SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
SECURITY CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
May 17, 1996
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Date of Report (Date of earliest event reported)
Delaware 1-7921 13-3003070
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(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification No.)
1111 North Loop West, Suite 400, Houston, Texas 77008
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(Address of principal executive offices) (Zip Code)
(713) 880-7100
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(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
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On May 17, 1996, Possible Dreams, Ltd. ("Possible Dreams"), a
Delaware corporation and a subsidiary of P.D. Holdings, Inc., a Delaware
corporation ("Holdings") and a subsidiary of Security Capital Corporation, a
Delaware corporation ("Security Capital"), acquired substantially all of the
assets and assumed certain liabilities of Possible Dreams, Ltd., a
Massachusetts corporation, and Columbia National Corporation, a Massachusetts
corporation (collectively, the "Sellers").
The assets purchased consisted of the assets used by the Sellers in
the conduct of their business, including cash, accounts receivable,
inventories, prepaid expenses, real estate, furniture, fixtures, computer and
intellectual property rights and other intangibles. Prior to the acquisition,
the Sellers were engaged in the business of designing, importing, warehousing
and distributing collectible Christmas figurines and ornaments and, to a
lesser extent, religious statues. Sellers had sales of approximately
$18,900,000 in 1995. Following the acquisition, Possible Dreams will carry
on the business previously conducted by the Sellers. The principal executive
office of Possible Dreams is located at Six Perry Drive, Foxboro,
Massachusetts 02035, and the telephone number of Possible Dreams at that
address is (508) 543-6667.
The consideration paid to the Sellers and the transaction fees and
expenses incurred as of the closing date aggregated $17,598,148.95 and
consisted of the following:
Cash to Sellers: $9,878,195.00 (including the payoff of
net amounts due to the
shareholders of the
Sellers by the Sellers of
$402,895.00)
Refinanced Bank Debt: 4,035,649.22
Notes Issued to Sellers: 2,460,000.00
Transaction Fees and
Expenses: 744,068.73 (known as of the closing
date)
Assumption of Accounts
Payable and Accrued
Liabilities: 480,236.00
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TOTAL $17,598,148.95
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Of the cash paid to Sellers, $2,700,000 was provided by Security
Capital, $300,000 was provided from the proceeds of Class A Common Stock of
Holdings purchased by an executive officer of the Sellers, and the balance was
borrowed pursuant to the Credit Agreement described below.
The notes issued to the Sellers are subject to a reduction of
$500,000 if EBITDA (as defined in the notes) of the acquired business does
not meet a specified level for 1996. The rights of the Sellers under these
notes are subordinated to the rights of the Lenders (as defined below).
The refinanced bank debt referred to above included $3,125,000 of
principal under a revolving line of credit which, because of the seasonal
nature of Sellers' business, has fluctuated widely depending on the
particular time of year. Sellers' revolving credit requirements historically
have been highest during the third and fourth calendar quarters.
In connection with the closing of the acquisition, NationsCredit
Commercial Corporation, as agent (the "Agent") for the lenders (collectively,
the "Lenders") named in the Credit Agreement, dated as of May 17, 1996, among
Possible Dreams, Holdings and the Agent, provided various credit facilities
to Possible Dreams to partially finance the acquisition, refinance existing
bank debt of the Sellers, provide for seasonal working capital and letter of
credit requirements and to pay transaction expenses. The facilities consist
of the revolving credit facility referred to above and $9,250,000 in
amortizing term debt maturing from five to seven years from the closing date.
The facilities are secured by all of the acquired assets as well as by a
pledge to the Lenders of the capital stock of Possible Dreams owned by
Holdings.
In connection with this financing, NationsCredit Commercial
Corporation was issued a Warrant exercisable for 12.5% of the Class B
Common Stock, on a fully diluted basis, of Possible Dreams. The Class B
Common Stock is non-voting and convertible at any time into voting, Class A
Common Stock of Possible Dreams. The Warrant and related Warrantholders
Rights Agreement also provide for certain restrictions on transfer,
registration rights, "tag along/drag along" rights and put and call rights.
In addition, Possible Dreams entered into a Consolidated Income Tax
Sharing Agreement with Security Capital and Holdings whereby Possible Dreams
will calculate and pay to Security Capital the amount of its income tax
liability calculated as if Possible Dreams were not part of a consolidated
group. Security Capital will pay to the relevant tax authorities its tax
liability, taking into account its own tax position and the utilization of
its tax loss carryforwards. The excess of the payment made by Possible
Dreams to Security Capital over Security Capital's tax liability will accrue
to the benefit of Security Capital, subject to the rights of the Lenders
described below.
Pursuant to a Security Capital Pledge and Guaranty Agreement between
the Agent and Security Capital, the Lenders required Security Capital to set
aside in a separate account such excess amounts paid by Possible Dreams to
Security Capital during the first three years of the Consolidated Income Tax
Sharing Agreement and to pledge its rights in such account to
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the Lenders as additional collateral for the loans to Possible Dreams.
Both of the key executives of the Sellers have entered into
employment, consulting and non-competition agreements with Possible Dreams.
Warren Stanley, who has become President and Chief Executive Officer of
Possible Dreams, has signed a five-year employment agreement containing a
subsequent consulting and non-competition provision. Arnold Lee, who has
become Vice President of Possible Dreams, has signed a three-year employment
agreement containing a subsequent consulting and non-competition provision.
Mr. Stanley also acquired 10% of the Class A Common Stock of
Holdings and Messrs. Stanley and Lee were granted options to purchase an
additional 10% of such Class A Common Stock at an exercise price per share
of $1,904.76. Such persons, Holdings and Security Capital also entered into
a Stockholders' Agreement providing for certain restrictions on transfers of
the shares of Holdings owned by them, together with certain preemptive
rights, rights of first refusal, puts and calls, "tag along/drag along"
rights and registration rights with respect to the Class A and Class B
Common Stock of Holdings,
In connection with the acquisition, Security Capital entered into a
First Amendment to Advisory Services Agreement with Capital Partners, Inc.
pursuant to which Capital Partners, Inc. agreed to assist Security Capital in
providing management advisory services to Possible Dreams in the areas of
corporate development, strategic planning, investment and financial matters
and general business policies in return for an increase of $175,000 per annum
in the advisory fee payable to Capital Partners, Inc. under the Advisory
Services Agreement entered into in 1990. Possible Dreams will pay Security
Capital a fee of $175,000 per annum for the services to be provided to it by
Security Capital with the assistance of Capital Partners, Inc. The advisory
fee payable to Security Capital is subordinated to the rights of the Lenders.
The descriptions of the foregoing agreements and promissory notes
are qualified in their entirety by reference to the copies of such agreements
and promissory notes included as exhibits to this Form 8-K.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Security Capital believes that it is impracticable to provide any
of the required financial statements at the time of filing of this Report on
Form 8-K. The required financial statements will be filed as soon as
practicable and, in any event, not later than 60 days following the due
date of this Form 8-K.
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(b) Pro forma financial information.
Security Capital believes that it is impracticable to provide any
of the required pro forma financial information at the time of filing of this
Report on Form 8-K. The required pro forma financial information will be
filed as soon as practicable and, in any event, not later than 60 days
following the due date of this Form 8-K.
(c) Exhibits.
1. Asset Purchase Agreement, dated as of May 17, 1996, by and
among Possible Dreams, Ltd., a Massachusetts corporation, Columbia National
Corporation, a Massachusetts corporation, Leonard Miller, Richard L. Seegal,
as trustee of the Samuel C. Miller Trust u/d/t 8/5/85, Warren Stanley and
Arnold Lee and Possible Dreams, Ltd., a Delaware corporation ("Possible
Dreams").
2. Subordinated Promissory Note, dated May 17, 1996, in the amount
of $2,128,000, from Possible Dreams to Possible Dreams, Ltd., a Massachusetts
corporation.
3. Subordinated Promissory Note, dated May 17, 1996, in the amount
of $332,000, from Possible Dreams to Columbia National Corporation.
4. Credit Agreement, dated as of May 17, 1996, among Possible
Dreams, P.D. Holdings, Inc., a Delaware corporation ("Holdings"), the Lenders
referred to therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent.
5. Warrant, dated May 17, 1996, from Possible Dreams to
NationsCredit.
6. Warrantholders Rights Agreement, dated as of May 17, 1996,
among Possible Dreams, Holdings, Security Capital Corporation ("Security
Capital"), Warren Stanley and Arnold Lee and NationsCredit.
7. Security Capital Pledge and Guaranty Agreement, dated as of
May 17, 1996, between Security Capital and NationsCredit, as Agent.
8. Holdings Pledge Agreement, dated as of May 17, 1996, among
Holdings and NationsCredit, as Agent.
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9. Investors Subordination Agreement, dated as of May 17, 1996,
among Possible Dreams, the Subordinated Obligations Holders (as defined
therein) and NationsCredit, as Agent.
10. Sellers Subordination Agreement, dated as of May 17, 1996,
among Possible Dreams, the Subordinated Obligations Holders (as defined
therein) and NationsCredit, as Agent.
11. Stockholders' Agreement, dated as of May 17, 1996, among
Holdings, Arnold Lee, Warren Stanley and Security Capital.
12. Employment, Consulting and Non-Competition Agreement, dated
May 17, 1996, by and between Possible Dreams and Warren Stanley.
13. Employment, Consulting and Non-Competition Agreement, dated
May 17, 1996, by and between Possible Dreams and Arnold Lee.
14. First Amendment to Advisory Services Agreement, dated as of
May 17, 1996, by and between Security Capital and Capital Partners, Inc.
15. Consolidated Income Tax Sharing Agreement, dated as of May
17, 1996, among Possible Dreams, Holdings and Security Capital.
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Signature
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SECURITY CAPITAL CORPORATION
(Registrant)
Dated: May 31, 1996 By: /s/ A. George Gebauer
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A. George Gebauer
President
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<PAGE>
Exhibit Index
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Sequentially
Numbered
Item No. Description Page
-------- ----------- ------------
1. Asset Purchase Agreement, dated as of May 17, 1996, by
and among Possible Dreams, Ltd., a Massachusetts
corporation, Columbia National Corporation, a
Massachusetts corporation, Leonard Miller, Richard L.
Seegal, as trustee of the Samuel C. Miller Trust u/d/t
8/5/85, Warren Stanley and Arnold Lee and Possible
Dreams, Ltd., a Delaware corporation ("Possible Dreams").
2. Subordinated Promissory Note, dated May 17, 1996, in the
amount of $2,128,000, from Possible Dreams to Possible
Dreams, Ltd., a Massachusetts corporation.
3. Subordinated Promissory Note, dated May 17, 1996, in the
amount of $332,000, from Possible Dreams to Columbia
National Corporation.
4. Credit Agreement, dated as of May 17, 1996, among
Possible Dreams, P.D. Holdings, Inc., a Delaware
corporation ("Holdings"), the Lenders referred to
therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent.
5. Warrant, dated May 17, 1996, from Possible Dreams to
NationsCredit.
6. Warrantholders Rights Agreement, dated as of May 17,
1996, among Possible Dreams, Holdings, Security Capital
Corporation ("Security Capital"), Warren Stanley and
Arnold Lee and NationsCredit.
7. Security Capital Pledge and Guaranty Agreement, dated as
of May 17, 1996, between Security Capital and
NationsCredit, as Agent.
8. Holdings Pledge Agreement, dated as of May 17, 1996,
among Holdings and NationsCredit, as Agent.
<PAGE>
Sequentially
Numbered
Item No. Description Page
-------- ----------- ------------
9. Investors Subordination Agreement, dated as of May 17,
1996, among Possible Dreams, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as Agent.
10. Sellers Subordination Agreement, dated as of May 17,
1996, among Possible Dreams, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as Agent.
11. Stockholders' Agreement, dated as of May 17, 1996, among
Holdings, Arnold Lee, Warren Stanley and Security
Capital.
12. Employment, Consulting and Non-Competition Agreement,
dated May 17, 1996, by and between Possible Dreams and
Warren Stanley.
13. Employment, Consulting and Non-Competition Agreement,
dated May 17, 1996, by and between Possible Dreams and
Arnold Lee.
14. First Amendment to Advisory Services Agreement, dated as
of May 17, 1996, by and between Security Capital and
Capital Partners, Inc.
15. Consolidated Income Tax Sharing Agreement, dated as of May 17,
1996, among Possible Dreams, Holdings and Security Capital.
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EXHIBIT 1
ASSET PURCHASE AGREEMENT
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THIS AGREEMENT is made and entered into as of May 17, 1996, by and among
POSSIBLE DREAMS, LTD., a Massachusetts corporation ("PDL"), COLUMBIA NATIONAL
CORPORATION, a Massachusetts corporation ("Columbia" and together with PDL,
collectively the "Sellers" and individually a "Seller"), LEONARD MILLER, the
sole shareholder of Columbia and a majority shareholder of PDL ("Miller"),
Richard L. Seegal, in his capacity as trustee of the SAMUEL C. MILLER TRUST
u/d/t 8/5/85, a shareholder of PDL ("Trust"), WARREN STANLEY, a shareholder of
PDL ("Stanley") and ARNOLD LEE, a shareholder of PDL ("Lee" and together with
Miller, the Trust and Stanley, collectively the "Shareholders" and individually
a "Shareholder"), and POSSIBLE DREAMS, LTD., a Delaware corporation ("Buyer").
R E C I T A L S
WHEREAS, PDL is engaged in the business of designing, marketing and selling
of proprietary and non-proprietary Christmas collectibles and ornaments;
WHEREAS, Columbia is engaged in the business of marketing and selling of
religious artifacts;
WHEREAS, PDL and Columbia are affiliated companies by virtue of the common
ownership of a majority of shares of their common stock; and
WHEREAS, each of the Sellers desire to sell and assign to Buyer, and Buyer
desires to purchase and assume from each of the Sellers, substantially all of
their respective assets and business operations and substantially all of their
respective liabilities on the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
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(a) As used herein, the following terms shall have the following meanings
in addition to those additional terms as defined herein:
Section 1.1 Affiliate. The term "Affiliate" shall mean, with respect to
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any Person, any other Person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, such Person, with respect
to any trust, any beneficiary of such trust, and with respect to any individual,
any spouse, parent, child, brother or sister of such individual.
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Section 1.2 Agreement. The term "Agreement" shall mean this Asset
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Purchase Agreement, and any and all amendments, modifications and supplements
hereto entered into in accordance with the terms hereof.
Section 1.3 Assumed Agreements. The term "Assumed Agreements" shall
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mean the Contracts of each of the Sellers (i) which are designated in Schedule
4.9 hereto as items which shall constitute Assumed Agreements or (ii) which,
pursuant to the terms of Section 4.9 hereof, are not required to be disclosed on
Schedule 4.9 but which have been entered into by such Seller in the ordinary
course of its business consistent with past practices.
Section 1.4 Assumed Liabilities. The term "Assumed Liabilities" shall
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mean the obligations and liabilities of each of the Sellers assumed by the Buyer
pursuant to Section 2.2 hereof.
Section 1.5 Buyer. The term "Buyer" shall have that meaning set forth
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in the preamble hereof and shall include any Affiliate of Buyer as Buyer may
designate in writing to Sellers prior to the Closing Date.
Section 1.6 Buyer's Auditors. The term "Buyer's Auditors" shall mean
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DeLoitte & Touche, LLP.
Section 1.7 Closing. The term "Closing" shall mean the closing of the
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transactions contemplated herein.
Section 1.8 Closing Balance Sheet. The term "Closing Balance Sheet"
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shall mean the balance sheet of the Sellers on a combined basis as of April 30,
1996 which shall be prepared and finally determined in accordance with Section
2.6 hereof.
Section 1.9 Closing Date. The term "Closing Date" shall mean May 17,
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1996, or such other date as may be mutually agreed upon in writing by the
Sellers and Buyer.
Section 1.10 Code. The term "Code" shall mean the Internal Revenue Code
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of 1986, as amended, and all rules and regulations promulgated thereunder.
Section 1.11 Debtholder. The term "Debtholder" shall mean any Person to
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whom either Seller owes any Funded Indebtedness as of the Closing Date.
Section 1.12 Employment Agreement. The term "Employment Agreement"
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shall mean those certain Employment, Consulting and Non-Competition Agreements
to be entered into between Buyer and Stanley and Lee, respectively, as described
in Section 6.8 hereof.
Section 1.13 Excluded Property. The term "Excluded Property" shall
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mean:
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(a) the corporate seals, certificates of incorporation, minute
books, stock books, or other records having to do with the corporate
organization of each Seller;
(b) the rights which accrue or will accrue to each Seller under
this Agreement and the Related Agreements;
(c) the rights of each Seller to claims for any federal, state or
foreign income tax refunds to the extent not carried as an asset of
the Sellers and included within the calculation of Combined Net Book
Value;
(d) any prepaid expenses of the Sellers which are not purchased
by Buyer at the Closing as identified on Schedule 4.6(g) hereto;
(e) with respect to PDL, the assets, properties or rights, if
any, set forth on Schedule 1.13(e) hereto; and
(f) with respect to Columbia, the assets, properties or rights,
if any, set forth on Schedule 1.13(f) hereto.
Section 1.14 Funded Indebtedness. The term "Funded Indebtedness" shall
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mean, as at any date, the sum of (i) the principal balance then outstanding
under that revolving credit facility established pursuant to that certain
Revolving Credit Agreement dated September 27, 1994 between Shawmut Bank, N.A.,
and the Sellers, plus (ii) the principal balance then outstanding as shareholder
advances due to one or more of the Shareholders (not to exceed $498,000), plus
(iii) the principal balance then outstanding under that certain $1,000,000
Promissory Note dated September 27, 1994 issued by Columbia to Shawmut Bank,
N.A. (not to exceed $922,200), in each case excluding interest accrued thereon
and fees, expenses and other charges payable by either Seller in connection
therewith.
Section 1.15 GAAP. The term "GAAP" shall mean generally accepted
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accounting principles consistently applied from period to period and throughout
any period in accordance with past practices of each Seller.
Section 1.16 Holdings. The term "Holdings" shall mean P.D. Holdings,
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Inc., a Delaware corporation and on the date hereof the sole stockholder of the
Buyer.
Section 1.17 Laws. The term "Laws" shall mean all federal, state, local
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or foreign laws, treaties, regulations, rules, orders or administrative or
judicial determinations having the effect of law.
Section 1.18 Letters of Credit. The term "Letters of Credit" shall mean
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those certain letters of credit issued for the account of the Sellers in the
amounts and to the beneficiaries described in Schedule 1.18 hereto.
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Section 1.19 Liens. The term "Liens" shall mean all liens, pledges,
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charges, encumbrances, security interests, mortgages, leases, options,
conditions, community property rights or other adverse claims of any kind or
description.
Section 1.20 Material Adverse Effect. The term "Material Adverse
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Effect" shall mean (i) with respect to a Seller, a material adverse effect on
the business, operations, assets, prospects, properties, or condition (financial
or otherwise) of such Seller and (ii) with respect to Buyer, a material adverse
effect on the business, operations, assets, prospects, properties, or condition
(financial or otherwise) of the Buyer.
Section 1.21 Non-Assumed Liabilities. The term "Non-Assumed
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Liabilities" shall mean the following:
(i) any obligation or liability of either Seller to any
Shareholder or any Affiliate of either Seller or of any Shareholder
(whether by contract, lease or otherwise);
(ii) any obligation or liability of either Seller for Taxes of
any kind arising, accruing, relating to, or for any period ending on,
or prior to, or after the Closing Date (other than (x) real estate
taxes assessed against the Real Estate for the current tax year which
will be apportioned as of the Closing Date and (y) payroll taxes and
applicable withholdings on account of current wages due to employees
of the Sellers for the pay period during which the Closing Date occurs
and which are undeposited on the Closing Date), including, but not
limited to, those Taxes incident to or arising as a consequence of the
consummation of the transactions contemplated hereby;
(iii) any liability or obligation of either Seller in respect of
indebtedness for borrowed money, whether direct or indirect, joint or
several, fixed or contingent, including, without limitation, any
Funded Indebtedness;
(iv) any obligation or liability of either Seller arising prior
to or as a result of the Closing to any employees (including, but not
limited to, any severance or bonus obligations), agents or independent
contractors of such Seller, whether or not employed by Buyer after the
Closing, or under any benefit arrangement with respect thereto, other
than (x) unpaid normal payroll obligations of the Sellers to their
employees for the pay period during which the Closing Date occurs to
the extent incurred in the ordinary course of business or (y)
obligations arising under applicable Law as a statutory severance
obligation after the Closing Date by reason of Buyer's employment of
such employees and any subsequent termination thereof;
(v) any obligation or liability of either Seller in connection
with the Profit Sharing Plan or the termination thereof;
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(vi) any obligation or liability of either Seller for any
expenses (including without limitation, fees of attorneys,
accountants, financial or other advisors to such Seller) incurred in
connection with the transactions contemplated hereby;
(vii) any obligation or liability arising out of or resulting
from non-compliance by either Seller with any Law, including remedial
work required as a result of such non-compliance, to the extent such
obligation or liability arises out of or relates to an occurrence or
event, including any act or omission, happening on or before the
Closing Date or as a result of the transactions contemplated hereby,
or any third-party claims related thereto;
(viii) any obligation or liability of either Seller relating to
any litigation, claim or other proceeding whether presently existing
or threatened or hereafter arising out of any act or omission taken,
or omitted to be taken, or condition or state of facts existing, on or
before the Closing Date;
(ix) any obligation or liability of either Seller arising out of
or resulting from any Excluded Property, including any obligation or
liability of either Seller arising out of leases of vehicles
constituting Excluded Property;
(x) any obligation or liability of either Seller covered by
insurance maintained by such Seller on or prior to the Closing Date;
(xi) any brokerage, success, placement or finder's fee payable by
either Seller in connection with the transactions contemplated hereby
(including, without limitation, fees and expenses payable to Riparian
Partners, Ltd.);
(xii) any obligation or liability of either Seller arising out of
this Agreement or any Related Agreement or other agreement
contemplated hereby to which such Seller is a party; and
(xiii) any other obligation or liability of any Person
(including, but not limited to, a Seller) not expressly assumed by
Buyer pursuant to Section 2.2 of this Agreement.
Section 1.22 Non-Compete Agreement. The term "Non-Compete Agreement"
----------------------
shall mean the agreement of the Sellers and Miller not to compete with the Buyer
as described in Section 6.8 hereof.
Section 1.23 Ordinary course of business. The phrase "ordinary course
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of business" shall mean the regular and ordinary course of business of PDL
and/or Columbia, as the case may be, consistent with past practice of such
Seller.
Section 1.24 Permitted Liens. The term "Permitted Liens" shall mean (x)
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Liens for current taxes or assessments due but not yet payable as of the
applicable date, (y) Liens arising
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by operation of law in the ordinary course of business, such as mechanics'
liens, materialmen's liens, carriers' liens, warehouseman's liens, and similar
liens, none of which are substantial in character, amount or extent and none of
which materially detract from the value or materially interfere with the present
use of the asset to which such Lien attaches, and (z) liens described on
Schedule 1.24 hereto.
Section 1.25 Person. The term "Person" shall mean any individual,
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corporation, partnership, limited liability company, joint venture, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
Section 1.26 Profit Sharing Plan. The term "Profit Sharing Plan" shall
--------------------
mean The Columbia National Retirement Trust, more particularly described in
Section 4.31 hereof.
Section 1.27 Promissory Notes. The term "Promissory Notes" shall mean
------------------
the Buyer's subordinated promissory notes issued to the Sellers on the Closing
Date in the aggregate principal amount of $2,460,000 pursuant to Section 2.4(b)
hereof.
