafter at such other address of which notice is given in accordance with
the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; two
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee
under the Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any
23
<PAGE> 25
assignment, transfer or other disposition of Registrable Securities in
violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such Person shall be entitled
to receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even
if the Initial Purchasers are not Holders of Registrable Securities) shall be
third party beneficiaries to the agreements made hereunder between the Company
and the Guarantor, on the one hand, and the Holders, on the other hand, and
shall have the right to enforce such agreements directly to the extent they
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder. Each Holder of Registrable Securities shall be a
third party beneficiary to the agreements made hereunder between the Company
and the Guarantor, on the one hand, and the Initial Purchasers, on the other
hand, and shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights
hereunder.
5.7 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5.8 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.10 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
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<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
ZALE CORPORATION
By: /s/ STEVE MASSANELLI
----------------------------------
Name: Steve Massanelli
Title: Senior Vice President and
Treasurer
ZALE DELAWARE, INC.
By: /s/ STEVE MASSANELLI
-----------------------------------
Name: Steve Massanelli
Title: Senior Vice President and
Treasurer
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
BANCBOSTON SECURITIES INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ LANI MARTIN
---------------------------------------
Name: Lani Martin
Title: Vice President
25
<PAGE> 27
Exhibit A
Form of Opinion of Counsel
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
BancBoston Securities Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as counsel for Zale Corporation, a Delaware corporation
(the "Company"), and Zale Delaware, Inc., a Delaware corporation (the
"Guarantor"), in connection with the sale by the Company to the Initial
Purchasers (as defined below) of $100,000,000 aggregate principal amount of 8
1/2% Senior Notes due 2007 (the "Notes") of the Company and the guarantee (the
"Guarantee") by the Guarantor of the Company's obligations under the Notes, in
each case pursuant to the Purchase Agreement dated September 23, 1997 (the
"Purchase Agreement") among the Company, the Guarantor and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and BancBoston
Securities Inc. (collectively, the "Initial Purchasers") and the filing by the
Company and the Guarantor of an Exchange Offer Registration Statement (the
"Registration Statement") in connection with an Exchange Offer to be effected
pursuant to the Registration Rights Agreement (the "Registration Rights
Agreement"), dated September 30, 1997 among the Company, the Guarantor and the
Initial Purchasers. This opinion is furnished to you pursuant to Section
3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein,
capitalized terms used in this opinion that are defined in the Registration
Rights Agreement are used herein as so defined.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as
to all matters of fact relevant to this opinion, we have assumed the
completeness and accuracy of, and are relying solely upon, the representations
and warranties of the
<PAGE> 28
Company and the Guarantor set forth in the Purchase Agreement and the
statements set forth in certificates of public officials and officers of the
Company and the Guarantor, without making any independent investigation or
inquiry with respect to the completeness or accuracy of such representations,
warranties or statements, other than a review of the certificate of
incorporation, by-laws and relevant minute books of the Company and the
Guarantor.
Based on and subject to the foregoing, we are of the opinion that:
1. The Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial data and supplemental schedules included or incorporated by
reference therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), comply as to form in all material respects
with the requirements of the 1933 Act and the applicable rules and regulations
promulgated under the 1933 Act.
2. We have participated in the preparation of the
Registration Statement and the Prospectus and in the course thereof have had
discussions with representatives of the Underwriters, officers and other
representatives of the Company and the Guarantor and Arthur Andersen LLP, the
Company's and the Guarantor's independent public accountants, during which the
contents of the Registration Statement and the Prospectus were discussed. We
have not, however, independently verified and are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in or incorporated by reference in the Registration
Statement and the Prospectus. Based on our participation as described above,
nothing has come to our attention that would lead us to believe that the
Registration Statement (other than the financial statements, notes or schedules
thereto and other financial data and supplemental schedules included or
incorporated by reference therein or omitted therefrom and the Form T-1, as to
which such counsel need express no opinion), as of its effective date,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(other than the financial statements, notes or schedules thereto and other
financial data and supplemental schedules included or incorporated by reference
therein or omitted therefrom and the Form T-1, as to which such counsel need
express no opinion), at the time the Prospectus was issued and as of the date
hereof, included or includes an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
This opinion is being furnished to you solely for your benefit in
connection with the transactions contemplated by the Registration Rights
Agreement, and may not be
<PAGE> 29
used for any other purpose or relied upon by any person other than you. Except
with our prior written consent, the opinions herein expressed are not to be
used, circulated, quoted or otherwise referred to in connection with any
transactions other than those contemplated by the Registration Rights Agreement
by or to any other person.
Very truly yours,
<PAGE> 1
<TABLE>
<CAPTION>
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Item 503(0-3)
Earnings Before Income Taxes and Extraordinary Item $ 79,858 $ 70,088 $47,820 $34,746
Fixed Charges:
Total interest expense 36,900 33,200 37,500 30,300
Amortization of deferred financing fees 42 42 42 42
-------- -------- ------- -------
Total fixed charges 36,942 33,242 37,542 30,342
Adjusted Earnings Before Income Taxes
-------- -------- ------- -------
Extraordinary Item and Fixed Charges $116,800 $103,330 $85,362 $65,088
======== ======== ======= =======
Ratio of Earnings to Fixed Charges 3.2x 3.1x 2.3x 2.1x
======== ======== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated September 3, 1997
included in Zale Corporation's Form 10-K for the year ended July 31, 1997 and
to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
-------------------------------
ARTHUR ANDERSEN LLP
Dallas, Texas
November 3, 1997
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO ACCOMPANY
OFFER TO EXCHANGE ITS 8 1/2% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 8 1/2% SERIES A SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS DATED NOVEMBER __, 1997
ZALE CORPORATION
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER __, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
To: BANK ONE, N.A., Exchange Agent
By Mail: By Hand or Overnight Mail:
Bank One, N.A. Bank One, N.A.
Corporate Trust Operations Corporate Trust Operations
235 West Schrock Road 235 West Schrock Road
Columbus, Ohio 43271-0184 Westerville, Ohio 43081
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(614) 248-7234
Attention: Lora Marsch
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Original
Notes (as defined below) either if Original Notes are to be forwarded herewith
or if tenders of Original Notes are to be made by book-entry transfer to an
account maintained by Bank One, N.A. (the "Exchange Agent") at The Depository
Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer -- Procedures for Tendering Original Notes" in the Prospectus.
Holders of Original Notes whose certificates (the "Certificates") for
such Original Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete
the procedures for book-entry transfer on a timely basis must tender their
Original Notes according to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for Tendering Original Notes" in the
Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Please print Name and Address Please Show Original Notes Principal Amount of Beneficial Holders
of Registered Holder Certificate Number(s) Tendered Original Notes and Names in which
(Need not be Completed (Attach additional Tendered such Securities
by Book-Entry Holders) list if needed) (if Principal Amount are held
of Original Notes is
Less than All)*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------
* All Original Notes held shall be deemed tendered unless a lesser number is specified in this column.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------------
DTC Account Number:
------------------------------------------------------
Transaction Code Number:
-------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holders(s):
-------------------------------------------
Window Ticket Number (if any):
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------
Name of Institution which Guaranteed Delivery:
---------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
-------------
Name of Tendering Institution:
-------------------------------------------
DTC Account Number:
------------------------------------------------------
Transaction Code Number:
-------------------------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES
(A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
--------------------------------------------------------------------
Address:
-----------------------------------------------------------------
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Zale Corporation, a corporation
formed under the laws of the State of Delaware (the "Company"), the above
described aggregate principal amount of the Company's 8 1/2% Series A Senior
Notes (the "Original Notes") in exchange for a like aggregate principal amount
of the Company's 8 1/2% Series B Senior Notes (the "Exchange Notes") which have
been registered under the Securities Act of 1933 (the "Securities Act") and the
obligations thereunder guaranteed (the "Guarantee") by Zale Delaware, Inc.