Section 1.28 Purchased Assets. The term "Purchased Assets" shall mean,
-----------------
with respect to each Seller, all of such Seller's right, title and interest in
and to (i) the business of such Seller as a going concern, (ii) the names
"Possible Dreams, Ltd." and "Columbia National Corporation", as the case may be,
and any derivatives thereof, (iii) the real estate more particularly described
on Schedule 4.15(a) hereto and all improvements thereon and appurtenants
thereto, and (iv) all of the properties, assets, and rights of any kind, whether
tangible or intangible, real or personal, of such Seller or in which such Seller
has any interest (other than assets constituting Excluded Property) on the
Closing Date, wherever situated and whenever acquired, including without
limitation, the following:
(a) any and all cash or cash equivalents (in hand, transit or
bank accounts);
(b) any and all notes, debentures, trade receivables (whether
current or noncurrent)("Purchased Receivables"), and other
receivables;
(c) any and all patents, registered and unregistered trademarks,
service marks, trade names (and similar rights to names, brand names,
marks and slogans), logos, and common law and registered copyrights,
including, without limitation, those identified on Schedule 4.17
hereto, and any and all applications for any of the foregoing,
together with any and all rights to use any or all of the foregoing,
and any and all goodwill associated with any of the foregoing;
(d) any and all inventions, discoveries, improvements, processes,
methods, designs, designwork, art, artwork, formulae (secret or
otherwise), data, engineering, technical and shop drawings,
specifications, trade secrets, confidential information, technology,
know-how, computer software (whether fully developed or in process and
including documentation and related object and
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source codes) and ideas (including without limitation, those in the
possession of third parties), whether patentable, trademarkable,
copyrightable or not, shop rights, licenses and other similar rights,
and any and all drawings, records, books or other indicia, however
evidenced, of the foregoing, together with any and all rights to use
any or all of the foregoing, and any and all goodwill associated with
any of the foregoing;
(e) any and all rights existing under leases, contracts,
licenses, permits, distribution arrangements, catalogues, sales
agreements and orders, purchase agreements, and other agreements and
business arrangements, including, without limitation, all Assumed
Agreements;
(f) all interests in real property, buildings, fixtures and other
improvements thereon, whether owned or held under any option or lease
constituting an Assumed Agreement;
(g) any and all machinery, equipment (including without
limitation, all transportation, laboratory, testing, and office
equipment), vehicles, trade fixtures, computer hardware, data
processing equipment, tools, dies and furniture, and any and all
interests in all leasehold improvements, including without limitation,
the fixed assets more particularly described in such Seller's
depreciation ledger attached as Schedule 1.28(g) hereto;
(h) any and all office, production or data processing supplies,
spare parts, other miscellaneous supplies, and other tangible property
of any kind, including without limitation, any and all tangible
property located in any plant, warehouse, office or other space;
(i) any and all raw materials, work-in-process, finished goods,
consigned goods and other supplies or inventories;
(j) any and all deposits and prepayments or prepaid expenses not
constituting Excluded Property;
(k) except to the extent arising from Excluded Property, any and
all claims, causes of action, choses in action, rights of recovery and
rights of setoff of any kind, including without limitation, any liens,
mechanic's liens or any rights to payment or warranties or to enforce
payment or warranties in connection with work performed or goods
delivered on or prior to the Closing Date, and any and all claims to
insurance proceeds due or to become due under Seller's applicable
insurance policies in connection with any Assumed Liabilities, and in
connection with any damage or loss to any Purchased Asset occurring on
or prior to the Closing Date;
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(l) any and all records and lists pertaining to customers,
suppliers or personnel and any and all books, ledgers, files and
business records;
(m) any and all advertising materials and other printed or
written materials;
(n) any and all governmental and other licenses, permits,
franchises, concessions, authorizations, approvals and certificates;
(o) any and all goodwill as a going concern and any and all other
intangible properties; and
(p) any and all other assets not referred to in (a)-(o) above
which are reflected on the Closing Balance Sheet.
Section 1.29 Related Agreements. The term "Related Agreements" shall
-------------------
mean the Employment Agreements, the Non-Compete Agreement and the Stockholders'
Agreement.
Section 1.30 Sellers' Auditors. The Term "Sellers' Auditors" shall
------------------
mean Lefkowitz, Garfinkel, Champi & DeRienzo P.C. of Providence, Rhode Island.
Section 1.31 Stockholders' Agreement. The term "Stockholders'
------------------------
Agreement" shall mean the Stockholders' Agreement among Holdings, Security
Capital Corporation, Stanley, Lee and any other stockholders of Holdings as
described in Section 6.8 hereof.
Section 1.32 Taxes. The term "Taxes" shall mean, with respect to any
------
Person, all foreign, federal, state and local taxes (including deficiencies,
interest and penalties relating thereto) of any kind, including, without
limitation (x) all income, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupancy, premium, property or windfall profits tax, customs,
duty or other taxes or governmental fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing authority (domestic or foreign) upon
such Person and (y) all liabilities of any Person for the payment of any amount
of the type described in the immediately preceding clause (x) with respect to
any period ending on or before the Closing Date.
Section 1.33 Tax Returns. The term "Tax Returns" shall mean all
-------------
returns, declarations, reports and information returns and statements of any
Person required to be filed or sent by or with respect to it in respect of any
Taxes.
Section 1.34 Year-end Balance Sheet. The term "Year-end Balance Sheet"
-----------------------
shall mean the combined balance sheet of the Sellers as of December 31, 1995
prepared in accordance with GAAP, audited by Sellers' auditors and heretofore
delivered to Buyer.
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(b) In addition, the following terms shall have the meanings ascribed
to them in the corresponding Section of this Agreement:
Term Section
---- -------
Arbitrator Sec. 2.6(f)
Asserting Party Sec. 10.3
Assumed Liability Claims Sec. 10.8(c)
Buyer's General Basket Sec. 10.7(b)
Claims Sec. 10.1
Closing Payment Sec. 2.4(a)
Columbia Preamble
Contracts Sec. 4.9
Debt Payoff Sec. 2.4(a)
Defending Party Sec. 10.3
Employee Benefit Plan Sec. 4.31(a)
Environmental Claims Sec. 10.7(d)
Environmental Requirement Sec. 4.19(a)
Governmental Authority Sec. 4.19(a)
Hazardous Material Sec. 4.19(a)
Historical Financial Statements Sec. 4.6(a)
Holdings' Options Sec. 2.3(b)
Holdings' Stock Sec. 2.3(b)
Indemnified Buyer Party Sec. 10.1
Indemnified Seller Party Sec. 10.2
Intellectual Property Sec. 4.17
Lee Preamble
Miller Preamble
Non-Assumed Liability Claims Sec. 10.7(c)
Offsite Facility Sec. 4.19(a)
PDL Preamble
Projections Sec. 4.6(f)
Purchase Price Sec. 2.3(a)
Real Estate Sec. 4.15(a)
Receivables Guarantee Sec. 11.5
Retirement Plans Sec. 4.31(b)
Seller or Sellers Preamble
Sellers' General Basket Sec. 10.8(b)
Sellers' Interim Financial Statements Sec. 4.6(a)
Sellers' Audited Financial Statements Sec. 4.6(a)
Shareholder or Shareholders Preamble
Stanley Preamble
Trust Preamble
Uncollected Receivables Sec. 11.5
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ARTICLE II
ACQUISITION OF PURCHASED ASSETS AND
-----------------------------------
ASSUMPTION OF ASSUMED LIABILITIES BY BUYER
------------------------------------------
Section 2.1 Purchase and Sale. On the Closing Date, each Seller shall
------------------
grant, sell, convey, assign, transfer and deliver to Buyer, and the Buyer shall
purchase from each Seller, all of the Purchased Assets, free and clear of any
and all Liens other than Permitted Liens, at the price and in the manner set
forth herein.
Section 2.2 Assumption of Obligations and Liabilities. On the Closing
-------------------------------------------
Date, Buyer shall assume the following, and only the following, obligations and
liabilities of each of the Sellers:
(a) all current liabilities and obligations of each Seller
existing as of December 31, 1995 and reflected on the Year-end Balance
Sheet, but only if and to the extent incurred in the ordinary course of
business of such Seller with unrelated third parties on an arm's length
basis and which remain unpaid and undischarged on the Closing Date;
(b) all current liabilities and obligations of such Seller
arising in the ordinary course of its business with unrelated third
parties on an arm's length basis between January 1, 1996 and the
Closing Date, to the extent that such liabilities and obligations (x)
remain unpaid and undischarged at the Closing Date, (y) are accrued or
reserved for on the Closing Balance Sheet or arise on or after May 1,
1996 and (z) do not arise out of or as a result of any breach by either
Seller of this Agreement;
(c) all liabilities and obligations of such Seller in respect
of the Assumed Agreements, except that the Buyer shall not be required
to assume or agree to pay, discharge or perform:
(i) any such liabilities or obligations existing as
of the Closing Date, and which under GAAP should have been
accrued or reserved for on a balance sheet as a liability or
obligation, if and to the extent that such liabilities and
obligations were not accrued or reserved for on the Closing
Balance Sheet (other than liabilities or obligations of such
Seller under the Contract with Guidi described on Schedule 4.9
or which arose in the ordinary course of business on or after
May 1, 1996); or
(ii) any such liabilities or obligations arising out
of any breach by such Seller on or prior to the Closing Date
of any provision of any Assumed Agreements, including but not
limited to, liabilities
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or obligations arising out of such Seller's failure to
perform any Contract in accordance with its terms on or
prior to the Closing;
(d) all liabilities and obligations of either Seller, if any,
arising after the Closing Date under applicable law as a statutory
severance obligation by reason of Buyer's employment of Sellers'
employees and any subsequent termination thereof;
provided, however, that Buyer shall not assume any liabilities or obligations of
- -------- -------
either Seller to the extent that such liabilities or obligations constitute
Non-Assumed Liabilities; and provided further, however, that Buyer's assumption
-------- ------- -------
of the liabilities and obligations of the Sellers described in this Section 2.2
shall not be deemed to limit or affect the indemnification to which Buyer shall
be otherwise entitled in accordance with the terms of Section 10.1 hereof.
Section 2.3 Purchase Price.
---------------
(a) In consideration of the sale of the Purchased Assets to
Buyer, and in reliance on the representations, warranties, covenants
and agreements of each of the Sellers contained herein, and upon the
terms and subject to the conditions hereinafter set forth, Buyer shall
pay (x) to PDL, an amount equal to Ten Million Three Hundred Eighty
Thousand Dollars ($10,380,000), and (y) to Columbia, an amount equal
to One Million Six Hundred Twenty Thousand Dollars ($1,620,000) and
(z) to the Debtholders on behalf of the Sellers, an amount equal to
the Funded Indebtedness as of the Closing Date (collectively, the
payments to PDL, Columbia and the Debtholders shall be referred to
herein as the "Purchase Price"), all in accordance with Section 2.4
hereof.
(b) As additional consideration for the sale of Purchased Assets
by PDL to Buyer hereunder, and in reliance on the representations,
warranties, covenants and agreements of Stanley and Lee contained
herein, and upon the terms and subject to the conditions hereinafter
set forth, Holdings shall issue (i) to Stanley, on the Closing Date,
157.5 shares of Holdings' common stock ("Holdings' Stock") at the same
price per share to be paid by Holdings' other stockholder(s), which
upon issuance thereof shall be fully-paid and non-assessable, and (ii)
to Stanley and Lee, on the Closing Date, options to purchase up to 88
and 87 additional shares, respectively, of Holdings' Stock, at an
exercise price equal to the same price per share paid by Stanley for
Holdings' Stock on the Closing Date ("Holdings' Options").
Section 2.4 Payment of Purchase Price.
--------------------------
(a) On the Closing Date, Buyer shall deliver to Sellers, by wire
transfer of immediately available funds to such accounts as each
Seller shall designate in writing to Buyer, an aggregate amount equal
to (i) $9,540,000 (the "Closing Payment"), which Closing Payment shall
be paid to Sellers in accordance with their pro rata portion of the
Purchase Price as described in Section 2.3(a) (x) and
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(y) hereof, and (ii) to the Debtholders an amount equal to the
outstanding principal amount of Funded Indebtedness as of the Closing
Date (the "Debt Pay-off"), which Debt Pay-off shall be paid by the
Buyer directly to the Debtholders in accordance with the pay-off
letters delivered by Sellers pursuant to Section 3.2 hereof.
(b) On the Closing Date, Buyer shall issue to Sellers, in
accordance with their pro rata portion of the Purchase Price as
described in Section 2.3(a) hereof, Promissory Notes of Buyer in an
aggregate principal amount of $2,460,000. Each Promissory Note will be
payable in full in a single installment due on the seventh anniversary
of the Closing Date, will bear interest at 10% per annum from the
Closing Date through the fifth anniversary thereof and thereafter at
14% per annum until paid in full, which interest shall be payable
semi-annually, will be subject to automatic reduction upon the
occurrence of certain events specified therein, and will be
subordinated to all indebtedness and obligations of Buyer to its
institutional financing sources in the manner and to the extent
provided in, and will otherwise be in the form of, Exhibit 2.4 hereto.
Any automatic reduction of the aggregate principal amount of the
Promissory Notes pursuant to the terms thereof shall be deemed a
reduction of the Purchase Price.
Section 2.5 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets as described in Schedule 2.5 hereof. Each
of the Sellers and Buyer hereby covenant and agree that no party will take a
position on any Tax Return, before any governmental agency charged with the
collection of any Tax, or in any judicial proceeding that is in any way
inconsistent with the terms of this Section 2.5.
Section 2.6 Determination of Closing Balance Sheet and Related
Financial Information.
(a) Not later than 30 days after the Closing Date, Sellers shall
cause to be prepared and delivered to Buyer a combined balance sheet
of the Sellers as of April 30, 1996 and related combined statements of
income, retained earnings and cash flows for the period from January
1, 1996 until such date, prepared in accordance with GAAP, together
with notes which specifically identify all assets reflected on such
combined balance sheet which are not included in the Purchased Assets
and all liabilities reflected thereon which are not included in the
Assumed Liabilities.
(b) In preparing the foregoing financial statements and
accompanying notes and schedules, Seller and/or Sellers' Auditors
shall consult with Buyer and Buyer's Auditors, and shall permit
Buyer's Auditors to review, upon Buyer's request, all work papers,
schedules and calculations related to the preparation of such
financial statements.
(c) If Buyer does not dispute any item included in the financial
statements of Sellers delivered pursuant to Section 2.6(a) hereof
within 30 days after receipt
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of such financial information, (i) the combined balance sheet so
delivered shall be deemed the "Closing Balance Sheet" for purposes of
this Agreement and (ii) the financial statements so delivered shall be
used to determine in part "Maker's EBITDA" (as defined in the
Promissory Notes) for the year ending December 31, 1996. In the event
of any dispute with regard to the appropriateness of any item included
in the financial statements so delivered, Buyer shall notify Sellers
in writing within 30 days after Buyer's receipt of such financial
information, which notice shall specify in reasonable detail the
nature of such dispute, and the dispute shall be resolved in the
manner contemplated by Section 2.6(d) hereof.
(d) Any dispute referenced in this Section 2.6 shall be referred
to the offices of KPMG Peat Marwick located in Providence, Rhode
Island (the "Arbitrator"), which shall act as an arbitrator and shall
issue its report resolving all disputes as to the appropriateness of
items included within the financial statements within thirty (30) days
after such dispute is referred to it. The combined balance sheet
included within such financial statements submitted to the Arbitrator,
as modified by any adjustments determined to be appropriate by the
Arbitrator, shall be deemed to be the "Closing Balance Sheet". Each of
the parties hereto shall bear all costs and expenses incurred by it in
connection with such arbitration, except that the fees and expenses of
the Arbitrator hereunder shall be borne by the parties according to
their "Allocable Share" (as defined below). For purposes hereof, the
term "Allocable Share" shall mean (i) as to Sellers, a percentage
equal to the amount of the item(s) or portion(s) thereof which have
been submitted to the Arbitrator as matters in dispute and which the
Arbitrator determines in favor of the Sellers, divided by the
aggregate amount of all such item(s) or portion(s) thereof which have
been submitted to the Arbitrator as matters in dispute, and (ii) as to
Buyer, a percentage equal to the amount of the item(s) or portion(s)
thereof which have been submitted to the Arbitrator as matters in
dispute and which the Arbitrator determines in favor of Buyer, divided
by the aggregate amount of all such item(s) or portion(s) thereof
which have been submitted to the Arbitrator as matters in dispute.
This provision for arbitration shall be specifically enforceable by
the parties and the decision of the Arbitrator in accordance with the
provisions hereof shall be final and binding and there shall be no
right of appeal therefrom.
(e) From the date hereof until the final determination of the
Closing Balance Sheet, each party will grant to the other and their
respective representatives access to employees of such party and to
the books, records and files of the Sellers in its possession to
enable such party to review and otherwise satisfy itself as to the
accuracy of such determinations.
Section 2.7 Determination of Maker's EBITDA.
--------------------------------
(a) Pursuant to the provisions of the Promissory Notes, the
aggregate principal amount thereof is subject to automatic reduction
if the "Maker's
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<PAGE>
EBITDA" for the year ending December 31, 1996 is less than $3,500,000.
In order to calculate "Maker's EBITDA", the Buyer agrees to cause to
be prepared and delivered to Sellers, not later than April 15, 1997,
audited financial statements for the Buyer's fiscal period ending
December 31, 1996, prepared in accordance with GAAP.
(b) In preparing the foregoing financial statements, Buyer and/or
Buyers' Auditors shall consult with Sellers and Sellers' Auditors, and
shall permit Sellers' Auditors to review, upon Sellers' request, all
work papers, schedules and calculations related to the preparation of
such financial statements.
(c) If Sellers do not dispute any item included in the financial
statements of Buyers delivered pursuant to Section 2.7(a) hereof
within 30 days after receipt of such financial information, the
financial statements so delivered shall be used to determine in part
"Maker's EBITDA" for purposes of the Promissory Notes. In the event of
any dispute with regard to the appropriateness of any item included in
the financial statements so delivered, Sellers shall notify Buyer in
writing within 30 days after Sellers' receipt of such financial
information, which notice shall specify in reasonable detail the
nature of such dispute, and the dispute shall be resolved in the
manner contemplated by Section 2.7(d) hereof.
(d) Any dispute referenced in this Section 2.7 shall be referred
to the Arbitrator, which shall act as arbitrator and shall issue its
report resolving all disputes as to the appropriateness of items
included within such financial statements within thirty (30) days
after such dispute is referred to it. The audited financial statements
submitted to the Arbitrator, as modified by any adjustments determined
to be appropriate by the Arbitrator, shall be used for purposes of
calculating "Maker's EBITDA". Each of the parties hereto shall bear
all costs and expenses incurred by it in connection with such
arbitration, except that the fees and expenses of the Arbitrator
hereunder shall be borne by the parties according to their Allocable
Shares. This provision for arbitration shall be specifically
enforceable by the parties and the decision of the Arbitrator in
accordance with the provisions hereof shall be final and binding and
there shall be no right of appeal therefrom.
(e) From the date hereof until the final acceptance of the
financial statements, each party will grant to the other and their
respective representatives access to employees of such party and to
the books, records and files of the Sellers and Buyer in its
possession to enable such party to review and otherwise satisfy itself
as to the accuracy of such determinations.
ARTICLE III
CLOSING
-------
14
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Section 3.1 Closing. The Closing shall take place at the offices of
--------
Edwards & Angell, 2800 Hospital Trust Tower, Providence, Rhode Island on the
Closing Date or at such other place as the parties hereto shall agree upon.
Section 3.2 Deliveries by Sellers at Closing. (a) To effect
-------------------------------------
the transfer referred to in Section 2.1 hereof, each of the Sellers shall, on
the Closing Date, deliver to Buyer:
(i) quitclaim deed or deeds and a certificate or certificates of
title conveying fee simple absolute title to all Real Estate included
in the Purchased Assets;
(ii) bills of sale conveying all personal property (including
cash and cash equivalents) included in the Purchased Assets;
(iii) assignments of leases transferring all of such Seller's
interest in real property, buildings, fixtures and other improvements
which are subject to options or leases constituting Assumed
Agreements;
(iv) assignments of all of the intellectual property included in
the Purchased Assets, including without limitation, any and all
patents, copyrights, trademarks, trade names, trade secrets, logos,
service marks, and applications for any of the foregoing;
(v) all of such Seller's books, records and files included in the
Purchased Assets;
(vi) the original Assumed Agreements (to the extent in such
Seller's possession);
(vii) original securities, if any, which are included in the
Purchased Assets, duly endorsed or accompanied by appropriate stock
powers or other instruments of assignment with all necessary stock
transfer stamps affixed or accompanied by funds sufficient for the
purchase of such tax stamps;
(viii) original title certificates to vehicles, duly endorsed,
which are included in the Purchased Assets;
(ix) pay-off letters and such lien releases, mortgage discharges
and UCC-termination statements with respect to the Funded Indebtedness
to be paid out of the Debt Pay-off, together with satisfactory
evidence of Sellers' full payment of any and all of Sellers' other
indebtedness for borrowed money and any and all accrued interest,
fees, expenses and other charges payable as of the Closing Date in
connection with the Funded Indebtedness and any such other
indebtedness and such lien releases, mortgage discharges and
UCC-termination statements with
15
<PAGE>
respect thereto, so as to permit the conveyance of the Purchased
Assets free and clear of all Liens (other than Permitted Liens) as
contemplated hereunder;
(x) such agreements, opinions, certificates and other documents
and instruments referred to in Article VIII hereof;
(xi) such affidavits and indemnities regarding parties in
possession and mechanics' liens as Buyer's title insurance company may
reasonably require in order to delete such matters from Buyer's title
insurance coverage and the title insurance coverage of Buyer's
mortgagee, if any;
(xii) an affidavit of non-foreign status; and
(xiii) all such other instruments as reasonably shall be
requested by Buyer to vest in Buyer title in and to the Purchased
Assets in accordance with the provisions hereof.
All instruments to be delivered to Buyer pursuant hereto shall be in
form and substance, and shall be executed in a manner, reasonably satisfactory
to Buyer, sufficient to vest all right, title and interest of each Seller in the
Purchased Assets in Buyer, and sufficient to be recorded or filed and sufficient
to entitle Buyer to a certificate of title, if title to the Real Estate is
registered.
If the deed or deeds listed in Section 3.2(a)(i) refers or refer to a
plan necessary to be recorded therewith, Sellers shall deliver such plan with
said deed or deeds adequate for recording or registration.
(b) Simultaneously with the delivery of items referenced in paragraph
(a) above, each Seller shall take all steps as may be required to put Buyer in
actual possession and operating control of the Purchased Assets, free of all
tenants and occupants.
(c) This Agreement shall not constitute an agreement to transfer or
assign any Assumed Agreement or other Purchased Asset to be transferred or
assigned to Buyer hereunder if an attempted transfer or assignment thereof
without the consent of another Person which has not been obtained would
constitute a breach thereof or be unlawful or would in any way adversely affect
the rights of Buyer thereunder. Each Seller, at its own expense, shall use its
best efforts to obtain any such required consent(s) as promptly as possible on
terms reasonably satisfactory to Buyer. If any such consent shall not be
obtained or if any attempted assignment would be ineffective or would impair or
adversely affect Buyer's rights under the Assumed Agreement or other Purchased
Asset in question so that Buyer would not in effect acquire the benefit of all
such rights, the applicable Seller, to the maximum extent permitted by law and
the Assumed Agreement or other Purchased Asset, as applicable, shall act after
the Closing as Buyer's agent in order to obtain for Buyer the benefits
thereunder and shall cooperate, to the maximum extent permitted by law and the
Assumed Agreement or other Purchased Asset, as applicable, with Buyer in any
other reasonable arrangement designed to provide such benefits to Buyer,
including enforcement for the benefit of Buyer of any and all rights of such
Seller against the other party
16
<PAGE>
thereto arising out of such Assumed Agreement or the Purchased Asset. Nothing
contained herein shall be deemed to waive or excuse any obligation on the part
of either Seller or any condition for the benefit of Buyer to obtain any
necessary consents to the transfer or assignment of any of the Assumed
Agreements or other Purchased Assets required to be transferred or assigned
hereunder.
(d) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement by either Seller to transfer to
Buyer any of the Excluded Property.
Section 3.3 Deliveries by Buyer at Closing. To effect the purchase and
-------------------------------
assumption referred to in Sections 2.1 and 2.2 hereof, on the Closing Date,
Buyer shall deliver:
(i) to the Sellers, the Closing Payment in accordance with
Section 2.4(a) hereof;
(ii) to the Sellers, the Promissory Notes in accordance with
Section 2.4(b) hereof;
(iii) to the Debtholders, the Debt Pay-off in accordance
with Section 2.4(a) hereof;
(iv) to the issuer(s) of the Letters of Credit, cash in an
amount sufficient to cash collateralize the Sellers' obligations in
respect of the Letters of Credit, together with a Cash Collateral
Agreement in form satisfactory to such issuer;
(v) to the Sellers, an agreement or instruments of
assumption evidencing Buyer's assumption of the Assumed Liabilities in
accordance with Section 2.2 hereof;
(vi) to Stanley, the Holdings' Stock and Holdings' Options
in accordance with Section 2.3(c) hereof;
(vii) to Lee, the Holdings' Options in accordance with
Section 2.3(c) hereof; and
(viii) to the Sellers, such agreements, opinions,
certificates and other documents and instruments referred to in
Article IX hereof.
All instruments to be delivered to Sellers pursuant hereto shall be in
form and substance, and shall be executed in a manner, reasonably satisfactory
to Sellers, but shall not function to increase or decrease the liabilities and
obligations to be assumed by Buyer hereunder.
Section 3.4 Change of Name. On the Closing Date, each Seller and the
---------------
Shareholders shall deliver to Buyer all such executed documents as may be
required to change such Seller's name on that date to another name reasonably
acceptable to Buyer which bears no similarity to "Possible Dreams, Ltd." or
"Columbia National Corporation " or any confusingly similar name,
17
<PAGE>
including but not limited to a name change amendment to be filed with the
Secretary of the State of Massachusetts and an appropriate name change notice
for each state where either Seller is qualified to do business as a foreign
corporation. Each Seller and each of the Shareholders hereby appoints Buyer as
its attorney-in-fact to file all such documents at or after the Closing.
Section 3.5 Default at Closing. If either Seller shall fail or refuse
-------------------
to deliver any of the Purchased Assets at the Closing, or if either Seller or
the Shareholders shall fail or refuse to consummate the transactions
contemplated by this Agreement on or prior to the Closing Date, and if Buyer
shall not then be in material default of its obligations hereunder, then in
addition to any other remedies available to it, the Buyer may (at its option)
invoke any equitable remedies to enforce the transfer and delivery of the
Purchased Assets hereunder and the observance and performance of the Sellers'
and Shareholders' other obligations hereunder, including, without limitation, an
action or suit for specific performance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
BY THE SELLERS AND SHAREHOLDERS
-------------------------------
In order to induce Buyer to enter into this Agreement and purchase the
Purchased Assets and assume the Assumed Liabilities hereunder, the Sellers
jointly and severally, and each Shareholder severally, hereby represents and
warrants to Buyer as follows:
Section 4.1 Corporate Existence and Qualification. Each Seller (a) is
--------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (b) has all corporate power and
authority and all governmental licenses, permits, authorizations, consents and
approvals to own and lease its properties and assets and to carry on its
business as presently conducted, and (c) is qualified as a foreign corporation
to do business and is in good standing under the laws of each jurisdiction in
which the conduct of its business or where the ownership or leasing of its
properties or assets requires such qualification, except for such jurisdictions
where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect. The corporate name, jurisdiction of incorporation, and
jurisdictions where qualified to do business of each Seller are set forth on
Schedule 4.1 hereto.
Section 4.2 Interest in Other Entities. Except as set forth in
---------------------------
Schedule 4.2 hereto, neither Seller owns, directly or indirectly, beneficially
or of record, any stock, partnership interest, option, warrant or other equity
interest in any Person and none of the Shareholders own, directly or indirectly,
beneficially or of record, any stock, partnership interest, option, warrant or
other equity interest in any Person (other than a Seller) which owns, leases or
uses any properties or assets of either Seller.
Section 4.3. Authorization. Each Seller has full corporate power and
--------------
authority and all approvals required by applicable Laws to enter into this
Agreement and the Related Agreements to be executed by it, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of
18
<PAGE>
this Agreement and the Related Agreements to be executed by such Seller and the
consummation by such Seller of the transactions contemplated hereby and thereby
have been duly (or will be as of the date of its execution with regard to any of
the Related Agreements to be executed by such Seller following the date hereof)
authorized by all requisite corporate action on the part of such Seller, and no
approval of such Seller's shareholder(s) is required in connection therewith.
This Agreement has been duly executed and delivered by each Seller and
constitutes (and the Related Agreements to be executed by such Seller, upon
their execution and delivery will constitute) valid and binding obligations of
such Seller enforceable against such Seller in accordance with their respective
terms.
Section 4.4 No Breach or Violation. Except as set forth on Schedule
-----------------------
4.4 hereto, each Seller's execution and delivery of this Agreement and the
Related Agreements to be executed by it, its compliance with and fulfillment of
the terms of this Agreement and such Related Agreements, the sale and delivery
of the Purchased Assets to Buyer and the assumption of the Assumed Liabilities
by the Buyer, and the consummation of the other transactions contemplated hereby
and by any of the Related Agreements, do not and will not, with notice or
passage of time or both, after giving effect to consents described on Schedule
4.5 attached hereto which shall be obtained prior to the Closing, (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) result in the creation of any Lien upon the
Purchased Assets pursuant to, (iv) give any Person the right to accelerate any
obligation under, or (v) result in a violation of, (a) any Law, (b) such
Seller's charter or by-laws, (c) any franchise, permit, license, authorization,
concession, order, judgment, writ, injunction, decree to which such Seller is
subject, or by which any of its assets, properties or rights are bound, or (d)
any lease, mortgage, indenture, deed of trust, trust agreement, note agreement
or other agreement, contract, understanding or instrument to which such Seller
is subject, or by which any of its assets, properties or rights are bound.
Section 4.5 Consents and Approvals. Except as set forth on Schedule
-----------------------
4.5 hereto, no consent, approval, exemption, audit, waiver, order or
authorization of, or registration, qualification, designation, declaration,
notice or filing with, any governmental or regulatory authority (foreign or
domestic), or any other Person, is required on the part of either Seller in
connection with the execution, delivery and performance of this Agreement and
the Related Agreements or the sale or delivery of the Purchased Assets or the
assumption of the Assumed Liabilities, or the other transactions contemplated by
this Agreement and any of the Related Agreements. There are no existing
agreements, options, commitments or rights with, of or to any Person to acquire
any of either Seller's assets, properties or rights included in the Purchased
Assets or any interest therein, except for those Contracts for the sale of
inventory entered into in the ordinary course of such Seller's business.
Section 4.6 Financial Statements. (a) Attached hereto as Schedule
---------------------
4.6(a) are true and complete copies of (i) the Sellers' combined balance sheets
as at December 31, 1995, December 31, 1994, December 31, 1993, December 31, 1992
and December 31, 1991, and the related combined statements of income, retained
earnings, and cash flows for the fiscal years then ended, audited by Sellers'
Auditors, together in each case with notes and exhibits thereto and the
auditor's report thereon for each said year (the "Sellers' Audited Financial
Statements") and (ii)
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the combined unaudited balance sheets of Sellers as at March 31, 1996, and the
related combined statements of income, retained earnings and cash flows from the
commencement of such fiscal year to the date of such period then ended, prepared
by the Sellers (the "Sellers' Interim Financial Statements" and, together with
the Sellers' Audited Financial Statements, the "Historical Financial
Statements").
(b) The Sellers' Audited Financial Statements (i) are complete and
correct in all material respects, (ii) have been prepared in accordance with
GAAP, and (iii) present fairly in all material respects the combined financial
position of Sellers at the dates indicated and the combined results of
operations and cash flows of Sellers for the years indicated therein.
(c) The Sellers' Interim Financial Statements (i) are complete and
correct in all material respects, (ii) have been prepared on a basis consistent
with the historical practices of the Sellers, and (iii) present fairly in all
material respects the combined financial position of Sellers at the date
indicated and the combined results of operations and cash flows of Sellers for
the period indicated therein, subject to year-end audit adjustments which are
solely of a normal, recurring and immaterial nature.
(d) The monthly combined financial statements of Sellers to be
delivered pursuant to Section 6.9 hereof, when completed and delivered to Buyer
hereunder, (i) shall be complete and correct in all material respects, (ii)
shall have been prepared on a basis consistent with the historical practices of
the Sellers, and (iii) shall present fairly in all material respects the
combined financial position of Sellers at the dates indicated therein and the
combined results of operations and cash flows of such Seller for the periods
indicated therein, subject to year-end audit adjustments which are solely of a
normal, recurring and immaterial nature.
(e) The Closing Balance Sheet, when completed, (i) shall be complete
and correct in all material respects, (ii) shall have been prepared in
accordance with GAAP, and (iii) shall present fairly in all material respects
the combined financial position of Sellers at the Closing Date. The reserves, if
any, to be reflected on the Closing Balance Sheet shall be appropriate and
reasonable for their purposes in accordance with GAAP.
(f) Attached hereto as Schedule 4.6(f) are projections of the Sellers'
future performance setting forth projected sales and operating profits for the
1996 fiscal year as indicated therein (the "Projections"). The Projections have
been prepared in good faith and are based on what the Sellers believe in good
faith to be reasonable assessments of the future performance of each Seller,
subject to economic factors beyond its control and based on assumptions of
future results which may not occur. All material assumptions used in the
preparation of the Projections were believed by Sellers to be reasonable as of
the date of preparation thereof and are as described in the notes thereto.
(g) Attached hereto as Schedule 4.6(g) is a true, complete and
accurate list by type of all prepaid expenses of each Seller as of March 31,
1996, with an asterisk (*) noting each type to be purchased by Buyer at the
Closing.
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(h) Each Seller has made and kept books, records and accounts which,
in reasonable detail, accurately and fairly reflect its activities and
transactions and the purchase and disposition of any of their respective assets.
Section 4.7 Inventory. All inventory of each Seller used or useful in
----------
the conduct of its business, including without limitation raw materials,
work-in-process and finished goods, reflected on the Year-end Balance Sheet or
acquired since December 31, 1995 through and including the Closing Date was
acquired and has been maintained in the ordinary course of such Seller's
business; is of good and merchantable quality and fit for the purpose for which
it was procured or manufactured; except as described in Schedule 4.7 hereto,
consists substantially of a quality, quantity and condition usable, leasable or
saleable in the ordinary course of such Seller's business in accordance with the
past practice of the Sellers; is valued at the lower of cost or market on a
first in-first out accounting basis and otherwise in accordance with GAAP; and
is not subject to any material write-down or write-off for which appropriate
reserves have not been included in the Year-end Balance Sheet. All inventory of
each Seller designated as work-in-process has been and, at all times prior to
the Closing Date will be, created only in the ordinary course of such Seller's
business consistent with its past practice. Except as described on Schedule 4.7
hereto and for normal returns in the ordinary course of business, neither Seller
is under any liability or obligation with respect to the return of inventory of
such Seller in the possession of wholesalers, distributors or other customers.
Except as listed and described on Schedule 4.7 hereto, neither Seller has
obsolete or slow-moving inventory (i.e., inventory which, based upon the
historical sales rate of such items by such Seller could not reasonably be
expected to be sold within twenty-four months) or inventory which is not fit for
the purpose for which it is intended to be used. Except as set forth on Schedule
4.7 hereto, since December 31, 1995, no inventory items of either Seller have
been sold or disposed of except in the ordinary course of its business.
Section 4.8 Accounts Receivable and Bad Debts. The accounts receivable
--------
of each Seller arising from the conduct of its business as reflected on the
Sellers' Interim Financial Statements and to be reflected on the Year-end
Balance Sheet or arising since December 31, 1995 through and including the
Closing Date, are valid and genuine; have arisen solely out of bona fide sales
of goods delivered to the customer or sales representatives of such Seller, or
the performance of services or other business transactions of such Seller, in
the ordinary course of its business; and except as reflected in the reserves
therefor, are not subject to valid defenses, set-offs or counterclaims known to
such Seller. The allowance for collection losses on the Year-end Balance Sheet
has been determined in accordance with GAAP. The accounts receivable of each
Seller to be reflected on the Closing Balance Sheet are reasonably expected to
be collected within 150 days of the due dates thereof, and will be collected
within 365 days after the Closing Date, at the full recorded amount thereof less
the recorded accounts receivable reserve. Set forth on Schedule 4.8 hereto is a
true, complete and accurate list as of December 31, 1995 of (i) the current
accounts receivable of each Seller, those which have not been paid within 30, 60
and 90 days of the due date and the dating terms of each such sale and (ii) with
respect to obligations owed to such Seller which have been classified as bad
debts, the name of each debtor and the total amount of all receivables due from
each such debtor. At the Closing, the Seller shall deliver
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to Buyer an updated Schedule 4.8 setting forth such information as of a date not
more than five (5) business days prior to the Closing.
Section 4.9 Material Contracts and Obligations. Attached hereto as
--------------------------------------
Schedule 4.9 is a true, complete and accurate list and general summary
description, categorized by subject matter, together with an indication by an
asterisk (*) if the same shall constitute an Assumed Agreement, of all of the
following contracts, agreements, plans, leases and commitments, whether written
or oral, entered into by each Seller or by which such Seller is bound
("Contracts"):
(i) all purchase orders and Contracts for the purchase of
materials, products or supplies which are for a term of more than
three months, or which involve or are reasonably expected to involve
aggregate payments by such Seller of more than $25,000 during any
fiscal year of such Seller, or which were entered into other than in
the ordinary course of such Seller's business;
(ii) all distribution agreements, dealer agreements, sales
agreements and other sales orders and Contracts for the sale of
products or provision of services which are for a term of more than
three months, or which involve or are reasonably expected to involve
aggregate payments to such Seller of more than $25,000 during any
fiscal year of such Seller, or which were entered into other than in
the ordinary course of such Seller's business;
(iii) all Contracts of employment with any officer,
consultant, director or employee which are not terminable on 30 days'
notice or less without penalty or legal obligation to make any
payments to such Person after termination thereof;
(iv) all Contracts or arrangements providing for stock
options or stock purchases, stock appreciation rights, bonuses,
pensions, severance payments, deferred or incentive compensation,
retirement payments, profit-sharing, insurance or other benefit plan
or program for any employees;
(v) all Contracts for construction or for the purchase of
real estate, improvements, equipment, machinery and other items which
under GAAP constitute capital expenditures or which involve or are
reasonably expected to involve expenditures in excess of $10,000
during any fiscal year of such Seller;
(vi) all Contracts relating to the rental or use of
equipment, vehicles, other personal property or fixtures, or relating
to the provision of services, which involve or are reasonably expected
to involve payment of rentals or sums in excess of $10,000 during any
fiscal year of such Seller;
(vii) all Contracts relating in any way to direct or indirect
indebtedness for borrowed money or evidenced by a bond, debenture, note
or other evidence of indebtedness (whether secured or unsecured) of or
to such Seller, including but not limited to, indebtedness by way of
lease or installment purchase arrangement,
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guarantee, reimbursement obligations pertaining to letters of credit,
repurchase agreements, purchase price discount obligations, or other
undertakings on which others rely in extending credit, or otherwise,
and all mortgages, pledges, conditional sales contracts, chattel and
purchase money mortgages and other security arrangements with respect
to any real estate, improvements, equipment, other personal property
or fixtures;
(viii) all Contracts substantially limiting the freedom of
such Seller to engage in or to compete in any line of business of such
Seller, or with any Person or in any geographical area in connection
therewith, or to use or disclose any information relating to such
Seller in its possession;
(ix) all license agreements, either as licensor or licensee,
franchise agreements, either as franchisor or franchisee, and other
management agreements;
(x) all joint venture Contracts, whether or not involving a
sharing of profits;
(xi) all Contracts between the Sellers, or with any
Shareholder or any Affiliate of either Seller or of any Shareholder;
(xii) all Contracts granting to others the right to
manufacture or distribute products, including sales agency agreements,
distributorship agreements and agreements with brokers, dealers or
representative agreements;
(xiii) all Contracts involving purchase price discounts in
excess of standard historical discounts or in excess of $25,000 per
contract or group of related contracts in any fiscal year of such
Seller offered by or available to such Seller based on purchase
volume;
(xiv) all Contracts which are presently expected by either
Seller to result in any loss upon completion or performance thereof;
(xv) all Contracts involving research and development
efforts on behalf of either Seller;
(xvi) all Contracts for any charitable or political
contribution;
(xvii) all Contracts not made in the ordinary course of such
Seller's business; and
(xviii) all other Contracts, except those which are (i)
cancelable on 30 days' or less notice without any penalty or other
financial obligation or (ii) if not so cancelable, involve or are
reasonably expected to involve aggregate payments by or to such Seller
of $10,000 or less during the term of such agreement.
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Except as set forth on Schedule 4.9, all Contracts required to be
disclosed to Buyer pursuant to this Section 4.9 are valid, binding and in full
force and effect and neither Seller nor, to the best knowledge of either Seller
or any Shareholder, any other party thereto, is in breach or violation of, or
default under, nor, to the best knowledge of either Seller or any Shareholder,
is there any valid basis for a claim of breach or violation of, or default
under, the terms of any such Contract, and no event has occurred which
constitutes or, with the lapse of time or the giving of notice or both, would
constitute, such a breach, violation or default by such Seller thereunder. Each
Seller has enforced, or attempted to enforce, all material rights in favor of
such Seller with respect to the Contracts described in Schedule 4.9.
Furthermore, to the best knowledge of either Seller or any Shareholder, no such
Contract contains, in the reasonable opinion of either Seller, any contractual
requirement with which there is a reasonable likelihood such Seller or any other
party thereto will be unable to comply.
Section 4.10 Obligations with Material Adverse Effect. There is no
term or provision of any Contract required to be disclosed to Buyer pursuant to
Section 4.9, nor any franchise, permit, license, concession or other
authorization to conduct its business to which either Seller is a party or by
which it or any of its properties or assets are bound, nor any provision of any
Law, or any judgment, writ, injunction, decree or order applicable to or binding
upon such Seller, which is reasonably likely to materially adversely affect its
business or the prospects, financial condition, affairs or operations of such
Seller or any Purchased Assets.
Section 4.11 Employees. Except as described on Schedule 4.11, each
Seller has complied with all applicable Laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining, age, pregnancy, disability and sex discrimination and the
payment of social security and other Taxes due in respect thereof. A list of the
names and titles of and current annual base salary or hourly rates for all
employees of each Seller, together with a statement of the full amount and
nature of any bonuses and other compensation paid or payable to or accrued for
each such employee during the three preceding fiscal years of such Seller and
the vacation to which each such employee is entitled, has been delivered to
Buyer pursuant to a letter from such Seller to Buyer dated the date hereof.
Section 4.12 Absence of Certain Developments. (a) Except as set forth
on Schedule 4.12 hereto, since December 31, 1995, neither Seller has:
(i) incurred any liabilities, other than liabilities incurred in the
ordinary course of its business, or discharged or satisfied any lien
or encumbrance or paid any liabilities, other than in the ordinary
course of its business, or failed to pay or discharge when due any
liabilities of which the failure to pay or discharge has caused or
could reasonably be expected to cause any material damage or risk of
material loss to its business or any of its assets or properties;
(ii) sold, assigned or transferred any assets or properties which
would have been included in the Purchased Assets if the Closing had
been held on December 31,
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1995 or on any date since then, except for the sale of inventory in
the ordinary course of its business and for the disposition of assets
in the ordinary course of its business which are excess, worn-out, in
need of substantial repair, or obsolete and which do not have a market
value in excess of $10,000 in the aggregate for all such assets;
(iii) created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or mortgaged, pledged or subjected any of its assets
to any mortgage, lien, pledge, security interest, conditional sales
contract or other encumbrance of any nature whatsoever;
(iv) made or suffered any amendment or termination of any material
Contract to which it is a party or by which it is bound, or canceled,
modified or waived any substantial debts or claims held by it or
waived any rights of substantial value, whether or not in the ordinary
course of its business;
(v) to the best knowledge of either Seller or any Shareholder,
suffered any damage, destruction or loss, whether or not covered by
insurance, (x) materially and adversely affecting its business or its
operations, assets, properties or prospects or (y) of any item or
items carried on its books of account individually or in the aggregate
at more than $10,000, or suffered any repeated, recurring or prolonged
shortage, cessation or interruption of product, supplies or utilities
or other services required to conduct the operations of its business;
(vi) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or
otherwise) or in its relationships with suppliers, dealers,
distributors or other customers;
(vii) received notice or had knowledge of any actual or threatened
labor trouble, strike, union organizing efforts, political disturbance
or other occurrence, event or condition of any similar character which
has had or might have an adverse effect on its business, suppliers,
operations, assets, properties or prospects;
(viii) made any acquisition of substantial assets or any commitments
or agreements for capital expenditures or capital additions or
betterments exceeding $10,000 individually or $25,000 in the
aggregate, except such as may be involved in ordinary repair,
maintenance or replacement of its assets in the ordinary course of its
business;
(ix) increased the salaries or other compensation of, or made any
advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its employees or made any increase in, or
any addition to, other benefits to which any of its employees may be
entitled;
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(x) changed any of the accounting principles followed by it or the
methods of applying such principles or any practice involving
collection or payment of accounts;
(xi) entered into or amended any Contract with any of its Affiliates
or with any Shareholder or any Affiliate of any Shareholder; or
(xii) entered into any transaction other than in the ordinary course
of its business.
(b) Since December 31, 1995, neither Seller has taken any action,
nor suffered nor permitted to exist any event or condition, of the type
proscribed by Section 6.1 hereof without the prior written consent of Buyer.
Section 4.13 Undisclosed Liabilities. To the best knowledge of
------------------------
either Seller or any Shareholder, neither Seller has any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, due or to
become due, or whether direct or indirect, arising out of any action or
inaction, or with respect to or based upon transactions or events occurring, or
any state of facts or condition existing, in connection with such Seller's
conduct of its business, and, to the best knowledge of either Seller or any
Shareholder, there is no basis for any claim against such Seller for any such
liability or obligation, except (i) to the extent specifically described in this
Agreement or disclosed in the Schedules hereto, (ii) to the extent fully
reflected or reserved against on the Year-end Balance Sheet, (iii) liabilities
and obligations arising or incurred in the ordinary course of such Seller's
business under any Contract disclosed on Schedule 4.9 or not required to be
disclosed because of the term or amount involved, and (iv) liabilities or
obligations arising or incurred in the ordinary course of such Seller's business
after December 31, 1995 which will be paid or discharged as of the Closing Date,
or which will be fully reflected or reserved against on the Closing Balance
Sheet, or which have arisen on or after May 1, 1996. The reserves, if any,
reflected on the Year-end Balance Sheet are adequate, appropriate and reasonable
for their purposes.
Section 4.14 Tax Returns and Audit. Each Seller made valid and timely
----------------------
elections under Subchapter S of the Code to treat such Seller as a small
business corporation, which election(s) were accomplished in compliance with all
applicable federal and state laws and regulations and remains in full force and
effect as of the date hereof and will remain in full force and effect as of the
Closing Date. Effective January 1, 1987, each Seller has been taxed as an "S
corporation" in each state and local jurisdiction in which Seller filed or was
required to file any income Tax Return. All Tax Returns required to be filed by
each Seller with respect to any Taxes have been filed with the appropriate
governmental agencies in all jurisdictions in which such Tax Returns are
required to be filed, and all such Tax Returns properly reflect the liabilities
of such Seller for Taxes for the periods, property or events covered thereby.
All Taxes, including without limitation those which are called for by the Tax
Returns, or heretofore or hereafter claimed to be due by any taxing authority
from such Seller, have been properly accrued or paid. The accruals for Taxes
other than income taxes contained in the Year-end Balance Sheet are adequate to
cover the Tax liabilities of each Seller as of such date and include adequate
provision for all deferred Taxes. Neither Seller has received any notice of
assessment or proposed assessment in
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connection with any Tax Returns of such Seller and, to the best knowledge of
either Seller or any Shareholder, there are not pending tax examinations of or
tax claims asserted against such Seller or any of its assets or properties.
Neither Seller has extended, or waived the application of, any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Taxes. There are no tax Liens (other than any Lien for current taxes not yet due
and payable) on any of the assets or properties of either Seller. Neither Seller
nor any Shareholder has knowledge of any basis for any additional assessment of
any Taxes. Each Seller has made all deposits required by law to be made with
respect to employees' withholding and other employment Taxes, including without
limitation the portion of such deposits relating to Taxes imposed upon such
Seller.