("ZDel" or the "Guarantor"), upon the terms and subject to the conditions set
forth in the Prospectus dated November __, 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or
any portion of the Original Notes tendered herewith in accordance with the
terms and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Original
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Original Notes, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), subject only to
the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Original Notes to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange
Notes to be issued in exchange for such Original Notes, (ii) present
Certificates for such Original Notes for transfer, and to transfer the Original
Notes on the books of the Company, and (iii) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Original Notes, all in accordance with the terms and conditions of the
Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENT(S) AND WARRANT(S) THAT THE
UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND
TRANSFER THE ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE
ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND
UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES
AND ENCUMBRANCES, AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT
TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE
AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE GUARANTOR OR
THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE,
ASSIGNMENT AND TRANSFER OF THE ORIGINAL NOTES TENDERED HEREBY, AND THE
UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT.
THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the
Original Notes tendered hereby should be printed above, if they are not already
set forth above, as they appear on the Certificates representing such Original
Notes. The Certificate number(s) and the Original Notes that the undersigned
wishes to tender should be indicated in the appropriate boxes above.
If any tendered Original Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Original Notes than are tendered or accepted for exchange, Certificates for
such nonexchanged or nontendered Original Notes will be returned (or, in the
case of Original Notes tendered by book-entry transfer, such Original Notes
will be credited to an account maintained at DTC), without expense to the
tendering holder, promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Original Notes pursuant to
any one of the procedures described in "The Exchange Offer -- Procedures for
Tendering Original Notes" in the Prospectus and in the instructions hereto
will, upon the Company's acceptance for exchange of such tendered Original
Notes, constitute a binding agreement among the undersigned, the Company and
the Guarantor upon the terms and subject to the conditions of the Exchange
Offer. The undersigned recognizes that, under certain circumstances set forth
in the Prospectus, the Company and the Guarantor may not be required to accept
for exchange any of the Original Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions," below, the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of Original Notes, that such Exchange Notes be credited to
the account indicated above maintained at DTC. If applicable, substitute
Certificates representing Original Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Original Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Notes to the undersigned at the
address shown below the undersigned's signature.
<PAGE> 4
BY TENDERING ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL
OR BY DELIVERYING AN AGENT'S MESSAGE IN LIEU THEREOF, THE UNDERSIGNED HEREBY
REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE
COMPANY OR THE GUARANTOR WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES
ACT, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING
ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO
ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE NOTES, AND (IV) IF
THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND
DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF SUCH EXCHANGE NOTES. BY TENDERING ORIGINAL NOTES PURSUANT TO
THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF
ORIGINAL NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH
CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION
FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A)
SUCH ORIGINAL NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR
(B) SUCH ORIGINAL NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT
AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY AND THE GUARANTOR HAVE AGREED THAT, SUBJECT TO THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING
BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF EXCHANGE NOTES
RECEIVED IN EXCHANGE FOR ORIGINAL NOTES, WHERE SUCH ORIGINAL CAPITAL
SECURITIES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. IN
THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED ORIGINAL NOTES FOR ITS OWN ACCOUNT
AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH ORIGINAL NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL OR BY DELIVERING AN AGENT'S MESSSAGE IN LIEU THEREOF, AGREES THAT,
UPON RECEIPT OF NOTICE FROM THE COMPANY OR THE GUARANTOR OF THE OCCURRENCE OF
ANY EVENT OR THE DISCOVERY OF (I) ANY FACT WHICH MAKES ANY STATEMENT CONTAINED
OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT
OR (II) ANY FACT WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY
REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE,
NOT MISLEADING OR (III) OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN
THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL
SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY
OR THE GUARANTOR HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH
MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY OR
THE GUARANTOR HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE
RESUMED, AS THE CASE MAY BE.
Holders of Original Notes whose Original Notes are accepted for
exchange will not receive accrued interest on such Original Notes for any
period from and after the last Interest Payment Date to which interest has been
paid or duly provided for on such Original Notes prior to the original issue
date of the Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Original Notes, and
the undersigned waives the right to receive any interest on such Original Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after September 30, 1997.
All authority herein conferred or agreed to be conferred in this
Letter of Transmittal shall survive the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the
heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
Except as stated in the Prospectus, this tender is irrevocable.
Please be advised that the Company and the Guarantor are making the
Exchange Offer in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission set forth in
certain interpretive letters addressed to third parties in other transactions.