Section 4.15 Real Property Owned and Leased. (a) Schedule 4.15(a)
-------------------------------
hereto correctly identifies (x) each parcel of real estate owned by either
Seller, together in each case with an accurate legal description, street
address, tax assessor's plat and lot numbers, description of all Liens
encumbering such parcel and description of the use of such parcel, (y) each
parcel of real estate leased by or to either Seller, together in each case with
an accurate legal description, street address, description of all Liens
encumbering such leasehold estate, name of landlord, property manager, and
record owner of the underlying fee, description of the use of such parcel, the
security deposited by such Seller with the landlord, if any, and summary of the
term and monthly rent (including base and all additional rent) payable in
respect thereof, and (z) each other interest in real property leased or granted
to or held by either Seller. Except as set forth in Schedule 4.15(a), with
respect to the real estate, improvements, fixtures or interest therein owned,
leased or granted to or held by each Seller (the "Real Estate"):
(i) Such Seller holds good and clear record and marketable fee
simple absolute title to all of the Real Estate owned by such
Seller, in each case free and clear of all Liens and other
encumbrances, adverse claims and other matters affecting such
Seller's title to or possession of such Real Estate, including, but
not limited to, all encroachments, boundary disputes, covenants,
restrictions, easements, rights of way, mortgages, security
interests, leases, encumbrances and title objections, excepting only
(x) Liens reflected on the Historical Financial Statements which are
to be discharged and released at the Closing, (y) Permitted Liens
and (z) such easements, restrictions and covenants presently of
record which will not, in Buyer's sole judgment, interfere with or
impair Buyer's intended use of any of such Real Estate, reduce the
value of any of such Real Estate, or prevent Buyer from obtaining
financing of Buyer's acquisition of the Purchased Assets, which
easements, restrictions and covenants are listed on Schedule 4.15(a)
in a manner so that the Real Estate to which they relate is readily
identifiable. At Closing, title to the Real Estate owned by Seller
shall be insurable by any title insurance company selected by Buyer,
at such company's regular rates pursuant to an ALTA 10/17/92 owner's
form of policy, free of all exceptions except the aforesaid
easements, restrictions and covenants which are not objectionable to
Buyer;
(ii) With respect to any Real Estate leased by such Seller, the
interest of such Seller in the Real Estate is a lessee's interest
under a valid and binding lease and such interest is held free and
clear of all Liens or other encumbrances of any kind;
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such Seller has all the right, title and interest of the lessee in
each such lease and presently occupies the property leased by it
under each such lease; no consent under any such lease is necessary
for the consummation of the transactions contemplated hereby; no
event has occurred which (with the giving of notice or passage of
time or both) would impair any right of such Seller to exercise and
obtain the benefits of any options contained in any such lease; and
there is no default or basis for acceleration or termination, nor
has any event occurred which (with the giving of notice or passage
of time or both) would constitute a default, or result in or permit
the acceleration of any obligation, under any such lease, or, to the
best knowledge of either Seller or any Shareholder, under any
underlying ground or master lease, instrument, mortgage or deed of
trust of the lessor, which default or acceleration would materially
and adversely affect any such lease or the Real Estate or present
use of the property covered thereby;
(iii) The improvements and fixtures located on the Real Estate are
in good condition and are structurally sound, and all mechanical and
other systems located therein are in good operating condition,
subject to normal wear and tear and, to the best knowledge of either
Seller or any Shareholder, no condition exists requiring material
repairs, alterations or corrections;
(iv) No structures on the Real Estate fail to conform with
applicable ordinances, requirements, regulations, zoning laws and
restrictive covenants or encroach on property of others; and no Real
Estate is, to the best knowledge of either Seller or any
Shareholder, encroached on by structures of others;
(v) No charges or violations have been filed, served, made or, to
the best knowledge of either Seller or any Shareholder, threatened
against or relating to any of the Real Estate or structures thereon
or any of the operations conducted at any such Real Estate or in
such structure, as a result of any violation or alleged violation of
any applicable ordinances, requirements, regulations, zoning laws or
restrictive covenants or as a result of any encroachment on the
property of others;
(vi) Such Seller has rights of ingress to and egress from each
such parcel of Real Estate used by it adequate for the operations
conducted thereon; there are no restrictions on entrance to or exit
from the Real Estate to adjacent public streets and, to the best
knowledge of either Seller or any Shareholder, no conditions exist
which will result in the termination of the present access from the
Real Estate to existing highways and roads;
(vii) The water, electric, telephone and gas services, and the
septic field and storm drainage facilities currently available to
the Real Estate are adequate for the present use of the Real Estate
by such Seller in conducting its business as presently conducted,
are not being appropriated by such Seller but rather are being
supplied to such Seller by utility companies or municipalities with
full knowledge of such Seller's use thereof, and there is no
condition known to either Seller or any
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Shareholder which will result in the termination of the present
access from the Real Estate to such utility services and other
facilities; and there are no septic tanks currently on, under or
servicing the Real Estate;
(viii) No part of the buildings or other improvements situated on
the Real Estate is located within or abuts any flood plain,
navigable water or other body of water, tideland, wetland, marshland
or any other area which is subject to special state, federal or
municipal regulation, control or protection;
(ix) Neither Seller nor any Shareholder has any knowledge of any
work for municipal improvements which has been commenced on or in
connection with the Real Estate or any street adjacent thereto; no
assessment for public improvements has been made against the Real
Estate which remains unpaid; and no notice from any county, township
or other governmental body has been served upon the Real Estate or
received by either Seller requiring or calling attention to the need
for any work, repair, construction, alteration or installation on
the Real Estate which has not been complied with;
(x) No notice, oral or written, from any governmental body, has
been received by such Seller or, to the best knowledge of either
Seller or any Shareholder, by its landlord under any lease, to the
effect that the assessed value of the Real Estate has been
determined to be greater than that upon which county, township or
school tax was or will be paid for the 1995 tax year applicable to
each such tax, or from any insurance carrier of such Seller of fire
hazards with respect to the Real Estate;
(xi) There are no claims affecting any of the Real Estate or
interests therein pending or, to the best knowledge of either Seller
or any Shareholder, threatened which might curtail or interfere with
the use of such Real Estate for the purpose for which it is now
used;
(xii) Such Seller has no interest (other than under any lease
disclosed in Schedule 4.15(a)) in or any right or obligation to
acquire any interest in any real property which is necessary for or
which it believes will be necessary for the conduct of its business
as currently conducted; and
(xiii) The Real Estate constitutes one entire taxable lot as
assessed by the Town of Foxboro, Massachusetts tax assessor and one
entire taxable lot as assessed by the Town of Walpole, Massachusetts
tax assessor, and no portion of either such taxable lot lies outside
the boundary of the Real Estate.
(b) Neither the whole nor any portion of any fee or leasehold of
either Seller described in Schedule 4.15(a) is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any governmental body or other Person with or without payment of
compensation therefor, nor, to the best knowledge of either Seller or any
Shareholder, has any such condemnation, expropriation or taking been proposed.
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Section 4.16 Personal Property Owned or Leased. Each Seller has
----------------------------------
good, valid and merchantable title to all of its personal and intangible
properties and assets, including without limitation, all properties and assets
reflected in the Year-end Balance Sheet (except for inventory sold since
December 31, 1995 in the ordinary course of business and the disposition of
assets in the ordinary course of business which are excess, worn-out, in need of
substantial repair, or obsolete and which do not have a market value in excess
of $10,000 in the aggregate for all such assets), free and clear of any and all
Liens, except for (i) Permitted Liens, (ii) Liens reflected in the Year-end
Balance Sheet and (iii) Liens disclosed in Schedule 4.16 hereof. All machinery,
equipment and other material items of tangible property and assets are in good
operating condition and repair, subject to normal wear and maintenance, have
been maintained and repaired on a regular basis so as to preserve their utility
and value, are usable in the regular and ordinary course of business, and
conform to all applicable Laws relating to their construction, use and
operation. No Person other than the Sellers owns any machinery, equipment or
other tangible assets or properties situated on the premises of either Seller or
used or useful in its operations except for items of immaterial value owned by
employees of the Sellers.
Section 4.17 Proprietary Rights. The Purchased Assets include all
-------------------
patents, trademarks, tradenames, service marks, logos, copyrights, including
applications therefor, designwork, art, artwork, inventions, formulae, methods
and processes (all such items being hereinafter referred to as "Intellectual
Property") presently used or useful in the conduct of each Seller's business.
Each Seller owns or possesses adequate licenses or other rights to use its
Intellectual Property without any conflict with the rights of others. Except as
otherwise set forth on Schedule 4.17 hereto, no royalties or fees are payable by
either Seller to any Person by reason of the ownership or use of any of the
Intellectual Property and all items of Intellectual Property are valid and in
good standing. Except as set forth on Schedule 4.17, each Seller has the sole
and exclusive right to use its Intellectual Property and there are no licenses,
sublicenses or agreements relating to the use by any other Person of any of such
Seller's Intellectual Property now in effect, and such Seller has no knowledge
of any infringement upon its Intellectual Property by any other Person. No
charge or claim is pending or, to the best knowledge of either Seller or any
Shareholder, threatened, nor has any charge or claim been made within the past
five years, to the effect that, nor does either Seller or any Shareholder have
any knowledge that, the operation of its business, or the manufacture or sale of
any of its products or any design, designwork, art, artwork, formula, method,
process, part or material employed in connection therewith, infringes upon or
conflicts in any way with any rights or properties of the type enumerated above
owned or held by any other Person. All patents, patent applications, registered
trademarks, trademark applications, trade names, service marks, logos, licenses,
copyrights and copyright applications owned by or licensed to each Seller are
set forth on Schedule 4.17 and have been duly registered in, filed in, or issued
by the United States Patent and Trademark Office, United States Register of
Copyrights or the corresponding offices of any other country, state, or other
jurisdiction to the extent set forth on Schedule 4.17, and have been properly
maintained or renewed in accordance with all applicable provisions of Law and
administrative regulations in the United States and in each such other country,
state, or other jurisdiction. Schedule 4.17 accurately sets forth with respect
to each patent, patent application, registered trademark, trademark application,
trade name, service mark, logo, license, copyright and copyright applications
owned by or licensed to each Seller, (i)
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the owner thereof, (ii) the date of expiration, if any, (iii) whether such
ownership or licensing rights are exclusive, and (iv) to the best knowledge of
either Seller or any of the Shareholders, any other licensee of such rights. To
the best knowledge of either Seller or any of the Shareholders, there is no
trademark or copyright application or licensing arrangement pending which, if
issued to or made with any Person other than a Seller, would materially
adversely affect any product or service produced or rendered by such Seller.
Except as set forth on Schedule 4.17, no present or former employee of either
Seller and no other Person owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part, in any patent, trademark,
tradename, service mark or copyright, or in any application therefor, which
either Seller owns or possesses in the conduct of its business as now or
heretofore conducted.
Section 4.18 Necessary Licenses and Permits. Each Seller possesses
-------------------------------
all licenses, permits, consents, concessions and other authorizations of
governmental, regulatory or administrative agencies or authorities, whether
foreign, federal, state, or local, required to own and lease the Purchased
Assets, to sell and/or service any inventory of such Seller or to otherwise
conduct its business as presently conducted. Schedule 4.18 hereto sets forth a
list of each such license, permit, consent, concession or other authorization so
required. Except as specified in Schedule 4.18, no registrations, filings,
applications, notices, transfers, consents, approvals, audits, qualifications,
waivers or other action of any kind is required by virtue of the execution and
delivery of this Agreement, or of the consummation of the transactions
contemplated hereby (a) to avoid the loss or termination of any such license,
permit, consent, concession or other authorization described on Schedule 4.18 or
any asset, property or right used or useful pursuant to the terms thereof, or
the violation or breach of any Law applicable thereto or (b) to enable Buyer to
acquire, hold and enjoy the same after the Closing Date.
Section 4.19 Environmental. (a) For purposes of this Agreement, the
--------------
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material, waste or substance, including, without
limitation, petroleum products that, whether by their nature or use, are subject
to regulation under any Environmental Requirement; (ii) the term "Environmental
Requirement" shall collectively mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.9601, et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. ss.1801, et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss.6901, et seq.), the Toxic
Substances Control Act (15 U.S.C. ss.2601, et seq.), the Clean Air Act (42
U.S.C. ss.7401, et seq.) and the Federal Water Pollution Control Act (33 U.S.C.
ss.1251, et seq.), the Massachusetts Contingency Plan (310 C.M.R. 40.0000 et
seq.), the Massachusetts Solid Waste Disposal Law, Massachusetts General Laws
Chapter 16, and Massachusetts General Laws Ch. 21E, any regulation pursuant
thereto, or any other Law addressing environmental, health or safety issues of
or by any Governmental Authority; (iii) the term "Governmental Authority" shall
mean the Federal government, or any state or other political subdivision
thereof, or any agency or body of the Federal government, or any state or other
political subdivision thereof, or any court asserting jurisdiction over either
Seller, which is exercising executive, legislative judicial, regulatory or
administrative functions; and (iv) the term "Offsite Facility" shall mean any
offsite waste disposal facility, site or location utilized by or associated with
the business of either Seller or the Purchased Assets.
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(b) Except as set forth in Schedule 4.19 hereto, (i) no Hazardous
Material is currently or, to the best knowledge of either Seller or any
Shareholder, has it ever been, located at, in, on, under or about any Real
Estate in a manner which violates any Environmental Requirement, or which
requires investigation, cleanup or corrective action of any kind under any
Environmental Requirement; (ii) there has been no release, emission, discharge,
leaching, dumping or disposal of any Hazardous Material by either Seller in the
conduct of its business which has adversely affected the quality or quantity of
groundwater in a manner which is reasonably expected to form the basis of a
claim, at law or in equity, against such Seller or, after the Closing, against
the Buyer, by any Person, nor is either Seller nor any Shareholder aware of, nor
has it received notice of, any such claim, (iii) there has been no release,
emission, discharge, leaching, dumping or disposing of any Hazardous Material
at, in, on or from any Real Estate by either Seller or, to the best knowledge of
either Seller or any Shareholder, by any other Person in violation of any
Environmental Requirement; (iv) each Seller has all applicable federal, state
and local permits, certifications, licenses or approvals and is in compliance in
all material respects with such permits, certification, licenses, and approvals
required pursuant to any Environmental Requirement; (v) neither Seller nor any
Shareholder is aware of, nor has either Seller received, notice of any
violation, Lien, complaint, suit, order or other obligation with respect to any
past, present or future event concerning the environmental condition of any Real
Estate, its business or the Purchased Assets; nor has any such notice been
issued by any Governmental Authority which has not been fully satisfied and
complied with in a timely fashion as required by applicable Environmental
Requirements; (vi) there has been no release or threatened release of Hazardous
Material generated by either Seller at, in, on or from any Offsite Facility;
(vii) neither the execution of this Agreement, nor the consummation of the
transactions contemplated hereby, will trigger any obligation under any
Environmental Requirement, or consent order or similar agreement with any
Governmental Authority, to perform any environmental investigation or cleanup,
or to install additional pollution control equipment at any Real Estate, or to
amend or modify its business and/or its operations and equipment, or permits,
certifications, licenses or approvals held by it; (viii) there has been no
litigation, directive or administrative enforcement proceeding against either
Seller, nor have any settlements been reached by either Seller with any
Governmental Authority or public or private party alleging the release,
threatened release, disposal, storage or use of any Hazardous Material at any
Real Estate or any Offsite Facility nor, to the best knowledge of either Seller
or any Shareholder, has there been any investigation on account thereof; (ix)
there are no underground storage tanks or urea foam insulation present at any
Real Estate; and (x) there are no asbestos-containing materials or
polychlorinated biphenyls present at any Real Estate at levels or in a condition
in violation of any Environmental Requirement. Each Seller shall take
appropriate and timely action to transfer to Buyer any permits, certifications,
licenses or approvals required pursuant to any Environmental Requirement and
shall execute and deliver, promptly upon request, such additional instruments as
the Buyer may deem useful or necessary to cause such permits to be transferred
without interruption or delay.
Section 4.20 Necessary Property. The Purchased Assets, including the
-------------------
Assumed Agreements, constitute all of the real and personal property, whether
tangible or intangible, owned, leased, or licensed, which is necessary, used or
useful in the conduct of each Seller's business in the manner and to the extent
presently conducted by such Seller. No other real and
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personal property, whether tangible or intangible, owned, leased, or licensed,
is currently being used in r is required for the conduct of either Seller's
business in the manner and to the extent presently conducted by such Seller.
Section 4.21 Compliance with Law. Except as may be set forth in
--------------------
Schedule 4.21 hereto, neither Seller is in default under, or in violation of,
nor has it violated (and not cured) any Law (including, without limitation, Laws
relating to the issuance or sale of securities, anti-trust, restraint of trade,
or occupational safety), or any licenses, franchises, permits, authorizations or
concessions granted by, or any judgment, decree, writ, injunction or order of,
any governmental or regulatory authority, applicable to such Seller, the
operation of its business or any of the Purchased Assets. Except as disclosed on
Schedule 4.21, neither Seller has received any notification alleging any
violations of any of the foregoing within the last five years, and has taken all
necessary corrective action in respect of each such notification.
Section 4.22 Litigation. Except as set forth in Schedule 4.22
-----------
hereto, there is no suit, claim, action, proceeding or investigation pending or,
to the best knowledge of either Seller or any Shareholder, threatened against or
affecting either Seller or their respective businesses, or in connection with
any of the Purchased Assets, or the consummation of the transactions
contemplation hereby, at law or in equity or before any governmental authority
or instrumentality or before any arbitrator of any kind, and to the best
knowledge of either Seller or any Shareholder, there is no valid basis for any
such suit, claim, action, proceeding or investigation. Except as set forth on
Schedule 4.22, neither Seller has been a party to any such suit, claim, action,
proceeding or investigation during the past five years, nor to the best
knowledge of either Seller or any Shareholder, has any such suit, claim, action,
proceeding or investigation been threatened during that period. No pending or
threatened suit, claim, action, proceeding or investigation could reasonably be
expected to have a Material Adverse Effect on either Seller or its relations
with its customers, dealers, distributors, suppliers or employees. Neither
Seller is a party or subject to any judgment, order, writ, injunction or decree.
Section 4.23 Indebtedness to and from Officers, Directors and
------------------------------------------------
Others; Funded Indebtedness. (a) Except as set forth on Schedule 4.23(a) hereto,
- ----------------------------
neither Seller is indebted to any shareholder, director, officer, employee or
agent of such Seller or any Affiliate of such Seller or of any Shareholder,
except for amounts due as normal salaries, wages, or reimbursement of ordinary
business expenses, and no Shareholder, director, officer, employee or agent of
the Seller or any Affiliate thereof or of any Shareholder, is indebted to either
Seller except in respect of ordinary business expense advances.
(b) As of the close of business on January 26, 1996, the aggregate
principal amount of Funded Indebtedness equaled $2,146,200, being comprised of
$498,000 principal amount of shareholder indebtedness, $922,200 principal amount
of mortgage indebtedness and $726,000 principal amount of revolving credit
indebtedness. As of the date hereof and as of the Closing Date, the principal
amount of Sellers' mortgage indebtedness comprising Funded Indebtedness does not
and will not exceed $922,200, the principal amount of Sellers' shareholder
indebtedness comprising Funded Indebtedness does not and will not exceed
$498,000, and no funds shall
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have been drawn under the Sellers' revolving credit facility since January 26,
1996 to pay or prepay any of Sellers' mortgage indebtedness or shareholder
indebtedness.
Section 4.24 Labor Agreements and Employee Relations. Neither Seller
----------------------------------------
is a party to any collective bargaining or similar agreement covering any of its
employees. Except as set forth on Schedule 4.24, no labor organization or group
of employees of either Seller has made a demand for recognition, has filed a
petition seeking a representation proceeding or given such Seller notice of any
intention to hold an election of a collective bargaining representative. Neither
Seller has suffered any strike, slowdown, picketing or work stoppage by any
group of employees affecting its business during the past five years. Neither
Seller is aware of any facts or circumstances which might adversely effect its
relationship with its employees.
Section 4.25 Brokers' Fees. Neither Seller nor any Person on either
--------------
Seller's behalf has retained any broker, finder or agent or agreed to pay any
brokerage fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement, except for a fee to be paid by Sellers to
Riparian Partners, Ltd.
Section 4.26 Major Product Lines, Customers and Suppliers. (a) Set
---------------------------------------------
forth on Schedule 4.26(a) is a list of all of each Seller's existing
distributors and its 10 largest other customers, together with a breakdown of
the sales volume to each such distributor or other customer, for each of the
three most recent fiscal years ended. Except as noted on Schedule 4.26(a), each
such distributor is a party to a written agreement with Seller. Neither Seller
has received any written or oral communications from any such distributor or
other customer indicating its intention to discontinue its relationship as a
distributor for, or materially reduce its purchases from, such Seller, whether
by reason of the consummation of the transactions contemplated by this Agreement
or otherwise.
(b) Set forth on Schedule 4.26(b) hereto is a list of each Seller's
10 largest suppliers based upon the dollar amount of purchases, together with a
breakdown of the purchases from each such supplier, for each of the three most
recent fiscal years ended. Neither Seller has received any written or oral
communication from any such supplier indicating the possibility of a material
price increase on items purchased by such Seller, whether by reason of the
consummation of the transactions contemplated by this Agreement or otherwise.
With regard to either Seller's vendors supplying key products or components in
connection with its business, such Seller has not received any oral or written
communication, nor has it any reason to believe that it will receive any such
communication, from any such vendor indicating an intention of such vendor to
discontinue or diminish its relationship as a supplier to such Seller, whether
by reason of the consummation of the transactions contemplated hereby or
otherwise.
(c) Except as set forth on Schedule 4.26(c), neither Seller is
required to provide any letter of credit, bonding or other financial security
arrangements in connection with any transactions with any of its distributors,
other customers or suppliers.
Section 4.27 Product Warranties. Attached hereto as Schedule 4.27
are true, complete and accurate copies of each Seller's standard forms of
product warranty or guaranty issued during
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each of the past five years, or otherwise currently outstanding with respect to
such Seller's products and/or services. No other product warranty or guaranty
has been issued by either Seller nor has either Seller materially modified its
standard form thereof on any individual or selected basis, during any of the
past five years.
Section 4.28 Warranty Claims. Except as set forth on Schedule 4.28
----------------
hereto and for normal returns in the ordinary course of business, there are no
existing or threatened claims, or any facts known to either Seller upon which a
claim could reasonably be expected to be based, against such Seller for or
related to goods which are defective, whether by reason of design, manufacture
or otherwise, or fail to meet any product or service warranties of any
applicable standard or the specifications of any foreign, federal, state, or
local authority.
Section 4.29 Corporate Documents, Books and Records. The books,
---------------------------------------
records and accounts of each Seller accurately and fairly reflect, in reasonable
detail, the transactions and the assets and liabilities of such Seller. Neither
Seller has engaged in any transaction with respect to its business, maintained
any bank account for its business, or used any of the funds of such Seller in
the conduct of its business, except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of such Seller.
Section 4.30 All Material Information. To the best knowledge of
-------------------------
either Seller or any Shareholder, all material facts concerning each Seller, its
business and the Purchased Assets have been disclosed to the Buyer. No
representation or warranty made herein by either Seller, and no statement
contained in any certificate or other instrument furnished or to be furnished to
the Buyer in connection with the transactions contemplated by this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state, any material facts necessary in order to make any statement
not misleading.
Section 4.31. Employee Benefit Plans and Arrangements. (a) Schedule
----------------------------------------
4.31(a) hereto contains a complete list of all individual employment contracts
and all Employee Benefit Plans, whether formal or informal, whether or not set
forth in writing, and whether covering one person or more than one person, with
regard to any employees of either Seller. For the purposes hereof, the term
"Employee Benefit Plan" includes all plans, funds, programs, policies,
arrangements, practices, customs and understandings providing benefits of
economic value or any severance pay, deferred compensation, bonuses or other
forms of incentive or retirement compensation, to any employee, former employee,
or present or former beneficiary, dependent or assignee of any such employee or
former employee, other than regular salary, wages or commissions paid
substantially concurrently with the performance of the services for which paid.
Without limitation, the term "Employee Benefit Plan" includes all employee
welfare benefit plans within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and all employee
pension benefit plans within the meaning of Section 3(2) of ERISA.
(b) The only Employee Benefit Plan which is an employee pension plan
as defined in Section 3(2) of ERISA is the Profit Sharing Plan, which is
qualified under Section 401(a) of the Code. The Profit Sharing Plan is not
subject to Title IV of ERISA or Section 412 of the Code.
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As of the Closing Date, the value of accrued benefits under the Profit Sharing
Plan will not exceed the value of the assets of the Profit Sharing Plan. Full
payment has been made, or will be made in accordance with Section 404(a)(6) of
the Code, of all amounts which each Seller is required to pay under the terms of
the Profit Sharing Plan and all such amounts properly accrued through the
Closing Date with respect to the current plan year will have been paid by such
Seller on or prior to the Closing Date.
The Seller is not now required to contribute to any multiemployer
pension plan as such term is defined in Section 3(37) of ERISA and has not been
obligated to contribute to a multiemployer plan at any time during the five year
period ending prior to the Closing Date.
(c) Except as set forth in Schedule 4.31(c), each Employee Benefit
Plan has been maintained in substantial compliance with ERISA and all other
applicable statutes, orders, rules and regulations of governmental authorities
having jurisdiction thereof. Neither Seller has engaged in any transaction which
could subject it to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a Tax imposed pursuant to Section 4975, 4976 or 4980B of the
Code. Copies or descriptions of each Employee Benefit Plan have been previously
furnished to Buyer. No Employee Benefit Plan provides benefits to or with
respect to any employee following termination of employment except as may be
required by applicable statutory law.
With respect to each Employee Benefit Plan which is funded wholly or
partially through an insurance policy, neither Seller nor any Shareholder has
knowledge of any liability of such Seller as of the Closing Date under any such
insurance policy or an ancillary agreement with respect to such insurance policy
in the nature of a retroactive rate adjustment, loss sharing arrangement or
other actual or contingent liability arising out of events occurring prior to
the Closing. With respect to each such policy which has a retroactive rate
adjustment, no such retroactive rate adjustment has been implemented against
either Seller at any time during the past five years.
(d) Except as set forth in Schedule 4.31(d), there has been no
amendment to, written interpretation or announcement (whether or not written)
relating to, or change in employee participation or coverage under, any Employee
Benefit Plan which would increase materially the expense of maintaining such
Employee Benefit Plan above the level of the expense incurred for the year ended
December 31, 1994 other than as required by statutory changes.
(e) The foregoing representations apply not only to the Sellers but
also to any Commonly Controlled Entity of each Seller, which is any trade or
business, whether or not incorporated, that together with either Seller would be
deemed a single employer within the meaning of Section 414(b), (c), (m) or (o)
of the Code.
Section 4.32 Benefit Claims. Neither Seller has liability for any
---------------
benefit which has been or could be claimed as a result of any event occurring
prior to the Closing Date under any Employee Benefit Plan (as described in
Section 4.31 hereof), or under any workers' compensation or similar law, (i)
which is not fully covered by insurance maintained with reputable, responsible
financial insurers, or (ii) if not so insured, for which such Seller has not
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established an adequate reserve on the Year-end Balance Sheet or, with respect
to any such claim asserted after December 31, 1995, on the Closing Balance
Sheet.
Section 4.33 Bank Accounts. Schedule 4.33 hereto sets forth a
--------------
complete and accurate list of: (i) all safes, vaults and safe deposit boxes
maintained by or on such behalf of each Seller or in which any of the Purchased
Assets may be held, and the names of all persons authorized to have access
thereto; and (ii) all bank accounts or lock-box accounts maintained by such
Seller and the names of all persons who are authorized signatories with respect
to such accounts, the capacities in which they are authorized signatories and
the terms of their authorizations.
Section 4.34 Arms Length Transactions; Conflicts of Interest. Except
------------------------------------------------
as set forth on Schedule 4.34 hereto, all transactions by each Seller are and
have been conducted on an arms length basis, and there is no transaction, and no
transaction has been proposed, between such Seller and any Shareholder, officer
and director of such Seller or an Affiliate of any such Person. Neither Seller
nor any Shareholder has knowledge of any favorable pricing, purchase or lease
arrangements which will not continue to be available to Buyer after the Closing
Date on substantially equivalent terms. Except as disclosed in Schedule 4.34, no
Shareholder, director, officer or employee of either Seller or of any Affiliate
of either Seller or any such Person, has any interest in (i) any property, real
or personal, tangible or intangible, including, but not limited to, any
Intellectual Property, used or useful in connection with or pertaining to the
business of such Seller or (ii) any creditor, supplier, manufacturer, dealer,
distributor or representative of such Seller.
Section 4.35 Insurance. Schedule 4.35 hereto contains a description
----------
of all policies of title, liability, fire, flood and other hazard, business
interruption, worker's compensation and other forms of insurance (including
bonds) insuring the products, properties, assets, profits, employees of each
Seller or the operations of its business, setting forth in each case the current
annual premium therefor. Except as set forth in Schedule 4.35, all such policies
are in full force and effect, underwritten by unaffiliated and, to the best
knowledge of either Seller or any Shareholder, financially sound reputable
insurers, and are sufficient for applicable requirements of Law and provide
insurance, including liability insurance, in such amounts and against such risks
as indicated, subject to self-insurance retention levels and deductibles as set
forth in Schedule 4.35, to protect the properties, assets, profits, rights,
employees of such Seller, and the operation of its business. Except as set forth
in Schedule 4.35, the coverage under all policies listed in Schedule 4.35 shall
continue in full force and effect after the Closing Date with respect to
occurrences prior to the Closing Date. Also set forth in Schedule 4.35 is a
summary description of all claims made with respect to each Seller's workers'
compensation insurance during each of the past five years.
Section 4.36 Backlog. The approximate aggregate backlog of sales of
--------
products and services of each Seller as of April 30, 1996 is set forth on
Schedule 4.36.
In order to induce Buyer to enter into this Agreement and purchase
the Purchased Assets and assume the Assumed Liabilities hereunder, each of
Stanley and Lee hereby severally represents and warrants to Buyer as follows:
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Section 4.37 Familiarity with Business; Access to Information.
-------------------------------------------------
Stanley is a director and executive officer of each of the Sellers and Lee is a
director and executive employee of PDL and, as such, each has personal knowledge
of and familiarity with the business being acquired by Buyer hereunder. In
addition, Buyer has made available to each of Stanley and Lee, during the course
of this transaction and prior to the issuance of the Holdings' Stock and
Holdings' Options being issued pursuant to this Agreement, the opportunity to
ask questions of and receive answers from representatives of Buyer concerning
the terms and conditions of the offering of such securities, and to obtain any
additional information necessary to verify the information relative to the
financial data and business of the Buyer to the extent that such parties
possessed such information or could acquire it without unreasonable effort or
expense.
Section 4.38 No Registration. Each of Stanley and Lee understands
----------------
that (i) he must bear the economic risk of his investment in the Buyer for an
indefinite period of time; (ii) the Holdings' Stock and Holdings' Options being
issued pursuant to this Agreement has not been registered under the Securities
Act of 1933, as amended ("1933 Act"), and, therefore, cannot be resold until
they are subsequently registered under the 1933 Act or unless an exemption from
such registration is available; (iii) he is purchasing such securities for
investment purposes only and for his own account and not with any view toward
the resale or other distribution thereof; (iv) Buyer does not have any present
intention of registering such securities under the 1933 Act or of supplying the
information which may be necessary to enable Stanley or Lee to sell any such
securities; and (v) Rule 144 under the 1933 Act may not be available as a basis
for exemption from registration of any such securities.
Section 4.39 Accredited Investor; Knowledge and Experience. Each of
----------------------------------------------
Stanley and Lee is an "accredited investor" within the meaning of the 1933 Act.
In addition, the knowledge and experience of each of Stanley and Lee in
financial and business matters, and his employment history with the Sellers, are
such that he (i) is capable of evaluating the risks of making his investment as
contemplated herein and has evaluated such risks; (ii) has determined that the
Holdings' Stock and Holdings' Options being issued pursuant to this Agreement
are a suitable investment for him and (iii) is familiar with the business to be
conducted by Buyer and the industry in which such business is conducted.
Section 4.40 Investment Risk. Each of Stanley and Lee is aware and
----------------
understands that (i) Buyer is a newly formed corporation with no financial or
operating history and was formed to purchase the assets and assume certain of
the liabilities of the Sellers; (ii) the Holdings' Stock and Holdings' Options
being issued pursuant to this Agreement is a speculative investment which
involves a high degree of risk of loss by each of Stanley and Lee of his entire
investment in the Buyer; (iii) there are substantial restrictions on the
transferability of such securities and neither Stanley or Lee have, nor will he
have, any rights to require that such securities be registered under the 1933
Act; and (iv) it never has been represented, guaranteed, or warranted to either
Stanley or Lee by any officer, director, shareholder, or employee of the Buyer,
or any agent or representative thereof, or any other Person, expressly or by
implication, as to: (A) the approximate or exact length of time that he will be
required to remain as owner of his Holdings'
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Stock or Holdings' Options; or (B) the amount of or type of consideration,
profit or loss to be realized, if any, by the Buyer.
Section 4.41 Residency. (a) Stanley is a resident of, and first
----------
learned of this investment in, the State of Florida, and intends that the
securities laws of that state shall govern this transaction.
(b) Lee is a resident of, and first learned of this investment in,
the Commonwealth of Massachusetts, and intends that the securities laws of that
state shall govern this transaction.
Section 4.42 Reliance on Representations. Each of Stanley and Lee
----------------------------
has full knowledge and is aware that Buyer intends to rely on the
representations and warranties made by Stanley and Lee herein for the purposes
of issuing and selling to him the Holdings' Stock and Holdings' Options being
issued pursuant to this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer hereby make the following representations and warranties to
the Sellers and the Shareholders:
Section 5.1 Organization of Buyer. Each of Buyer and Holdings (a) is
----------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, (b) has all corporate power and
authority and all governmental licenses, permits, authorizations, consents and
approvals to own and lease its properties and assets and to carry on its
business as presently conducted, and (c) is qualified as a foreign corporation
to do business and is in good standing under the laws of each jurisdiction in
which the conduct of its business or where the ownership or leasing of such
properties or assets requires such qualification, except for such jurisdictions
in which the failure to be so qualified would not reasonably be expected to have
a Material Adverse Effect.
Section 5.2 Authorization. Buyer has full corporate power and
--------------
authority and all approvals required by applicable Laws to enter into this
Agreement and the Related Agreements, to issue the Promissory Notes, to
consummate the transactions contemplated hereby and thereby, and to perform its
obligations hereunder and thereunder. Holdings has full corporate power and
authority to issue the Holdings' Stock and Holdings' Options. The execution,
delivery and performance of this Agreement and the Related Agreements, the
issuance of the Promissory Notes and of the Holdings' Stock and Holdings'
Options, and the consummation of the transactions contemplated hereby and
thereby by Buyer and Holdings (as applicable) have been duly (or will be as of
the date of its execution with regard to any of the Related Agreements to be
executed following the date hereof) authorized by all requisite corporate action
on the part of Buyer and Holdings (as applicable). This Agreement has been duly
executed and delivered by Buyer and, on the Closing Date, the Promissory Notes
and the Related Agreements will have been duly executed and delivered by Buyer.
This Agreement is, and on the Closing Date the
39
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Promissory Notes and the Related Agreements will be, valid and binding
obligations of Buyer, enforceable against it in accordance with their respective
terms.
Section 5.3 No Breach or Violation. Buyer's execution and delivery
-----------------------
of this Agreement and the Related Agreements, its issuance of the Promissory
Notes and its compliance with and fulfillment of the terms of this Agreement,
the Promissory Notes and the Related Agreements, and its consummation of the
other transactions contemplated hereby and thereby, and Holdings issuance of the
Holdings' Stock and Holdings' Options, do not and will not, with notice or
passage of time or both, after giving effect to consents described on Schedule
5.5 attached hereto which are obtained prior to Closing, (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any Lien upon the capital stock
or assets, properties or rights of Buyer pursuant to, (iv) give any Person the
right to accelerate any obligation under, or (v) result in a violation of, (a)
any Law, (b) the corporate charter of Buyer or Holdings, (c) any franchise,
permit, license, authorization, concession, order, judgment, writ, injunction or
decree to which Buyer or Holdings is subject, or by which any of its assets,
properties or rights are bound, or (d) any lease, mortgage, indenture, deed of
trust, trust agreement, note agreement or other agreement or instrument to which
Buyer or Holdings is subject, or by which any of its assets, properties or
rights are bound.
Section 5.4 Litigation. There is no suit, claim, action, proceeding
-----------
or investigation pending or, to the knowledge of Buyer, threatened against or
affecting the Buyer or Holdings or the consummation by Buyer or Holdings of the
transactions contemplated hereby or by the Related Agreements, at law or in
equity or before any governmental authority or instrumentality or before any
arbitrator of any kind. Neither Buyer nor Holdings is a party to or subject to
any judgment, writ, injunction, order or decree.
Section 5.5 Consents and Approvals. Except as set forth on Schedule
-----------------------
5.5 hereto, no consent, approval, exemption, audit, waiver, order or
authorization of, or declaration, qualification, designation, notice, filing or
registration with, any governmental or regulatory authority (foreign or
domestic) or any other Person, is required on the part of the Buyer or Holdings
in connection with the execution, delivery and performance of this Agreement and
the Related Agreements, the issuance of the Promissory Notes, the Holdings
'Stock and Holdings' Options, or the consummation of the transactions
contemplated hereby and thereby.
Section 5.6 Brokers' Fees. Neither the Buyer nor Holdings nor anyone
--------------
acting on their behalf has retained any broker, finder or agent or agreed to pay
any brokerage fees, finder's fee or commission with respect to the acquisition
contemplated by this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS TO CLOSING
--------------------------------
Section 6.1 Restrictions on Operations Prior to Closing. Following
--------------------------------------------
execution hereof and prior to the Closing Date, each Seller agrees to conduct
its operations in the ordinary and usual
40
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course of business as heretofore conducted by such Seller, and to use its best
efforts to preserve for Buyer the present business organization, officers and
employees and relationships with distributors, wholesalers and other customers,
suppliers and others having business relations with such Seller. Each Seller
will at all times maintain inventory, quantities of raw materials,
work-in-process, finished goods and other supplies and materials sufficient to
allow the Buyer to continue to operate such Seller's business after the Closing
Date consistent with such Seller's past practices and free from any shortage of
such items. Without limiting the generality of the foregoing, without the prior
written consent of Buyer, neither Seller will at any time on or after the date
hereof and at or prior to the Closing:
(i) Incur any indebtedness for borrowed money or increase the
outstanding principal amount of any Funded Indebtedness, other than
advances for working capital purposes under a line of credit
available to such Seller prior to the date hereof and which has been
disclosed to Buyer as set forth herein;
(ii) Mortgage, pledge, hypothecate or grant or suffer any Lien on
any of the assets, properties or rights of such Seller, other than
Permitted Liens;
(iii) Enter into any Contract with any Shareholder or any
Affiliate of either Seller or of any Shareholder, or any Contract
affecting the assets, properties or rights of such Seller other than
in the ordinary course of its business;
(iv) Acquire, lease, license or agree to acquire, lease or license
any assets for use by such Seller, other than as required to fulfill
normal requirements for materials and equipment in the ordinary
course of its business, provided that from the date hereof to the
Closing Date, neither Seller shall make capital expenditures for
properties to be used by such Seller which exceed $10,000 for any
individual item or related group of items or $25,000 in the
aggregate;
(v) Sell, lease, license or otherwise dispose of, or agree to
sell, lease, license or otherwise dispose of, any assets used or
useful by such Seller, other than inventory in the ordinary course
of its business at prices consistent with past practice and without
unusual discount or terms and other than assets which are excess,
worn-out, in need of substantial repair, or obsolete and which do
not have a market value in excess of $10,000 in the aggregate for
all such assets of both Sellers;
(vi) Pay any bonus or other form of incentive compensation to any
Shareholder or increase in any manner the compensation, bonuses,
vacation policies or fringe benefit plans of officers or employees
of such Seller, except for (x) normal periodic increases in base
salaries or hourly wages for employees not to exceed 3% of current
base compensation and made pursuant to established compensation
policies applied on a basis consistent with that of prior years, or
(y) other increases specifically disclosed to and approved by Buyer,
or commit to any new employment, deferred compensation or severance
agreement or arrangement or any collective bargaining agreement with
any such officer, employee or group of employees;
41
<PAGE>
(vii) Fail to use its best efforts to keep such Seller's business
intact, to keep in faithful service the present officers and
employees of such Seller and to preserve the good will of its
suppliers and its distributors, wholesalers and other customers and
others having business relations with it;
(viii) Consolidate or merge with any other Person or acquire all
or substantially all of the business or assets of any other Person;
(ix) Amend or modify any Contract required to be described in any
Schedule attached to this Agreement, other than in the ordinary
course of its business and only so long as after giving effect to
such amendment or modification, the obligations of such Seller
thereunder shall not have been increased or enlarged in any material
respect;
(x) Allow to lapse any policy of insurance insuring the products,
properties, employees, assets or operations of its business;
(xi) Take any other action which may result in a Material Adverse
Effect on its business or the prospects or financial condition of
such Seller;
(xii) Manage its working capital other than in the ordinary course
of business including, without limitation, making any change in its
levels of inventory, making any change in its practice of collecting
accounts receivable or making any change in its practice of making
payment upon accounts payable;
(xiii) Purchase, redeem or otherwise acquire any shares of either
Seller's capital stock, or declare, set aside or pay any dividend or
make any distribution in respect of any such shares (other than
distributions in cash to the Shareholders for the sole purpose of
enabling such Shareholders to pay the amount of their respective
estimated federal and state income tax liabilities applicable to
their respective distribution share of each Seller's income as such
estimated liabilities come due); or
(xiv) Enter into any agreement of the types described in Section
4.9 or make or perform, or suffer or permit to occur, any of the
acts described in Section 4.12, except as provided in such Sections
or as permitted hereby.
Each Seller agrees to (i) maintain and keep its plant and equipment
of such Seller in substantially as good repair, working order and condition as
at the date of this Agreement, except for ordinary wear and tear, and replace,
in accordance with past practice, any inoperable, worn-out, obsolete or
destroyed assets which are intended to constitute Purchased Assets, or, in the
event of casualty loss to any of such assets, to the extent permitted under
applicable contracts or leases, transfer the insurance proceeds, or the rights
thereto, to Buyer at the Closing, but only if and so long as Buyer shall have
consented thereto in writing; (ii) make timely payments on its accounts payable
and other current obligations such Seller in accordance with past practice; and
(iii) timely perform its obligations under all Contracts and enforce
substantially all of its rights
42
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with respect thereto in accordance with past practices, and maintain all
franchises, licenses, permits, concessions and other authorizations of such
Seller in full force and effect.
Section 6.2 Best Efforts to Consummate Transaction. Each Seller,
---------------------------------------
each Shareholder and Buyer shall use their respective best efforts to cause the
Closing to take place as promptly as practicable, including taking such action
as is necessary to satisfy all conditions to Closing.
Section 6.3 No Solicitation. Neither of the Sellers nor any of the
----------------
Shareholders nor any of their respective Affiliates shall, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of proposals or offers from any Person relating to
any acquisition or purchase of either Seller, or all or a substantial portion of
the assets of either Seller, or any equity interest in either Seller, or any
business combination of either Seller, or participate in any negotiations
regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. Each Seller and/or each of the Shareholders shall promptly notify the
Buyer if any such proposal or offer, or any inquiry or contact with any Person
with respect thereto, is made.
Section 6.4 Consents. Each Seller and each of the Shareholders shall
---------
use their respective best efforts to obtain any consents or approvals of any
Person, and to give all notices and make all filings with any Person, and to
apply for the transfer to Buyer by applicable governmental authorities of all
licenses, permits, consents, concessions and other authorizations to be
transferred to Buyer hereunder, and to assist the Buyer in obtaining the
issuance by applicable governmental authorities of all licenses, permits,
consents, concessions and other authorizations to be issued to Buyer hereunder,
to the extent any of the same are necessary or advisable for the authorization,
execution, delivery and performance of this Agreement and the Related Agreements
and the consummation of the transactions contemplated hereby and thereby;
provided, however, that no such consent or approval, nor any such governmental
license, permit, consent, concession or other authorization obtained or the
transfer of which is attempted by such Seller, shall increase in any manner the
obligations of Buyer with respect to any of the Assumed Liabilities following
the Closing, unless Buyer shall have consented thereto in writing. Each Seller
shall be responsible for all costs and expenses incurred in order to obtain such
consents and approvals and to effect the transfer or issuance to Buyer of all
such licenses, permits, consents, concessions and other authorizations.
Section 6.5 Employees. Neither of the Sellers nor any Shareholder
----------
shall take any action to induce any employee of such Seller whom Buyer is
seeking to employ to enter into the employ of or remain employed by either
Seller or any Affiliate of either Seller following the Closing Date.
Section 6.6 Reporting Obligations. Each Seller shall promptly
----------------------
disclose to Buyer from time to time any information which after the date hereof
would cause such Seller's representations and warranties contained herein to be
false, misleading or incomplete in any material respect as at any date from the
date hereof until the Closing Date; provided, however, that none of such
subsequent disclosures shall be deemed to modify, amend or supplement the
43
<PAGE>
representations and warranties of Sellers or the Schedules hereto for the
purposes of Articles VIII and X hereof, unless Buyer shall have consented
thereto in writing.
Section 6.7 Publicity. Except as required by applicable Law, until
----------
the Closing, neither of the Sellers, nor Buyer, nor any of the Shareholders
shall give notice to third parties or otherwise make any public statement or
releases concerning this Agreement or the transactions contemplated hereby
except for such written information as shall have been approved in writing as to
form and content by Buyer and Sellers, which approval shall not be unreasonably
withheld or delayed; provided, however, that Buyer may disclose such information
to its potential equity and debt financing sources, accountants, attorneys and
other advisors in connection with the transactions contemplated hereby and the
Sellers and Shareholders may disclose such information to their accountants,
attorneys and other advisors in connection with such transactions.
Section 6.8 Related Agreements. Each Seller, the Buyer and each
-------------------
Shareholder, as applicable, shall execute and deliver, or cause to be executed
and delivered, as the case may be, the following agreements on or prior to the
Closing Date: (a) each of Stanley and Lee on the one hand, and Buyer on the
other hand, shall execute and deliver an Employment Agreement substantially in
the form attached hereto as Exhibit 6.8(a) (the "Employment Agreement"); (b)
each of the Sellers, Miller and Buyer shall execute and deliver the Non-Compete
Agreement substantially in the form attached hereto as Exhibit 6.8(b) (the
"Non-Compete Agreement"); and (c) each of Holdings, Security Capital
Corporation, Stanley and Lee shall execute and deliver the Stockholders'
Agreement substantially in the form attached hereto as Exhibit 6.8(c), subject
to such changes therein as may be required by Buyer's financing sources (the
"Stockholders' Agreement").
Section 6.9 Financial Reports. Within ten (10) days after the end of
------------------
each calendar month, commencing with the month ending April 30, 1996, the
Sellers will deliver to Buyer unaudited combined balance sheets and related
combined statements of income and cash flow of Sellers as of the end of each
such month, which financial statements shall (i) be complete and correct in all
material respects, (ii) be prepared on a basis consistent with the historical
practices of the Sellers, and (iii) present fairly in all material respects the
financial position of Sellers at the dates thereof and the combined results of
operations and cash flows of Sellers for the periods indicated therein, subject
to year-end audit adjustments.
Section 6.10 Profit Sharing Plan. Sellers shall cause the
--------------------
termination of the Profit Sharing Plan, effective on or prior to the Closing
Date, such termination (and distributions of accounts upon termination of the
Profit Sharing Plan) to satisfy all applicable requirements of the Code and
ERISA, including (without limitation) the requirements of Sections 401(a),
401(k) and 411(d) of the Code.
ARTICLE VII
INVESTIGATION BY BUYER
----------------------
44
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Section 7.1 Access to Records. Each Seller shall give to Buyer and
------------------
Buyer's officers, employees, counsel, accountants, lender's (and lender's
counsel) and other representatives free and full access to and the right to
inspect, during normal business hours, all of the premises, properties, assets,
records, contracts and other documents relating to its business and shall permit
each of them to consult with the officers, employees, accountants, dealers,
counsel and agents of such Seller for the purpose of making such investigation
of its business as Buyer shall desire to make, provided that such investigation
shall not unreasonably interfere with such Seller's business operations.