In addition, each of the Company and the Guarantor has authorized us to inform
you as follows: Neither the Company nor the Guarantor has entered into any
arrangement or understanding with any person to distribute the Exchange Notes
to be received in the Exchange Offer and, to the best of its information and
belief, each person participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes to be received in the Exchange Offer. In this regard, the
Company and the Guarantor will make each person participating in the Exchange
Offer aware that if such person is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes to be acquired in the Exchange
Offer, such person (a) could not rely on the
<PAGE> 5
Staff position enunciated in the interpretative letters referred to above and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. The
Company and the Guarantor acknowledge that such a secondary resale transaction
by such person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes should be covered by an effective registration
statement containing the selling securityholder information required by Item
507 or 508, as applicable, of Regulation S-K. Furthermore, the Company and the
Guarantor will include in the transmittal letter to be executed by an exchange
offeree in order to participate in the Exchange Offer (x) an acknowledgment
that if such exchange offeree is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as
a result of market-making activities or other trading activities, it will
deliver a prospectus in connection with any resale of such Exchange Notes and
(y) a statement that by so acknowledging and by delivering a prospectus, such
exchange offeree will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE> 6
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated: 1997
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such options of
counsel, certifications and other information as may be required by the Company
for the Original Notes to comply with the restrictions on transfer applicable to
the Original Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
Name(s):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- -------------------------------------------------------------------------------
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Telephone Number:
- -------------------------------------------------------------------------------
Tax ID Number:
- -------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
Date:
------------------------------------------------------------------------
Name of Firm:
- -------------------------------------------------------------------------------
Capacity (full title):
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -------------------------------------------------------------------------------
<PAGE> 7
<TABLE>
- ----------------------------------------------------------- -------------------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, AND 6) (SEE INSTRUCTIONS 1, 5, AND 6)
To be completed ONLY if the Exchange Notes are to be To be completed ONLY if Exchange Notes are to be sent to
issued in the name of someone other than the registered someone other than the registered holder of the Original
holder of the Original Notes whose name(s) appear(s) Notes whose name(s) appear(s) above, or such registered
above. holder(s) at an address other than that shown above.
Mail
Issue [ ] Original Notes not tendered to:
[ ] Original Notes not tendered to: [ ] Exchange Notes to:
[ ] Exchange Notes to: Name(s)
Name(s)
----------------------------------------------------------
- ----------------------------------------------------------- Address
Address
----------------------------------------------------------
- -----------------------------------------------------------
----------------------------------------------------------
- -----------------------------------------------------------
----------------------------------------------------------
- ----------------------------------------------------------- (INCLUDE ZIP CODE)
(INCLUDE ZIP CODE)
Telephone Number Telephone Number
- ----------------------------------------------------------- ----------------------------------------------------------
Tax ID Number
- -----------------------------------------------------------
- ----------------------------------------------------------- -------------------------------------------------------------
</TABLE>
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.
This Letter of Transmittal is to be completed either if (a) Certificates are
to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange Offer
- -- Procedures for Tendering Original Notes" in the Prospectus and an Agent's
Message is not delivered. Certificates, or timely confirmation of a book-entry
transfer of such Original Notes into the Exchange Agent's account at DTC, as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. Tenders by book-entry transfer may also be made by delivering
an Agent's Message in lieu of this Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by DTC to and received by the Exchange
Agent and forming a part of a book-entry confirmation, which states that DTC
has received an express acknowledgment from the DTC participant, which
acknowledgment states that such participant has received and agrees to be bound
by the Letter of Transmittal (including the representations contained herein)
and that the Company and the Guarantor may enforce the Letter of Transmittal
against such participant. Original Notes may be tendered in whole or in part
in integral multiples of $1,000.
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available or (ii) who cannot deliver their Original Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the Expiration Date or (iii) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Original Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for Tendering Original Notes" in the
Prospectus. Pursuant to such procedures: (A) such tender must be made by or
through an Eligible Institution (as defined below); (B) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date; and (C) the Certificates (or a book-entry confirmation (as
defined in the Prospectus)) representing all tendered Original Notes, in proper
form for transfer, together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent within three New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer -- Procedures for Tendering Original Notes" in
the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act
as "an eligible guarantor institution," including (as such terms are defined
therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Neither the Company nor the Guarantor will accept any alternative,
conditional or contingent tenders. Each tendering holder, by execution of a
Letter of Transmittal (or facsimile thereof), waives any right to receive any
notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES.