Furthermore, each Seller shall furnish to Buyer all such documents and copies of
documents and records and information with respect to the affairs of such Seller
and copies of any working papers relating thereto as Buyer shall from time to
time reasonably request and shall permit Buyer and its agents to make such
physical inventories and inspections of the Purchased Assets as Buyer may
reasonably request from time to time. Each Seller will also provide Buyer with
such information and records regarding claims pending under such Seller's
insurance policies with respect to the Purchased Assets and the operations of
its business as Buyer may reasonably request from time to time, and agrees to
provide to Buyer any additional or supplemental information and records it might
have regarding such claims.
Section 7.2 Confidentiality. Unless and until the Closing has been
----------------
consummated, Buyer and each Seller will hold, and shall cause their respective
counsel, accountants, appraisers and investment bankers to hold in confidence
any confidential data or information made available to such party by another
party using the same standard of care to protect such confidential data or
information as is used to protect the recipient's own confidential information.
If the transactions contemplated by this Agreement are not consummated, Buyer
and each Seller agrees that it shall return or cause to be returned to the
providing party all written materials and all copies thereof that were supplied
to the recipient and that contain any such confidential data or information.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------
All obligations of Buyer under this Agreement, except those obligations
which are to be performed prior to the Closing Date, are subject to the
fulfillment or satisfaction (or waiver in whole by the Buyer in writing) on or
before the Closing Date (or such sooner date as may be specified), of each of
the following conditions:
Section 8.1 Correctness of Representations and Warranties. Each of
----------------------------------------------
the representations and warranties of the Sellers and the Shareholders contained
herein and in the certificates and other documents delivered to Buyer pursuant
hereto shall have been true and correct on the date hereof, and as of the
Closing Date shall be true and correct in all material respects with same effect
as though made on and as of the Closing Date, except to the extent that such
representations and warranties were made as of a specified date (and as to such
representations and warranties the same shall have been true and correct as of
such specified date and as of the Closing Date shall continue to be true and
correct in all material respects).
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<PAGE>
Section 8.2 No Adverse Change in Business or Properties. No material
--------------------------------------------
adverse change in the business, operations, assets, prospects, properties or
financial condition of either Seller shall have occurred since December 31,
1995.
Section 8.3 Compliance with Agreement. Each of the Sellers and each
--------------------------
of the Shareholders shall have performed and complied with all of their
respective obligations under this Agreement required to be performed or complied
with on or prior to the Closing Date.
Section 8.4 Certificate of Seller. Each Seller shall have delivered
----------------------
to the Buyer a certificate of its President, dated the Closing Date, certifying,
in such form as the Buyer may reasonably request, as to the fulfillment of the
conditions set forth in Section 8.1, 8.2 and, with respect to such Seller's
obligations only, 8.3 above.
Section 8.5 Opinion of Counsel. The Buyer shall have received from
-------------------
James P. Redding & Associates, counsel to the Sellers, an opinion of such
counsel, dated as of the Closing Date, substantially in the form attached hereto
as Exhibit 8.5.
Section 8.6 Absence of Litigation. No suit, action, investigation,
----------------------
inquiry or other proceeding shall be pending before any court or governmental or
regulatory authority to restrain or prohibit, or to obtain damages or other
relief in connection with, or to question the validity or legality of, this
Agreement or the consummation of the transactions contemplated hereby, or to
restrict or impair the ability of the Buyer to operate the business being
acquired from the Sellers.
Section 8.7 Consents. All consents, approvals and waivers of
---------
governmental authorities and of other Persons which are required in connection
with the transfer of the Purchased Assets to the Buyer and the continued
operation by Buyer of the business being acquired from the Sellers as presently
conducted shall have been obtained, and any applicable waiting periods imposed
by such governmental authorities shall have expired.
Section 8.8 Licenses, etc. All licenses, permits, consents,
--------------
concessions and other authorizations of governmental, regulatory or
administrative agencies or authorities to be transferred by Sellers as described
on Schedule 4.18 shall have been duly transferred or issued to Buyer, all on
terms which impose no greater economic hardship on Buyer than those which
existed or would have been imposed upon Sellers but for such transfer or
issuance.
Section 8.9 Affiliate Accounts. All receivables due to or from any
-------------------
Shareholder or any Affiliate of a Seller or of any Shareholder (other than
amounts due to one or more Shareholders constituting a portion of Funded
Indebtedness which shall be paid out of the Debt Pay-off) shall have been
settled or forgiven so as to be eliminated from the Closing Balance Sheet.
Section 8.10 Transferred Employees. Substantially all of the
----------------------
employees of the Sellers to whom Buyer shall have offered employment shall have
accepted such offers, it being understood that as of the date hereof it is
Buyer's present intention to offer employment to substantially all employees of
each Seller.
46
<PAGE>
Section 8.11 Environmental Audit. Buyer shall have received an
--------------------
environmental audit (or update of an existing audit, as Buyer may elect) of the
properties and operations of the Sellers satisfactory in all respects to Buyer,
conducted by an independent environmental consulting firm selected and engaged
by Buyer. Buyer acknowledges that a satisfactory environmental audit has been
received and that, as of the date hereof, this condition is deemed satisfied.
Section 8.12 Proceedings and Documents. All corporate and other
--------------------------
proceedings taken by each Seller in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Buyer and its counsel.
Section 8.13 Good Standing. Each Seller shall have delivered to
--------------
Buyer corporate and tax good standing certificates from the jurisdiction of its
incorporation and those jurisdictions in which it is qualified to do business.
Such certificates shall be dated a date not more than fifteen (15) days prior to
the Closing Date.
Section 8.14 Financing. Buyer shall have arranged financing on terms
----------
reasonably satisfactory to Buyer in an amount sufficient to consummate the
transactions contemplated hereby (including, but not limited to, those funds
required for the payment by Buyer of its expenses associated herewith) and to
provide reasonable levels of working capital for Buyer following the Closing
Date (the "Financing"), and the proceeds of such Financing shall be made
available to Buyer on the Closing Date.
Section 8.15 Stockholders Agreement. Stanley and Lee shall have
-----------------------
subscribed for the purchase of Holdings' Stock and shall have entered into the
Stockholders' Agreement with Holdings and the other stockholders of Holdings as
of the Closing Date.
Section 8.16 Non-Compete Agreement. Buyer, each Seller and Miller
----------------------
shall have executed and delivered the Non-Compete Agreement in accordance with
Section 6.8 hereof.
Section 8.17 Employment Agreements. Buyer and each of Stanley and
----------------------
Lee shall have executed and delivered their Employment Agreement in accordance
with Section 6.8 hereof.
Section 8.18 Real Estate Documents. Sellers shall have delivered to
----------------------
Buyer (i) certificates of zoning compliance with respect to all of the Real
Estate, issued by the appropriate municipal authorities, or if no certificate of
zoning compliance is generally issued by a municipality in which some or all of
the Real Estate is located, a legal opinion or other evidence reasonably
acceptable to the Buyer that the Real Estate is in compliance with all
applicable zoning and other land use requirements, (ii) evidence, issued by an
appropriate governmental authority, that no part of the Real Estate is located
within, or abuts any flood plain or other body of water or other area which is
subject to special state, federal or municipal regulation, control or
protection, and (iii) a complete set of surveys, plans and specifications of the
Real Estate and improvements thereon in Sellers' possession, including any
as-built surveys. In addition, Buyer shall have obtained, at its expense, a
title insurance policy covering the Real Estate issued by a title insurance
company selected by the Buyer at such company's regular rates, as more fully
described in Section 4.15(a) hereof.
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Section 8.19 Pay-off of Funded Indebtedness. Sellers shall have
-------------------------------
delivered to Buyer pay-off letters from each Debtholder in forms acceptable to
Buyer, together with evidence of Sellers' full payment of any and all
indebtedness in excess of the maximum permitted amount of Funded Indebtedness
and any and all other indebtedness of Sellers' for borrowed money and any and
all accrued interest, fees, expenses and other charges payable in connection
with the Funded Indebtedness and such other indebtedness as of the Closing Date,
accompanied by instructions of Sellers authorizing Buyer to prepay all such
Funded Indebtedness out of the Debt Pay-off and by such liens releases, mortgage
discharges and other instruments of termination as may be necessary in order to
release all Liens securing any such indebtedness.
Section 8.20 Termination of Profit Sharing Plan. Sellers shall have
-----------------------------------
delivered to Buyer evidence reasonably satisfactory to Buyer of Sellers'
termination of the Profit Sharing Plan effective on or prior to the Closing
Date.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
--------------------------------------------
All obligations of the Sellers under this Agreement, except those
obligations which are to be performed prior to the Closing Date, are subject to
fulfillment (or waiver in whole by the Sellers in writing) on or before the
Closing Date (or such sooner date as may be specified) of each of the following
conditions:
Section 9.1 Correctness of Representations and Warranties. Each of
----------------------------------------------
the representations and warranties of the Buyer contained herein and in the
certificates and other documents delivered to Sellers pursuant hereto shall have
been true and correct on the date hereof, and as of the Closing Date shall be
true and correct in all material respects with same effect as though made on and
as of the Closing Date, except to the extent that such representations and
warranties were made as of a specified date (and as to such representations and
warranties the same shall have been true and correct as of such specified date
and as of the Closing Date shall continue to be true and correct in all material
respects).
Section 9.2 Compliance with Agreement. Buyer shall have performed
--------------------------
and complied with all of its obligations under this Agreement required to be
performed or complied with on or prior to the Closing Date.
Section 9.3 Certificate of Buyer. The Buyer shall have delivered to
---------------------
the Sellers a certificate of the President or a Vice President of the Buyer,
dated the Closing Date, certifying, in such form as the Sellers may reasonably
request, as to the fulfillment of the conditions set forth in Section 9.1 and
9.2 above.
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<PAGE>
Section 9.4 Opinion of Counsel. The Seller shall have received from
-------------------
Edwards & Angell, counsel to the Buyer, an opinion of such counsel, dated as of
the Closing Date, substantially in the form attached hereto as Exhibit 9.4.
Section 9.5 Absence of Litigation. No suit, action, investigation,
----------------------
inquiry or other proceeding shall be pending before any court or governmental,
or regulatory authority to restrain or prohibit, or to obtain damages or other
relief in connection with, or question the validity or legality of, this
Agreement or the consummation of the transactions contemplated hereby.
Section 9.6 Proceedings and Documents. All corporate and other
--------------------------
proceedings taken by the Buyer in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to the Sellers and their counsel.
Section 9.7 Letters of Credit. Buyer shall have cash collateralized
------------------
the Letters of Credit and made arrangements with the issuers and beneficiaries
thereof to substitute and cancel the Letters of Credit following the Closing.
ARTICLE X
INDEMNIFICATION
---------------
Section 10.1 By Seller. From and after the Closing, subject to
----------
limitations of Section 10.7 hereof, each of the Sellers jointly and severally,
and each Shareholder severally, will reimburse, indemnify and hold harmless
Buyer and its successors and assigns, and any partner, employee or officer
thereof (an "Indemnified Buyer Party") against and in respect of (referred to
herein as the "Claims"):
(a) any and all damages, losses, claims, deficiencies, liabilities,
costs and expenses (including, but not limited to, any interest,
penalties, fines, reasonable attorneys' fees and costs and expenses
incurred in the investigation, defense or settlement of any claims
of an Indemnified Buyer Party covered by this Article X) incurred or
suffered by any Indemnified Buyer Party that result from, relate to
or arise out of:
(i) any and all liabilities and obligations
of either Seller of any nature whatsoever (including,
but not limited to, the Non-Assumed Liabilities), except
for those liabilities and obligations of Sellers which
Buyer specifically assumes pursuant to Section 2.2 of
this Agreement;
(ii) any misrepresentation or breach of
warranty in, or omission from any representation or
warranty under this Agreement or any certificate,
schedule, statement, document or instrument furnished to
Buyer pursuant hereto or in connection with the
negotiation, execution or performance of this Agreement;
49
<PAGE>
(iii) any breach or nonfulfillment of any
agreement or covenant (including, but not limited to,
those covenants of Sellers and the Shareholders
contained in Article XI hereof) on the part of the
Sellers or any Shareholder under this Agreement to be
performed following the Closing Date; or
(iv) without limiting any of the foregoing
indemnification provisions set forth herein, (a) any
misrepresentation or breach of warranty in, or omission
from any representation or warranty under, Section 4.19
of this Agreement, and (b) any and all liabilities and
obligations relating to the operations of the Sellers or
the condition of any properties now or formerly used by
either Seller, and which relate to (i) any Hazardous
Materials, wherever located, which were allegedly
generated, released, discharged, transported, stored,
treated, disposed of or otherwise handled by such Seller
prior to the Closing Date (including, without
limitation, Sellers' disposal of isopropyl alcohol into
the septic system serving the Real Estate); (ii) any
illness, disability, injury or death of any Person,
including without limitation any employee or former
employee of such Seller in any way arising out of or
allegedly arising out of exposure to substances produced
by or utilized in its business prior to the Closing
Date, regardless of when any such illness, disability,
injury or death shall have occurred or been incurred or
manifested itself and (iii) any claims, actions,
lawsuits, litigation, proceedings, investigations,
penalties, or fines pending or threatened before any
governmental or regulatory authority relating to any of
such properties now or formerly used by such Seller (it
being understood that any such liabilities and
obligations indemnified under this paragraph (iv) shall
include costs of any work, repairs, construction,
alterations, installation, capital expenditures or other
remedial work of any nature whatsoever to be made or
performed after the Closing Date, with respect to any of
such operations of such Seller or any such conditions of
any properties now or formerly used by such Seller); and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable
legal fees and disbursements) incident to any of the foregoing or to
the enforcement of this Section 10.1.
Section 10.2 By Buyer. From and after the Closing, subject to the
---------
limitations of Section 10.8 hereof, Buyer will reimburse, indemnify and hold
harmless each Seller and each Shareholder and their respective successors or
assigns (an "Indemnified Seller Party") against and in respect of:
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(a) any and all damages, losses, claims, deficiencies,
liabilities, costs and expenses (including, but not limited to, any
interest, penalties, fines, reasonable attorneys' fees and costs and
expenses incurred in the investigation, defense or settlement of any
claims of an Indemnified Seller Party covered by this Article X)
incurred or suffered by any Indemnified Seller Party that result
from, relate to or arise out of:
(i) any and all liabilities and obligations
of either Seller which have been specifically assumed by
Buyer pursuant to Section 2.2 of this Agreement;
(ii) any misrepresentation or breach of
warranty in or omission from any representation or
warranty under this Agreement or any certificate,
schedule, statement, document or instrument furnished to
either Seller pursuant hereto or in connection with the
negotiation, execution or performance of this Agreement;
or
(iii) any breach or non-fulfillment of any
agreement or covenant (including, but not limited to,
those covenants of Buyer contained in Article XI hereof)
on the part of the Buyer under this Agreement to be
performed following the Closing Date; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable
legal fees and disbursements) incident to any of the foregoing or to
the enforcement of this Section 10.2.
Section 10.3 Notice of Claims; Defense of Third Party Claims. A
------------------------------------------------
party claiming indemnification under this Article X (the "Asserting Party") must
promptly notify (in writing and in reasonable detail) the party from whom
indemnification is sought (the "Defending Party") of the nature and basis of
such claim for indemnification. If such claim relates to a claim, suit,
litigation or other action by a third party against the Asserting Party or any
fixed or contingent liability to a third party (a "Third Party Claim"), the
Defending Party may elect to assume and control the defense of the Third Party
Claim at its own expense with counsel selected by the Defending Party. The
Defending Party may not control the defense if the named parties to the Third
Party Claim (including any impleaded parties) include both the Defending Party
and the Asserting Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them, in which case the Asserting Party shall have the right to join in the
defense of the Third Party Claim and to employ counsel reasonably approved by
the Defending Party at the expense of the Defending Party. If the Defending
Party assumes the defense of the Third Party Claim and is entitled to control
the defense thereof pursuant to the foregoing, the Defending Party shall not be
liable for any fees and expenses of counsel for the Asserting Party incurred
thereafter in connection with the Third Party Claim (except in the case of
actual or potential differing interests, as provided in the preceding sentence).
If the Defending Party does not assume the defense of the Third Party Claim, the
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Asserting Party shall have the right to assume the defense of and, if such
Asserting Party shall have notified the Defending Party of the Asserting Party's
intention to negotiate a settlement of the Third Party Claim (at the Defending
Party's expense), to settle, the Third Party Claim (at the Defending Party's
expense), unless the Defending Party shall have notified the Asserting Party in
writing of the Defending Party's election to assume (at its expense) the defense
of the Third Party Claim within ten days after receipt of such notice of
intention to settle, and the Defending Party promptly thereafter shall have
taken appropriate action to implement such defense. The Asserting Party and the
Defending Party shall use all reasonable efforts to cooperate fully with respect
to the defense of any Third Party Claim covered by this Article X.
Section 10.4 Set-off. (a) In addition to any other available
--------
remedies, Buyer shall have the right, notwithstanding any other rights it might
have against any other Person, to set-off any unpaid indemnification obligation
to which it is entitled under this Agreement against any amounts owed by it to
Sellers under any of the Promissory Notes or otherwise under this Agreement.
(b) Buyer shall be obligated first to apply by way of set-off any
Claim of a Buyer Indemnified Party hereunder against unpaid interest on the
Promissory Notes accrued to the date of demand for payment of such Claim, before
the Sellers or Shareholders shall have any obligation to fund their indemnity
obligations hereunder in cash. Buyer shall have no obligation to apply by way of
set-off any such Claim against all or any part of the principal amount of the
Promissory Notes.
Section 10.5 Other Rights and Remedies Not Affected. The
---------------------------------------
indemnification rights of the parties under this Article X are independent of
and in addition to such rights and remedies as the parties may have at law or in
equity or otherwise for any misrepresentation, breach of warranty or failure to
fulfill any agreement or covenant hereunder on the part of any party hereto,
including without limitation the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
hereby.
Section 10.6 Survival. (a) All agreements and covenants contained in
---------
this Agreement (including, but not limited to, the indemnification provisions
contained in this Article X) shall survive the Closing unless and until such
provisions expire as expressly set forth herein.
(b) All representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement (including the indemnities
contained in this Article X which specifically relate thereto) shall survive the
Closing until the expiration of the periods described below, and may survive
thereafter, to the extent a claim is made prior to such expiration with respect
to any breach of such representation, warranty or indemnity, until such claim is
finally determined or settled:
(x) with respect to matters of title to the Purchased
Assets and matters contemplated by Section 4.25 hereof, and with
respect to indemnities contemplated by Section 10.1(a)(i) and (iii)
hereof and Section 10.2(a)(i) and (iii), for an indefinite period;
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(y) with respect to matters contemplated by Sections
4.19 and to the indemnities contemplated by Section 10.1(a)(iv)
hereof, for a period ending on the fifth anniversary of the Closing
Date; and
(z) for all other representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement,
and to the indemnities contemplated by Section 10.1(a)(ii) and
Section 10.2(a)(ii) hereof, for a period ending on the third
anniversary of the Closing Date.
(c) Notwithstanding any investigation or audit conducted before or
after the Closing Date or the decision of any party to complete the Closing,
each party shall be entitled to rely upon the representations and warranties set
forth herein and therein.
Section 10.7 Limitations on Indemnified Buyer Parties Right to
-------------------------------------------------
Indemnification. (a) In the absence of fraud, the maximum liability of the
- ----------------
Sellers and the Shareholders to indemnify the Indemnified Buyer Parties for any
Claims by such Persons pursuant to Section 10.1 hereof (other than with respect
to Non-Assumed Liability Claims and Environmental Claims which shall have no
maximum) shall be limited to an aggregate amount equal to the Purchase Price.
(b) The Indemnified Buyer Parties shall be entitled to seek
indemnification for Claims pursuant to Section 10.1(a) (ii) or (iii) hereof from
the Sellers and/or the Shareholders and claims for payment under Section 11.5
hereof only when the sum of the aggregate of all such Claims of any and all of
the Indemnified Buyer Parties pursuant thereto plus the aggregate amount of any
unpaid claim made by Buyer on account of the Receivables Guarantee, exceeds
$125,000 (the "Buyer's General Basket"), at which point each of the Sellers
jointly and severally, and each of the Shareholders severally, shall be liable
to the Indemnified Buyer Parties for all of such Claims to the extent in excess
of the Buyer's General Basket.
(c) With respect to any Claims by the Indemnified Buyer Parties on
account of the indemnities contemplated by Section 10.1(a)(i) hereof
("Non-Assumed Liability Claims"), each of the Sellers jointly and severally, and
each of the Shareholders severally, shall be liable to the Indemnified Buyer
Parties for all of such Claims from the first dollar.
(d) With respect to any Claims by the Indemnified Buyer Parties on
account of matters contemplated by Section 4.19 hereof or the indemnities
contemplated by Section 10.1(a)(iv) hereof ("Environmental Claims"), each of the
Sellers jointly and severally, and each of the Shareholders severally, shall be
liable to the Indemnified Buyer Parties for all of such Claims from the first
dollar.
(e) Notwithstanding anything to the contrary contained herein, no
trustee of any Shareholder who is a trust shall have any personal liability on
account of indemnification for Claims of Indemnified Buyer Parties hereunder,
with recourse for any such Claim against such trust limited to the assets held
by such trust and any income thereon and distributions therefrom.
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Section 10.8 Limitation on Indemnified Seller Parties' Right to
--------------------------------------------------
Indemnification.
- ----------------
(a) In the absence of fraud, the maximum liability of the Buyer to
indemnify the Indemnified Seller Parties for any Claims by such Persons pursuant
to Section 10.2 hereof (other than with respect to Assumed Liabilities which
shall have no maximum) shall be limited to an aggregate amount equal to the
Purchase Price.
(b) The Indemnified Seller Parties shall be entitled to seek
indemnification from Buyer for Claims pursuant to Section 10.2(a)(ii) or (iii)
hereof only when the aggregate of all such Claims of any and all of the
Indemnified Seller Parties pursuant thereto exceeds $125,000 (the "Sellers'
General Basket"), at which point the Buyer shall be liable to the Indemnified
Seller Parties for all of such Claims to the extent in excess of the Sellers'
General Basket.
(c) With respect any Claims by the Indemnified Seller Parties an
account of indemnities contemplated by Section 10.2(a)(i) hereof ("Assumed
Liability Indemnity Claims"), the Buyer shall be liable to the Indemnified
Seller Parties for all of such Claims from the first dollar.
Section 10.9 Compliance with Bulk Sales Laws. Buyer and Sellers
--------------------------------
hereby waive compliance by Sellers and Buyer with the bulk sales law and any
other similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement.
ARTICLE XI
POST CLOSING MATTERS
--------------------
Section 11.1 Payments Received; Insurance. (a) Sellers and Buyer
-----------------------------
each agree that after the Closing they will hold and will promptly transfer and
deliver to the other, from time to time as and when received by them, any cash,
checks with appropriate endorsements (using their best efforts not to convert
such checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other party, including without limitation
any insurance proceeds, and will account to the other for all such receipts.
From and after the Closing, Buyer shall have the right and authority to endorse
without recourse the name of either Seller on any check or any other evidences
of indebtedness received by Buyer on account of the Purchased Assets transferred
to Buyer hereunder.
(b) In the event that the Buyer shall become liable or suffer any
loss or damage with respect to any matter which was covered by insurance
maintained by the Sellers on or prior to the Closing Date, each Seller agrees
that the Buyer shall be and hereby is subrogated to any rights of such Seller
under such insurance coverage, and, in addition, that such Seller agrees to
promptly remit to Buyer any insurance proceeds which it may receive on account
of any such liability, loss or damage, except if and to the extent Buyer has
already received cash indemnity payments under Article X hereof on account of
such liability, loss or damage. Each Seller agrees that, upon request of Buyer,
such Seller will give prompt notice to its insurers of any and all such claims
presented by Buyer and covered by insurance maintained by such Seller on or
prior to the Closing Date, and will cooperate with Buyer and take all such other
action as may be reasonably required under such Seller's insurance policies to
provide Buyer with the benefits intended to be conferred hereby. In the event
Buyer receives any insurance proceeds on account of insurance maintained by such
Seller on or prior to the Closing Date with respect to any loss or damage
occurring prior to the
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Closing Date, and Buyer has theretofore received cash indemnity payments under
Article X hereof on account of such liability, loss or damage, Buyer shall
promptly remit to such Seller such portion of the insurance proceeds received by
Buyer as shall be equal to the cash indemnity payments so received (net of
Buyer's reasonable costs of collection on account of any such insurance
proceeds).