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on a security position listing
as the owner of the Original Notes) of Original Notes tendered
herewith, unless such holder(s) has completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Original Notes are tendered for the account of a firm
that is an Eligible Institution.
<PAGE> 9
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE.
If the space provided in the box captioned "Description of Original Notes"
is inadequate, the Certificate number(s) and/or the principal amount of
Original Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS.
If less than all the Original Notes evidenced by any Certificate submitted
are to be tendered, fill in the principal amount of Original Notes which are to
be tendered in the box entitled "Principal Amount of Original Notes Tendered
(if Principal Amount of Original Notes is Less than All)." In such case, new
Certificate(s) for the remainder of the Original Notes that were evidenced by
your old Certificate(s) will only be sent to the holder of the Original Capital
Security, promptly after the Expiration Date. All Original Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at any of its addresses set forth above or in
the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Original Notes
to be withdrawn, the aggregate principal amount of Original Notes to be
withdrawn, and (if Certificates for Original Notes have been tendered) the name
of the registered holder of the Original Notes as set forth on the Certificate
for the Original Notes, if different from that of the person who tendered such
Original Notes. If Certificates for the Original Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Certificates for the Original Notes, the tendering holder must submit
the serial numbers shown on the particular Certificates for the Original Notes
to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Original Notes
tendered for the account of an Eligible Institution. If Original Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
"The Exchange Offer -- Procedures for Tendering Original Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawal of Original Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of
Original Notes may not be rescinded. Original Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer -- Procedures for Tendering Original Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company and the
Guarantor, in their sole discretion, whose determination shall be final and
binding on all parties. The Company and the Guarantor, any affiliates or
assigns of the Company and the Guarantor, the Exchange Agent or any other
person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification. Any Original Notes which have been tendered but
which are withdrawn will be returned to the holder thereof without cost to such
holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Original Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company and the Guarantor, in their sole discretion, of
such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a
<PAGE> 10
person other than the registered holder(s). Signature(s) on such Certificate(s)
or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Original Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also
must be accompanied by such opinions of counsel, certifications and other
information as the Company or the Guarantor for the Original Notes may require
in accordance with the restrictions on transfer applicable to the Original
Notes. Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
If Exchange Notes are to be issued in the name of a person other than the
signer of this Letter of Transmittal, or if Exchange Notes are to be sent to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Certificates for Original Notes not exchanged
will be returned by mail or, if tendered by book-entry transfer, by crediting
the account indicated above maintained at DTC. See Instruction 4.
The Company and the Guarantor will determine, in their sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes, which
determination shall be final and binding on all parties. The Company and the
Guarantor reserve the absolute right to reject any and all tenders determined
by either of them not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Company and the Guarantor, be
unlawful. The Company and the Guarantor also reserve the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange Offer
set forth in the Prospectus under "The Exchange Offer - Conditions to the
Exchange Offer" or any conditions or irregularity in any tender of Original
Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders. The Company's and the
Guarantor's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Original Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. The Company and the Guarantor, any affiliates or assigns of
the Company and the Guarantor, the Exchange Agent, or any other person shall
not be under any duty to give notification of any irregularities in tenders or
incur any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES.
Questions and requests for assistance may be directed to the Exchange Agent
at any of its addresses and telephone number set forth on the front of this
Letter of Transmittal. Additional copies of the Prospectus, the Notice of
Guaranteed Delivery and the Letter of Transmittal may be obtained from the
Exchange Agent or from your broker, dealer, commercial bank, trust company or
other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9.
Under U.S. Federal income tax law, a holder whose tendered Original Notes
are accepted for exchange is required to provide the Exchange Agent with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
below. If the Exchange Agent is not provided with the correct TIN, the Internal
Revenue Service (the "IRS") may subject the holder or other payee to a $50
penalty. In addition, payments to such holders or other payees with respect to
Original Notes exchanged pursuant to the Exchange Offer may be subject to 31%
backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form
W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Original Notes. If the Original Notes are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
<PAGE> 11
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. NO CONDITIONAL TENDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Original Notes, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of
Original Notes for exchange.
Neither the Company, the Guarantor, the Exchange Agent nor any other person
is obligated to give notice of any defect or irregularity with respect to any
tender of Original Notes nor shall any of them incur any liability for failure
to give any such notice.
11. LOST, DESTROYED OR STOLEN CERTIFICATES.
If any Certificate(s) representing Original Notes have been lost, destroyed
or stolen, the holder should promptly notify the Exchange Agent. The holder
will then be instructed as to the steps that must be taken in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
12. SECURITY TRANSFER TAXES.
Holders who tender their Original Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Original Notes tendered, or if a transfer tax
is imposed for any reason other than the exchange of Original Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 12
(TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS)
(SEE INSTRUCTION 9)
PAYER'S NAME: BANK ONE, N.A.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE FORM W-9 PART 1 -- PLEASE PROVIDE YOUR TIN ON THE TIN:
LINE AT RIGHT AND CERTIFY BY SIGNING AND --------------------------------------
Department of the Treasury Internal DATING BELOW
Revenue Service Payor's Request for
Taxpayer Identification Number (TIM) and ----------------------------------------
Certification Social Security Number
-------------------------------------------
NAME OR
------------------------------------------- ----------------------------------------
ADDRESS Employer Identification Number
-------------------------------------------
CITY, STATE & ZIP CODE
--------------------------------------------------------------------------------------
PART 2
Awaiting TIN [ ]
--------------------------------------------------------------------------------------
PART 3 - CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) THE
NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM
WAITING FOR A NUMBER TO BE ISSUED TO ME), (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING
EITHER BECAUSE (i) I AM EXEMPT FROM BACKUP WITHHOLDING, (ii) I HAVE NOT BEEN NOTIFIED
BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (iii) THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING, AND (3) ANY OTHER
INFORMATION PROVIDED ON THIS FORM IS TRUE AND CORRECT.
SIGNATURE
----------------------------------------------------------------------------
DATE
---------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that you are
no longer subject to backup withholding.
- ----------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS
PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I
do not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature
--------------------------------------------------------------------
Date: , 1997
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF 8 1/2% SERIES B SENIOR NOTES DUE 2007
OF
ZALE CORPORATION
GUARANTEED BY ZALE DELAWARE, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 8 1/2% Series A Senior Notes
Due 2007 (the "Original Notes") are not immediately available, (ii) Original
Notes, the Letter of Transmittal and all other required documents cannot be
delivered to Bank One, N.A. (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer -- Procedures for Tendering Original Capital
Securities" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANK ONE, N. A.
By Mail: By Hand or Overnight Mail:
Bank One, N.A. Bank One, N.A.
Corporate Trust Operations Corporate Trust Operations
235 West Schrock Road 235 West Schrock Road
Columbus, Ohio 43271-0184 Westerville, Ohio 43081
FACSIMILE TRANSMISSIONS: (ELIGIBLE
INSTITUTIONS ONLY)
(614) 248-7234
Attention: Lora Marsch
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES.
IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Zale Corporation, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated November ___ 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Original Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer - - Procedures for Tendering
Original Notes."
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Aggregate Principal Amount Tendered:
- --------------------------------------------------------------------------------
Certificate No(s):
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number(s):
- --------------------------------------------------------------------------------
If Original Notes will be tendered by book-entry transfer, provide the
following information:
Signature(s):
- --------------------------------------------------------------------------------
DTC Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker, municipal securities
dealer, government securities broker, government securities dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association recognized program (each of
the foregoing being referred to as an "Eligible Institution"), hereby
guarantees to deliver to the Exchange Agent, at any of its addresses set forth
above, either the Original Notes tendered hereby in proper form for transfer,
or confirmation of the book-entry transfer of such Original Notes to the
Exchange Agent's account at The Depositary Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s)
of Transmittal (or facsimile thereof) and any other required documents within
five business days after the date of execution of this Notice of Guaranteed
Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Original Notes tendered hereby to the Exchange Agent within
the time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm:
- --------------------------------------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF ORIGINAL CAPITAL SECURITIES MUST BE MADE PURSUANT
TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