Section 11.2 Power of Attorney. Each Seller, effective as at the
------------------
Closing Date, hereby constitutes and appoints the Buyer, its successors and
assigns, the true and lawful attorney of such Seller in the name of the Buyer or
in the name of such Seller, but for the benefit of the Buyer, (i) to make
endorsements as contemplated by Section 11.1 hereof and to institute and
prosecute all proceedings which the Buyer may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to the Purchased
Assets as provided for in this Agreement; (ii) to defend or compromise any and
all actions, suits or proceedings in respect of any of the Purchased Assets, and
to do all such acts and things in relation thereto as the Buyer shall deem
advisable; and (iii) to take all action which the Buyer, its successors or
assigns, may reasonably deem proper in order to provide for the Buyer, its
successors or assigns, the benefits under any of the Purchased Assets where any
required consent of another party to the sale or assignment thereof to the Buyer
pursuant to this Agreement shall not have been obtained. Each Seller
acknowledges that the foregoing powers are coupled with an interest and shall be
irrevocable by the such Seller.
Section 11.3 Employee Benefits. Each Seller shall pay when due
------------------
directly to each of its employees that portion of benefits (including the bonus
arrangements, plans and programs set forth in Schedule 4.31) which has been
accrued on behalf of that employee (or is attributable to expenses properly
incurred by that employee) as of the Closing Date, and Buyer shall assume no
liability therefor. No portion of the assets of any plan, fund, program or
arrangement, written or unwritten, heretofore sponsored or maintained by either
Seller (and no amount attributable to any such plan, fund, program or
arrangement) shall be transferred to Buyer, and Buyer shall not be required to
continue any such plan, fund, program or arrangement. The amounts payable on
account of benefit arrangements shall be determined with reference to the date
of the event by reason of which such amounts become payable, without regard to
conditions subsequent, and Buyer shall not be liable for any claim for
insurance, reimbursement or other benefits payable by reason of any event which
occurs prior to the Closing Date or any condition or set of facts which exist as
of the Closing Date. All employees of each Seller who are employed by Buyer on
or after the Closing Date shall be new employees of Buyer and any prior
employment by such Seller of such employees shall not affect entitlement to, or
the amount of, salary or other cash compensation, current or deferred, or
benefits which Buyer may make available to its employees.
Section 11.4 Use of Name. From and after the Closing Date, each
------------
Seller will sign such consents and take such other action as Buyer shall
reasonably request in order to permit Buyer to use the names "Possible Dreams,
Ltd." and "Columbia National Corporation" and any similar
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<PAGE>
variants thereof. From and after the Closing Date, Sellers will not use
either such name or any names similar thereto or variants thereof.
Section 11.5 Uncollected Receivables. At the Closing, each Seller
------------------------
shall deliver to Buyer a schedule (in a form reasonably satisfactory to Buyer)
of all Purchased Receivables as of the Closing Date and the reserve for bad debt
in respect thereof consistent with the past practice of the Sellers. Buyer, at
its option, may deliver to Sellers a written statement setting forth the dollar
amount of any Purchased Receivables which (i) were not reserved for or written
down on the Closing Balance Sheet and (ii) have not been collected by the Buyer
in cash or by any credit reasonably satisfactory to Buyer within 365 days
following the Closing Date (the "Uncollected Receivables"). Subject to Section
10.7(b) hereof, within five (5) business days following delivery of such
statement to Sellers, Sellers shall pay to Buyer an amount equal to the
difference between (x) the aggregate dollar amount of the Uncollected
Receivables set forth in such statement and (y) $50,000 (such difference being
the "Receivables Guarantee"), and Buyer shall assign to Sellers, upon its
receipt of such amount, Uncollected Receivables having a face value (net of the
original reserve at Closing in respect thereof) equal to the Receivables
Guarantee. Buyer agrees to exercise reasonable collection procedures with regard
to the Purchased Receivables during such 365 day period; provided, however, that
Buyer shall have no obligation to institute legal action or incur any other
expenses of collection other than reasonable expenses related thereto consistent
with past practice. Buyer shall apply customer payments to customer balances in
chronological order during such 365 day period, paying the oldest balance first,
unless (i) Buyer has been notified by such customer that a dispute regarding
such prior balance exists, (ii) such customer payment is directed by the
customer to be applied to a specific account or transaction and/or (iii) such
customer payment can be matched to a specific amount or transaction. Each Seller
acknowledges the value of the customer goodwill and relations associated with
its business being transferred to Buyer hereunder and agrees to fully cooperate
with the maintenance of such goodwill and relations in the collection of any
Uncollected Receivables transferred by Buyer to Sellers or any receivables
retained by Sellers at Closing.
Section 11.6 Books, Records and Employees. Each Seller and Buyer
-----------------------------
agree that so long as any books, records and files retained by such Seller
relating to its business, properties, assets or operations, or the books,
records and files delivered to Buyer hereunder, to the extent that they pertain
to the operations of such Seller or the Purchased Assets prior to the Closing
Date, remain in existence and available, each of Buyer and such Seller (at its
expense) shall have the right to inspect and to make copies of the same at any
time during business hours for any proper purpose. Neither Buyer nor either
Seller will destroy, without first having offered to deliver to the other party,
any of such books, records and files for a period of time equal to that which
they would be required to retain such books, records or files, as the case may
be, pursuant to Buyer's or such Seller's document retention policy, which shall
not be less than that required by applicable law as in effect on the date hereof
or, in the case of federal or foreign tax matters, not less than the applicable
statute of limitation, plus extensions thereof agreed to by the Buyer and
Sellers. Each of the Sellers and Buyer agree that it will cooperate with and
make available to the other party, during normal business hours, all books,
records, information and employees (without substantial disruption of
employment) necessary and useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such books, records, information or employees for any reasonable
business purpose. The party requesting any such
56
<PAGE>
books, records, information or employees shall bear all of the out-of-pocket
costs and expenses (including without limitation, reasonable attorneys' fees,
but excluding reimbursement for the salaries and employee benefits) reasonably
incurred in connection with providing such books, records, information or
employees.
Section 11.7 Confidentiality. From and after the Closing, each
----------------
Seller and each Shareholder will hold, and shall cause its or his counsel,
accountants, appraisers and advisors to hold in confidence any confidential data
or information previously known to such Seller or such Shareholder in connection
with its business, using the same standards of care to protect such confidential
data or information as such Seller or such Shareholder used to protect its or
his confidential information in the past, unless such data or information
becomes generally available to the public other than as a result of disclosure
by such Seller or any Shareholder, or if (but only to the extent) disclosure is,
in the reasonable opinion of Seller's counsel, necessary to enforce such
Seller's or any Shareholder's rights under this Agreement or is required by Law.
Section 11.8 Publicity. Except as required by applicable Law,
----------
neither of the Sellers, nor any of the Shareholders shall give notice to third
parties or otherwise make any public statement or releases concerning this
Agreement or the transactions contemplated hereby except for such written
information as shall have been approved in writing as to form and content by
Buyer which approval shall not be unreasonably withheld or delayed; provided,
however, that Sellers and the Shareholders may disclose such information to
their accountants, attorneys and other advisors in connection with the
transactions contemplated hereby.
ARTICLE XII
TERMINATION
-----------
Section 12.1 Termination of Agreement. This Agreement may be terminated
-------------------------
at any time prior to the Closing by:
(a) The mutual written consent of Buyer and Sellers;
(b) Buyer or Sellers if the Closing shall not have taken
place on or before May 31, 1996 (the "Outside Date"), but only so
long as the party exercising such right of termination shall not
then be in default of its obligations hereunder;
(c) Buyer, if there has been a material
misrepresentation or breach of warranty or covenant on the part of
either Seller herein, or if any condition precedent to Buyer's
obligations hereunder is not satisfied and such condition is not
waived by Buyer at or prior to the Closing Date and Buyer is not in
default hereunder;
57
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(d) Sellers, if there has been a material
misrepresentation or breach of warranty or covenant on the part of
Buyer herein, or if any condition precedent to either Seller's
obligations hereunder is not satisfied and such condition is not
waived by such Seller at or prior to the Closing Date and neither of
the Sellers nor any of the Shareholders is in default hereunder;
(e) Buyer or Sellers, if consummation of the
transactions contemplated hereby would violate any non-appealable
final order or decree by any court or governmental body having
competent jurisdiction; or Buyer if any action or proceeding shall
have been threatened or instituted by or before a governmental body
or agency of the United States or of any commonwealth, possession or
foreign country or if an order of any court is entered, which in the
reasonable opinion of Buyer renders or may render it impossible or
inadvisable in any material respect for Buyer to consummate the
transactions contemplated hereby or to own, operate or control the
assets, properties or the business; and
(f) Buyer, if after the date hereof, any legislation
which would have the effect of prohibiting or making unlawful the
acquisition or ownership of the Purchased Assets by Buyer has been
proposed or enacted into laws.
Section 12.2 Procedure and Effect. In the event of the termination
---------------------
of this Agreement pursuant to the provisions of Section 12.1 hereof, written
notice thereof shall be given to the other parties hereto and this Agreement
shall become void and of no effect, without any liability on the part of any
party or any of its directors, officers or stockholders, except as provided in
Section 13.2, unless either Seller and/or any of the Shareholders on the one
hand, or Buyer on the other hand, is in default under their respective
obligations hereunder, in which event the parties in default shall be liable to
the other parties for such default. In the event that a condition precedent to
any party's obligation is not satisfied, nothing contained herein shall be
deemed to require any party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the Closing.
ARTICLE XIII
MISCELLANEOUS
-------------
Section 13.1 Assignment. Neither this Agreement, nor any right
-----------
hereunder, may be assigned by any of the parties hereto except that at Buyer's
option, Buyer shall have the right (i) to designate one or more Affiliates as
the buyer of all or any portion of the Purchased Assets and (ii) to assign as
collateral to one or more financing sources, all of its right, title and
interest under this Agreement.
Section 13.2 Payment of Fees and Expenses. The Sellers and
-----------------------------
Shareholders shall pay all fees and expenses of their broker, counsel,
accountants and other experts and other expenses incurred incident to the
negotiation, preparation and execution of this Agreement and the consummation of
the transactions contemplated hereby, including fees and expenses of its
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counsel, actuaries and other advisors in connection with any amendments to, and
termination of, the Profit Sharing Plan. The Buyer shall pay all fees and
expenses of its investment bankers, lenders, counsel, accountants and other
experts and all other expenses incurred by the Buyer incident to the
negotiation, preparation and execution of this Agreement and the consummation of
the transactions contemplated hereby. In addition, Sellers shall pay any and all
transfer Taxes, if any, due as a result of the purchase, sale or transfer of the
Purchased Assets and assumption of the Assumed Liabilities as set forth herein,
and any and all costs of obtaining and recording or filing deed stamps, mortgage
discharges, UCC termination statements, and any necessary consents and
approvals, and of effecting the transfer or issuance to Buyer of patents,
trademarks, copyrights, applications of any therefor, licenses, permits,
consents, concessions and other authorizations as set forth herein.
Section 13.3 Further Acts by Sellers. From and after the Closing
------------------------
Date, upon the reasonable request of the Buyer, each Seller shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney, and assurances as may be required to convey and
transfer to and vest in the Buyer and protect its right, title and interest in
the Purchased Assets to be acquired hereunder, and as may be appropriate
otherwise to carry out the transactions contemplated by this Agreement.
Section 13.4 Entire Agreement; Construction, Counterparts;
---------------------------------------------
Effectiveness. This Agreement, including the Schedules and Exhibits delivered
- --------------
pursuant hereto, constitutes the entire agreement of the parties in respect of
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions of the parties, whether written or oral, and may
not be changed, terminated or discharged orally. The Table of Contents and
Headings appearing in this Agreement have been inserted solely for the
convenience of the parties and shall be of no force and effect in the
construction of the provisions of this Agreement. This Agreement shall be
construed under the laws of the State of Rhode Island as a Rhode Island contract
without resort to its conflict of laws rules, and shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns. This Agreement may be executed in several counterparts, and each
executed counterpart shall be considered an original of this Agreement. This
Agreement shall not become effective until it has been executed by all of the
parties hereto.
Section 13.5 Notices. Notices hereunder shall be in writing and
--------
shall be effective upon receipt, if delivered personally, or three business days
after deposit in the United States mail, postage prepaid, registered or
certified, return receipt requested, or one business day after deposit with a
nationally recognized overnight courier service and addressed, in the case of
the Buyer, to:
Possible Dreams, Inc.
c/o Capital Partners, Inc.
One Pickwick Plaza
Suite 310
Greenwich, Connecticut 06830
Attn: Philip L. Fitting
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with a copy to:
Christopher D. Graham, Esquire
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02903
in the case of the Sellers and/or any Shareholder, to:
Leonard Miller
15 Lorna Road
Newton, MA 02159
and to:
Warren Stanley
507 Lillian Drive
Madeira Beach, FL 33708
and to:
Arnold Lee
61 Wedgewood Drive
Seekonk, MA 02771-3418
and to:
Richard L. Seegal, trustee of the
Samuel C. Miller Trust
Seegel, Robinson & Lipshutz P.C.
Wellesly Office Park
20 William Street
Wellesley, MA 02181
with a copy to:
James P. Redding & Associates
170 Westminster Street
Providence, Rhode Island 02903
Any party may change the address to which notices are to be addressed
by giving the other parties hereto notice in the manner herein set forth.
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Section 13.6 Changes in Writing. Neither this Agreement nor any
-------------------
provision hereof may be changed, waived, discharged or terminated orally but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought.
Section 13.7 Separability. If any provision hereof is invalid and
-------------
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
Section 13.8 Waiver of Jury Trial. The parties hereby irrevocably
---------------------
waive all right to trial by jury in any action, proceeding, claim, counterclaim,
or crossclaim arising out of or in connection with this Agreement.
61
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Sellers:
POSSIBLE DREAMS, LTD.
(a Massachusetts corporation)
By: /s/ Warren Stanley
------------------------------
President
COLUMBIA NATIONAL CORPORATION
By: /s/ Warren Stanley
------------------------------
President
62
<PAGE>
Shareholders:
/s/ Leonard Miller
-------------------------------
Leonard Miller
Samuel C. Miller Trust
By /s/ Richard L. Seegal
------------------------------
Richard L. Seegal, in his
capacity as Trustee u/d/t 8/5/85
/s/ Warren Stanley
--------------------------------
Warren Stanley
/s/ Arnold Lee
--------------------------------
Arnold Lee
Buyer:
POSSIBLE DREAMS, LTD.
(a Delaware corporation)
By: /s/ Philip L. Fitting
-----------------------------
Chairman
EXHIBIT 2
SUBORDINATED PROMISSORY NOTE
$2,128,000 May 17, 1996
FOR VALUE RECEIVED, the undersigned POSSIBLE DREAMS, LTD., a Delaware
corporation having its principal office at Six Perry Drive, Foxboro, MA 02035
(hereinafter referred to as the "Maker"), hereby PROMISES TO PAY to the order of
POSSIBLE DREAMS, LTD., a Massachusetts corporation having an address at 15 Lorna
Road, Newton, MA 02159 (hereinafter referred to as the "Payee"), the principal
sum of TWO MILLION ONE HUNDRED TWENTY-EIGHT THOUSAND DOLLARS ($2,128,000),
subject to reduction as hereinafter provided, on the "Maturity Date" (as
hereinafter defined), in lawful money of the United States of America, payable
at the aforesaid address of the Payee, or such other place as the Payee may
reasonably direct in writing, in cash or by certified check or bank cashier's
check, together with interest on the unpaid principal balance of this Note
outstanding from time to time, whether before or after maturity, at an annual
rate of ten percent (10%) per annum for the period from the date hereof until
May 17, 2001 and thereafter, at an annual rate of fourteen percent (14%) per
annum until payment in full hereof.
This Note shall be payable as to principal in one single installment on
May 31, 2003 (the "Maturity Date"). Interest on this Note shall be computed on
the basis of a 365-day year, and shall be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1996 and continuing until
payment in full hereof, and on the Maturity Date.
This Note is one of the Promissory Notes described in that certain
Asset Purchase Agreement dated May 17, 1996 by and among the Maker, the Payee,
Columbia National Corporation, a Massachusetts corporation ("Columbia"), Leonard
Miller, the Samuel C. Miller Trust u/d/t August 5, 1995, Warren Stanley and
Arnold Lee (the "Purchase Agreement").
The principal amount of this Note is subject to mandatory reduction by
an amount equal to $500,000 in the event the "Maker's EBITDA" (as hereinafter
defined) for year ending December 31, 1996 is less than $3,500,000. For purposes
of this Note, (i) the term "Maker's EBITDA" shall mean an amount equal to the
sum of (x) EBITDA of the Payee and Columbia ("Sellers"), determined on a
combined basis in accordance with generally accepted accounting principles
consistently applied ("GAAP"), for the period from January 1, 1996 to and
including the day preceding the date hereof, plus (y) EBITDA of the Maker,
determined in accordance with GAAP, for the period from the date hereof to and
including December 31, 1996, and (ii) the term "EBITDA" shall mean, for the
appropriate period, the net income (or loss) of the applicable entity for such
period, plus the sum of (A) interest expense, (B) depreciation, (C) amortization
of goodwill, (D) income taxes paid or accrued, and, with respect to Maker only
for the period from the date hereof to and including December 31, 1996, (E)
increases in other expenses directly resulting from the transactions
contemplated by the Purchase Agreement, including amortization of original issue
discount and capitalized acquisition expenses, management fees and inventory
write-up (but exclusive of increases in executive salaries), (F) bonuses to
executive management of Maker paid or accrued in accordance with employment
agreements dated the date hereof, and (G) payments made by Maker to its direct
and indirect corporate shareholders pursuant to a tax
<PAGE>
sharing agreement dated the date hereof, and, with respect to Payee only for the
period from January 1, 1996 to and including the day preceding the date hereof,
(H) salaries paid to Leonard Miller and to members of his direct family and
payroll taxes and fringe benefits paid or accrued in respect of such persons
during such period, (I) expenses incurred during such period which are
specifically attributable to Leonard Miller's automobile lease, (J) travel and
entertainment expenses incurred by Leonard Miller during such period for the
account of Sellers in the course of his employment with the Sellers but which
are not directly related to their business, (K) legal and accounting fees and
expenses incurred during such period which are specifically attributable to the
asset purchase transaction contemplated by the Purchase Agreement and (L) the
loss suffered during such period on the "Artiva" and Sunrise" inventory
close-out in the amount of $93,000, less the sum of (X) interest income and (Y)
income tax credits received or accrued, in each case to the extent included in
arriving at such net income (or loss) for the applicable period and determined
in accordance with GAAP. Any such reduction shall be effective automatically,
retroactive to the date of issue hereof, immediately after the later of (1)
acceptance by Maker of the Sellers' combined financial statements pursuant to
and in accordance with Section 2.6 of the Purchase Agreement and (2) acceptance
by Sellers' of the Maker's audited financial statements for the fiscal period
ending December 31, 1996 pursuant to and in accordance with Section 2.7 of the
Purchase Agreement, with interest theretofore accrued on this Note at the rate
hereinabove provided to be recomputed as if the principal amount of this Note
from the date of issue hereof had been $1,960,000. Any interest theretofore paid
on the principal amount hereof in excess of the interest hereon as so recomputed
shall be credited against the next two semi-annual payments of interest due
hereunder, with each such credit to be equal to 50% of such excess. Any
reduction of this Note pursuant to the terms of this paragraph shall be deemed a
reduction of the purchase price paid pursuant to the Purchase Agreement.
The Maker may prepay, at its option, all or any portion of the
outstanding principal amount hereof, together with accrued but unpaid interest
hereon, at any time or from time to time without penalty or premium.
This Note, together with all unpaid interest accrued hereon, shall be
subject to mandatory prepayment in full following the occurrence of a "Trigger
Event", with any such prepayment to be made within 10 days after the occurrence
thereof. For purposes of this Note, the term "Trigger Event" shall mean the
occurrence of any of the following: (i) the sale of assets of Maker having fair
value greater than 80% of the fair value of all assets of Maker pursuant to any
single sale or series of related sales (other than the sale of inventory in the
ordinary course of business); (ii) the date a registration statement filed by
the Maker or its stockholder, P.D. Holdings, Inc., a Delaware corporation
("Holdings") pursuant to the Securities Act of 1933 with respect to the common
stock of such issuer is declared effective by the Securities and Exchange
Commission; (iii) a sale of stock or series of related sales or a merger,
consolidation or similar corporate reorganization of Maker, and as a result of
which Holdings shall own, directly or indirectly, less than 51% of the
outstanding voting securities of the Maker; (iv) a sale of stock or series of
related sales or a merger, consolidation or similar corporate reorganization of
Holdings, and as a result of which Security Capital Corporation, a Delaware
corporation and majority stockholder of Holdings ("Security Capital") shall own,
directly or indirectly, less than 51% of the outstanding voting securities of
Holdings; (v) a sale of stock or series of related sales, or a
2
<PAGE>
merger, consolidation or similar corporate reorganization of Security Capital,
and as a result of which Capital Partners Holdings II-A, L.P. and Capital
Partners Holdings II-B, L.P., each a Delaware limited partnership, or any of
their affiliates (collectively, "Capital Partners"), shall own, directly or
indirectly, in the aggregate less than 50% of the number of outstanding voting
securities of Security Capital owned by Capital Partners on the date hereof or
(vi) Capital Partners shall cease to have the ability to elect a majority of the
Board of Directors of Security Capital (either through the ownership of voting
stock, by contract or otherwise).
The Maker, for itself and its successors and assigns, hereby agrees,
and the Payee, by its acceptance hereof, hereby agrees that the payment of
principal and interest hereunder is hereby expressly subordinated, to the extent
and in the manner hereinafter set forth, in right of payment to the prior
payment or satisfaction in full of all "Senior Indebtedness" (as hereinafter
defined) from time to time outstanding.
For purposes of this Note, (i) the term "Senior Indebtedness" shall
mean (x) all indebtedness, obligations and liabilities of the Maker to the
"Senior Creditors" (as hereinafter defined), whether now existing or hereafter
created, whether as direct obligor or as guarantor, arising out of or in
connection with any loan or credit agreement, promissory note or reimbursement
agreement providing term financing or a working capital credit facility for the
Maker or any direct or indirect subsidiary of the Maker (a "Permitted
Subsidiary"), including, without limitation, the loan documents of NationsCredit
Commercial Corporation ("NationsCredit") entered into with the Maker as of the
date hereof, as amended from time to time (the "NationsCredit Loan Documents"),
and any guarantees of the Maker of any amounts owing under any such documents
and any interest rate swap, currency swap or similar agreement relating thereto,
including without limitation, principal, interest (including, without
limitation, any interest which accrues after the commencement of bankruptcy,
insolvency or similar proceedings with respect to the Maker, whether or not such
interest is an allowed claim enforceable against the Company in a bankruptcy
case under Title 11 of the United States Code) and any commitment, agency and
other fees, expenses and advances due from time to time to the Senior Creditors;
provided however, that the aggregate principal amount of any term indebtedness
constituting Senior Indebtedness shall not exceed the aggregate principal amount
of the Maker's term indebtedness outstanding as at the third anniversary of the
date hereof (it being understood that there shall be no limit as to the
aggregate principal amount of any indebtedness constituting Senior Indebtedness
to the extent incurred under a working capital facility except as provided in
the proviso to clause (y) below) and (y) all such indebtedness, obligations and
liabilities of the Maker to any lender incurred in connection with any
refinancing of Senior Indebtedness; provided however that the aggregate
principal amount of any such refinanced Senior Indebtedness shall not exceed the
aggregate principal amount of Senior Indebtedness repaid with the proceeds of
such refinancing and (ii) the term "Senior Creditors" shall mean the Lenders
under the NationsCredit Loan Documents and any other lender who becomes a holder
of Senior Indebtedness.
Unless and until the Senior Indebtedness shall have been paid in full
in cash, or without the express prior written consent of all the Senior
Creditors, the Payee will not sue for, take, demand or receive, and the Maker
will not make, give or permit, directly or indirectly, by set-off
3
<PAGE>
(except as expressly permitted under (i) the terms of this Note in respect of
adjustments to interest charged hereon required on account of the mandatory
reduction of the principal amount hereof and (ii) the Purchase Agreement in
respect of payments of interest due hereunder), redemption, purchase or in any
other manner, any payment or security for the whole or any part of the principal
of or interest on this Note; provided that so long as no event of default under
any agreement or instrument evidencing Senior Indebtedness or pursuant to which
Senior Indebtedness has been issued or incurred (a "Senior Event of Default")
shall have occurred and then be continuing or would occur as a result of, or
after giving effect to, a payment of principal or interest hereon, or the
passage of time or giving of notice or both, the Maker may make, and the Payee
may receive, (A) scheduled payments on account of interest on this Note in
accordance with the terms hereof at the rates and on the dates set forth herein,
and (B) the scheduled payment of principal on this Note at the stated maturity
thereof (each such permitted payment, a "Permitted Payment").
In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the property, assets or business of the Maker, or the proceeds
thereof, to any creditor or creditors of the Maker or upon any indebtedness of
the Maker, by reason of any liquidation, dissolution or other winding up of the
Maker or its business or by reason of any sale, receivership, insolvency or
bankruptcy proceedings or assignment for the benefit of creditors or any
proceeding by or against the Maker for any relief under any bankruptcy,
reorganization or insolvency law or laws, federal or state, or any law, federal
or state, relating to the relief of debtors, readjustment of indebtedness,
reorganization, composition or extension, or in the event of the occurrence and
during the continuation of any Senior Event of Default, then and in any such
event, any payment or distribution of any kind or character, whether in cash,
property or securities which, but for these subordination provisions, would
otherwise be payable or deliverable upon or in respect of this Note, shall
instead be paid over or delivered to the Senior Creditors for application
towards the Senior Indebtedness and the Payee shall not receive any such payment
or distribution or any benefit therefrom unless and until the Senior
Indebtedness is paid in full and satisfied in cash.
The Payee hereby irrevocably authorizes and empowers (without imposing
any obligation on) the Senior Creditors (or their representatives) under the
circumstances set forth in the preceding two paragraphs, to demand, sue for,
collect and receive every such payment or distribution described therein and
give acquittance therefor, to file claims and proofs of claims in any statutory
or non-statutory proceeding, to vote the full amount of the debt evidenced by
this Note in their sole discretion in connection with any resolution,
arrangement, plan of reorganization, compromise, settlement or extension and to
take all such other action (including, without limitation, the right to
participate in any composition of creditors and the right to vote the debt
evidenced by this Note at creditor's meetings for the election of trustees,
acceptances of plans and otherwise), in their own name as Senior Creditors or in
the name of the Payee or otherwise, as the Senior Creditors (or their
representatives) may deem necessary or advisable for the enforcement of the
subordination provisions herein. The Payee hereby agrees, under the
circumstances set forth in the two preceding paragraphs, duly and promptly to
take such action as may be requested at any time and from time to time by the
Senior Creditors (or their representatives), to collect the debt evidenced by
this Note for the account of the Senior Creditors
4
<PAGE>
and to file appropriate proofs of claim in respect thereof, to deliver the debt
evidenced by this Note to the Senior Creditors on demand therefor, and to
execute and deliver such powers of attorney, assignments or other instruments as
may be requested by the Senior Creditors in order to enable the Senior Creditors
to enforce any and all claims upon or in respect of the debt evidenced by this
Note and to collect and receive any and all payments or distributions which may
be payable or deliverable at any time upon or in respect of the debt evidenced
by this Note.
IF ALL SENIOR INDEBTEDNESS SHALL HAVE BECOME OR SHALL BE DECLARED TO BE
IMMEDIATELY DUE AND PAYABLE, THIS NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE,
NOTWITHSTANDING ANY INCONSISTENT TERMS HEREOF, AND THEREUPON THE PAYEE MAY,
SUBJECT TO THE RIGHTS OF THE SENIOR CREDITORS, INSTITUTE PROCEEDINGS TO ENFORCE
THIS NOTE. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, THE PAYEE SHALL NOT,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE SENIOR CREDITORS, HAVE ANY RIGHT TO
ACCELERATE THE MATURITY OF, OR INSTITUTE ANY PROCEEDINGS TO ENFORCE, ANY
INDEBTEDNESS EVIDENCED BY THIS NOTE.
Should any payment or distribution or security, or the proceeds of any
thereof, be collected or received by the Payee in respect of the debt evidenced
by this Note and such collection or receipt is not expressly permitted hereunder
prior to the payment in full in cash of the Senior Indebtedness, the Payee will
forthwith deliver the same to the Senior Creditors in precisely the form
received (except for the endorsement or the assignment of the Payee where
necessary) and, until so delivered, the same shall be held in trust by the
holder thereof as the property of the Senior Creditors.
The Payee, by acceptance of this Note, hereby waives any and all notice
of renewal, extension or accrual of any of the Senior Indebtedness, present or
future, and agrees and consents that without notice to or assent by Payee:
(i) the obligations and liabilities of the Maker or any
other party or parties for, upon or in respect of the Senior
Indebtedness (and/or any promissory note(s), security document or
guaranty evidencing or securing the same) may, subject to the
limitations contained herein, from time to time, in whole or in
part, be renewed, extended, modified, amended, accelerated,
compromised, supplemented, terminated, sold, exchanged, waived or
released;
(ii) the Senior Creditors may exercise or refrain from
exercising any right, remedy or power granted by any document
creating, evidencing or otherwise related to the Senior Indebtedness
or at law, in equity, or otherwise, with respect to the Senior
Indebtedness or any collateral security or lien (legal or equitable)
held, given or intended to be given therefor (including, without
limitation, the right to perfect any lien or security interest
created in connection therewith);
(iii) any and all collateral security and/or liens
(legal or equitable) at any time, present or future, held, given or
intended to be given for the Senior
5
<PAGE>
Indebtedness, and any rights or remedies of the Senior Creditors in
respect thereof, may, from time to time, in whole or part, be
exchanged, sold, surrendered, released, modified, waived or extended
by the Senior Creditors; and
(iv) any balance or balances of funds with the Senior
Creditors at any time standing to the credit of the Maker or any
guarantor of any of the Senior Indebtedness may, from time to time,
in whole or in part, be surrendered or released;
all as the Senior Creditors may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the subordination to the Senior
Indebtedness provided for herein.
The Payee acknowledges and agrees that the Senior Creditors have
relied upon and will continue to rely upon the subordination provided for herein
in entering into documents creating, evidencing and otherwise relating to the
Senior Indebtedness and in otherwise extending credit to the Maker. The Payee
hereby waives notice of or proof of reliance hereon and protest, demand for
payment and notice of default.
So long as any of the Senior Indebtedness shall remain outstanding, the
Payee will not, without the prior written consent of the Senior Creditors:
(a) Sell, assign, pledge, encumber or
otherwise dispose of this Note unless such sale, assignment,
pledge, encumbrance or other disposition is made expressly
subject to the subordination provisions of this Note and the
other party to such sale, assignment, pledge, encumbrance or
other disposition consents in writing to be bound by the terms
hereof; or
(b) Permit the terms of this Note to be
changed, amended or modified in such a manner as to have an
adverse effect upon the rights or interests of the Senior
Creditors hereunder.
The Senior Creditors shall not be prejudiced in their right to enforce
the subordination contained herein in accordance with the terms hereof by any
act or failure to act on the part of the Maker.
The subordination provisions contained herein are for the benefit of
the Senior Creditors and may not be rescinded, canceled, amended or modified in
any way without the prior written consent thereto of the Senior Creditors.
In the case of the occurrence of any one or more of the following
events (herein called an "Event of Default"):
(a) If Maker defaults in the payment of any Permitted Payment
hereunder, whether at the due date thereof or a date fixed for
prepayment, by demand, or
6
<PAGE>
otherwise, and such default continues for a period of 30 days after
written notice of such default to Maker;
(b) if Maker shall (i) apply for or consent to the appointment of
a receiver, trustee, custodian or liquidator of it or any of its
property, (ii) fail generally to pay its debts as they become due, or
shall admit in writing its inability to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent or be the subject of an order for
relief under Title 11 of the United States Code or any comparable law of
any foreign jurisdiction, (v) file a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or
statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or (vi) if
corporate action shall be taken for the purpose of effecting any of the
foregoing;
(c) if an order, judgment or decree shall be entered against Maker
without the application, approval or consent of Maker by any court of
competent jurisdiction, approving a petition seeking reorganization of
Maker or appointing a receiver, trustee, custodian or liquidator of Maker
or of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of sixty
(60) days;
then in every such Event of Default and at any time thereafter during the
continuation of such default, subject to the rights of the Senior Creditors
described above, the Payee may, by written notice to Maker, declare the entire
principal of and accrued interest on this Note to be due and payable, whereupon
this Note and all accrued interest hereon will thereupon immediately become due
and payable without presentment, demand, protest, or further notice of any kind
whatsoever, all of which are hereby expressly waived.
In the event the Payee shall exercise or endeavor to exercise any of
its remedies hereunder, the Maker shall pay on demand all reasonable costs and
expenses incurred in connection therewith, including, without limitation,
reasonable attorneys fees, and the Payee may take judgment for all such amounts
in addition to all other sums due hereunder.
The Maker hereby expressly covenants to and with the holder of this
Note that, so long as any principal amount of this Note shall be outstanding,
the Maker will not:
(i) Declare or pay any dividends or distributions to its
stockholders, other than (v) payments to NationsCredit (or its
successors or assigns) in respect of Senior Indebtedness (including
payment of any obligations in respect of or pursuant to Maker's
warrants issued to NationsCredit on the date hereof), (w) payments in
respect of tax allocations pursuant to a tax sharing agreement among
the members of the Maker's consolidated group, (x) payments to Holdings
to cover expenses of maintaining Holdings' corporate existence and
other similar
7
<PAGE>
administrative costs, (y) payments to Security Capital of management
fees pursuant to the terms of its management agreement with Maker, and
(z) payments to Holdings in amounts sufficient to meet Holdings'
obligations to its management stockholders and optionholders pursuant
to a Stockholders' Agreement among Holdings and its stockholders and
optionholders dated the date hereof, as amended from time to time (the
"Stockholders' Agreement");
(ii) Directly or indirectly, increase the amount of the annual
management fee payable by Maker to Security Capital pursuant to the
terms of its management agreement to be an amount greater than
$175,000; provided, however, that from time to time Maker may agree to
an increase in the amount of such management fee, but only if any such
increase does not exceed 6% of the increase in EBITDA of the Maker for
any fiscal year over the EBITDA of the Maker for the prior fiscal year;
(iii) Directly or indirectly, make any loans to affiliates, or
guarantee any indebtedness of affiliates, other than (x) loans to or
guarantees of indebtedness of Permitted Subsidiaries and (y) loans to
Holdings in amounts sufficient to meet Holdings' obligations to its
management stockholders and optionholders pursuant to the Stockholders'
Agreement;
(iv) Purchase or hold equity securities of, or make equity
investments in, any entity other than Permitted Subsidiaries.
All provisions of this Note are expressly subject to the condition that
in no event, whether by reason of acceleration of maturity of the indebtedness
evidenced by this Note or otherwise, shall the amount paid or agreed to be paid
to the Payee which is deemed interest under applicable law exceed the maximum
permitted rate of interest under applicable law (the "Maximum Permitted Rate"),
which shall mean the law in effect on the date of this Note, except that if
there is a change in such law which results in a higher Maximum Permitted Rate,
then this Note shall be governed by such amended law from and after its
effective date. In the event that fulfillment of any provision of this Note
results in the rate of interest charged hereunder to be in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be reduced to
eliminate such excess. If, notwithstanding the foregoing, the Payee receives an
amount which under applicable law would cause the interest rate hereunder to
exceed the Maximum Permitted Rate, the portion thereof which would be excessive
shall automatically be deemed a prepayment of and be applied to the original
principal balance of this Note and not a payment of interest.
The Maker expressly waives presentment for payment, protest and demand
and notice of protest, demand and/or dishonor and nonpayment of this Note, and
all other notices or demands otherwise required by law that the Maker may
lawfully waive.
The rights and obligations of the Maker and Payee and all provisions
hereof shall be governed by and construed in accordance with the laws of the
State of Rhode Island applicable to contracts made and to be performed within
such state.
8
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be executed as a
sealed instrument as of the date first above written.
POSSIBLE DREAMS, LTD.
By /s/ Philip L. Fitting
---------------------------------
Philip L. Fitting
Chairman
Attest:
/s/ Douglas G. Gray
- ----------------------------------
EXHIBIT 3
SUBORDINATED PROMISSORY NOTE
$332,000 May 17, 1996
FOR VALUE RECEIVED, the undersigned POSSIBLE DREAMS, LTD., a Delaware
corporation having its principal office at Six Perry Drive, Foxboro, MA 02035
(hereinafter referred to as the "Maker"), hereby PROMISES TO PAY to the order of
COLUMBIA NATIONAL CORPORATION, a Massachusetts corporation having an address at
15 Lorna Road, Newton, MA 02159 (hereinafter referred to as the "Payee"), the
principal sum of THREE HUNDRED THIRTY-TWO THOUSAND DOLLARS ($332,000), subject
to reduction as hereinafter provided, on the "Maturity Date" (as hereinafter
defined), in lawful money of the United States of America, payable at the
aforesaid address of the Payee, or such other place as the Payee may reasonably
direct in writing, in cash or by certified check or bank cashier's check,
together with interest on the unpaid principal balance of this Note outstanding
from time to time, whether before or after maturity, at an annual rate of ten
percent (10%) per annum for the period from the date hereof until May 17, 2001
and thereafter, at an annual rate of fourteen percent (14%) per annum until
payment in full hereof.
This Note shall be payable as to principal in one single installment on
May 31, 2003 (the "Maturity Date"). Interest on this Note shall be computed on
the basis of a 365-day year, and shall be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1996 and continuing until
payment in full hereof, and on the Maturity Date.
This Note is one of the Promissory Notes described in that certain
Asset Purchase Agreement dated May 17, 1996 by and among the Maker, the Payee,
Possible Dreams, Ltd., a Massachusetts corporation ("PDL"), Leonard Miller, the
Samuel C. Miller Trust u/d/t August 5, 1995, Warren Stanley and Arnold Lee (the
"Purchase Agreement").
The principal amount of this Note is subject to mandatory reduction by
an amount equal to $500,000 in the event the "Maker's EBITDA" (as hereinafter
defined) for year ending December 31, 1996 is less than $3,500,000. For purposes
of this Note, (i) the term "Maker's EBITDA" shall mean an amount equal to the
sum of (x) EBITDA of the Payee and PDL ("Sellers"), determined on a combined
basis in accordance with generally accepted accounting principles consistently
applied ("GAAP"), for the period from January 1, 1996 to and including the day
preceding the date hereof, plus (y) EBITDA of the Maker, determined in
accordance with GAAP, for the period from the date hereof to and including
December 31, 1996, and (ii) the term "EBITDA" shall mean, for the appropriate
period, the net income (or loss) of the applicable entity for such period, plus
the sum of (A) interest expense, (B) depreciation, (C) amortization of goodwill,
(D) income taxes paid or accrued, and, with respect to Maker only for the period
from the date hereof to and including December 31, 1996, (E) increases in other
expenses directly resulting from the transactions contemplated by the Purchase
Agreement, including amortization of original issue discount and capitalized
acquisition expenses, management fees and inventory write-up (but exclusive of
increases in executive salaries), (F) bonuses to executive management of Maker
paid or accrued in accordance with employment agreements dated the date hereof,
and (G) payments made by Maker to its direct and indirect corporate shareholders
pursuant to a tax
<PAGE>
sharing agreement dated the date hereof, and, with respect to Payee only for the
period from January 1, 1996 to and including the day preceding the date hereof,
(H) salaries paid to Leonard Miller and to members of his direct family and
payroll taxes and fringe benefits paid or accrued in respect of such persons
during such period, (I) expenses incurred during such period which are
specifically attributable to Leonard Miller's automobile lease, (J) travel and
entertainment expenses incurred by Leonard Miller during such period for the
account of Sellers in the course of his employment with the Sellers but which
are not directly related to their business, (K) legal and accounting fees and
expenses incurred during such period which are specifically attributable to the
asset purchase transaction contemplated by the Purchase Agreement and (L) the
loss suffered during such period on the "Artiva" and Sunrise" inventory
close-out in the amount of $93,000, less the sum of (X) interest income and (Y)
income tax credits received or accrued, in each case to the extent included in
arriving at such net income (or loss) for the applicable period and determined
in accordance with GAAP. Any such reduction shall be effective automatically,
retroactive to the date of issue hereof, immediately after the later of (1)
acceptance by Maker of the Sellers' combined financial statements pursuant to
and in accordance with Section 2.6 of the Purchase Agreement and (2) acceptance
by Sellers' of the Maker's audited financial statements for the fiscal period
ending December 31, 1996 pursuant to and in accordance with Section 2.7 of the
Purchase Agreement, with interest theretofore accrued on this Note at the rate
hereinabove provided to be recomputed as if the principal amount of this Note
from the date of issue hereof had been $1,960,000. Any interest theretofore paid
on the principal amount hereof in excess of the interest hereon as so recomputed
shall be credited against the next two semi-annual payments of interest due
hereunder, with each such credit to be equal to 50% of such excess. Any
reduction of this Note pursuant to the terms of this paragraph shall be deemed a
reduction of the purchase price paid pursuant to the Purchase Agreement.
The Maker may prepay, at its option, all or any portion of the
outstanding principal amount hereof, together with accrued but unpaid interest
hereon, at any time or from time to time without penalty or premium.
This Note, together with all unpaid interest accrued hereon, shall be
subject to mandatory prepayment in full following the occurrence of a "Trigger
Event", with any such prepayment to be made within 10 days after the occurrence
thereof. For purposes of this Note, the term "Trigger Event" shall mean the
occurrence of any of the following: (i) the sale of assets of Maker having fair
value greater than 80% of the fair value of all assets of Maker pursuant to any
single sale or series of related sales (other than the sale of inventory in the
ordinary course of business); (ii) the date a registration statement filed by
the Maker or its stockholder, P.D. Holdings, Inc., a Delaware corporation
("Holdings") pursuant to the Securities Act of 1933 with respect to the common
stock of such issuer is declared effective by the Securities and Exchange
Commission; (iii) a sale of stock or series of related sales or a merger,
consolidation or similar corporate reorganization of Maker, and as a result of
which Holdings shall own, directly or indirectly, less than 51% of the
outstanding voting securities of the Maker; (iv) a sale of stock or series of
related sales or a merger, consolidation or similar corporate reorganization of
Holdings, and as a result of which Security Capital Corporation, a Delaware
corporation and majority stockholder of Holdings ("Security Capital") shall own,
directly or indirectly, less than 51% of the outstanding voting securities of
Holdings; (v) a sale of stock or series of related sales, or a
2
<PAGE>
merger, consolidation or similar corporate reorganization of Security Capital,
and as a result of which Capital Partners Holdings II-A, L.P. and Capital
Partners Holdings II-B, L.P., each a Delaware limited partnership, or any of
their affiliates (collectively, "Capital Partners"), shall own, directly or
indirectly, in the aggregate less than 50% of the number of outstanding voting
securities of Security Capital owned by Capital Partners on the date hereof or
(vi) Capital Partners shall cease to have the ability to elect a majority of the
Board of Directors of Security Capital (either through the ownership of voting
stock, by contract or otherwise).
The Maker, for itself and its successors and assigns, hereby agrees,
and the Payee, by its acceptance hereof, hereby agrees that the payment of
principal and interest hereunder is hereby expressly subordinated, to the extent
and in the manner hereinafter set forth, in right of payment to the prior
payment or satisfaction in full of all "Senior Indebtedness" (as hereinafter
defined) from time to time outstanding.
For purposes of this Note, (i) the term "Senior Indebtedness" shall
mean (x) all indebtedness, obligations and liabilities of the Maker to the
"Senior Creditors" (as hereinafter defined), whether now existing or hereafter
created, whether as direct obligor or as guarantor, arising out of or in
connection with any loan or credit agreement, promissory note or reimbursement
agreement providing term financing or a working capital credit facility for the
Maker or any direct or indirect subsidiary of the Maker (a "Permitted
Subsidiary"), including, without limitation, the loan documents of NationsCredit
Commercial Corporation ("NationsCredit") entered into with the Maker as of the
date hereof, as amended from time to time (the "NationsCredit Loan Documents"),
and any guarantees of the Maker of any amounts owing under any such documents
and any interest rate swap, currency swap or similar agreement relating thereto,
including without limitation, principal, interest (including, without
limitation, any interest which accrues after the commencement of bankruptcy,
insolvency or similar proceedings with respect to the Maker, whether or not such
interest is an allowed claim enforceable against the Company in a bankruptcy
case under Title 11 of the United States Code) and any commitment, agency and
other fees, expenses and advances due from time to time to the Senior Creditors;
provided however, that the aggregate principal amount of any term indebtedness
constituting Senior Indebtedness shall not exceed the aggregate principal amount
of the Maker's term indebtedness outstanding as at the third anniversary of the
date hereof (it being understood that there shall be no limit as to the
aggregate principal amount of any indebtedness constituting Senior Indebtedness
to the extent incurred under a working capital facility except as provided in
the proviso to clause (y) below) and (y) all such indebtedness, obligations and
liabilities of the Maker to any lender incurred in connection with any
refinancing of Senior Indebtedness; provided however that the aggregate
principal amount of any such refinanced Senior Indebtedness shall not exceed the
aggregate principal amount of Senior Indebtedness repaid with the proceeds of
such refinancing and (ii) the term "Senior Creditors" shall mean the Lenders
under the NationsCredit Loan Documents and any other lender who becomes a holder
of Senior Indebtedness.
Unless and until the Senior Indebtedness shall have been paid in full
in cash, or without the express prior written consent of all the Senior
Creditors, the Payee will not sue for, take, demand or receive, and the Maker
will not make, give or permit, directly or indirectly, by set-off
3
<PAGE>
(except as expressly permitted under (i) the terms of this Note in respect of
adjustments to interest charged hereon required on account of the mandatory
reduction of the principal amount hereof and (ii) the Purchase Agreement in
respect of payments of interest due hereunder), redemption, purchase or in any
other manner, any payment or security for the whole or any part of the principal
of or interest on this Note; provided that so long as no event of default under
any agreement or instrument evidencing Senior Indebtedness or pursuant to which
Senior Indebtedness has been issued or incurred (a "Senior Event of Default")
shall have occurred and then be continuing or would occur as a result of, or
after giving effect to, a payment of principal or interest hereon, or the
passage of time or giving of notice or both, the Maker may make, and the Payee
may receive, (A) scheduled payments on account of interest on this Note in
accordance with the terms hereof at the rates and on the dates set forth herein,
and (B) the scheduled payment of principal on this Note at the stated maturity
thereof (each such permitted payment, a "Permitted Payment").
In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the property, assets or business of the Maker, or the proceeds
thereof, to any creditor or creditors of the Maker or upon any indebtedness of
the Maker, by reason of any liquidation, dissolution or other winding up of the
Maker or its business or by reason of any sale, receivership, insolvency or
bankruptcy proceedings or assignment for the benefit of creditors or any
proceeding by or against the Maker for any relief under any bankruptcy,
reorganization or insolvency law or laws, federal or state, or any law, federal
or state, relating to the relief of debtors, readjustment of indebtedness,
reorganization, composition or extension, or in the event of the occurrence and
during the continuation of any Senior Event of Default, then and in any such
event, any payment or distribution of any kind or character, whether in cash,
property or securities which, but for these subordination provisions, would
otherwise be payable or deliverable upon or in respect of this Note, shall
instead be paid over or delivered to the Senior Creditors for application
towards the Senior Indebtedness and the Payee shall not receive any such payment
or distribution or any benefit therefrom unless and until the Senior
Indebtedness is paid in full and satisfied in cash.
The Payee hereby irrevocably authorizes and empowers (without imposing
any obligation on) the Senior Creditors (or their representatives) under the
circumstances set forth in the preceding two paragraphs, to demand, sue for,
collect and receive every such payment or distribution described therein and
give acquittance therefor, to file claims and proofs of claims in any statutory
or non-statutory proceeding, to vote the full amount of the debt evidenced by
this Note in their sole discretion in connection with any resolution,
arrangement, plan of reorganization, compromise, settlement or extension and to
take all such other action (including, without limitation, the right to
participate in any composition of creditors and the right to vote the debt
evidenced by this Note at creditor's meetings for the election of trustees,
acceptances of plans and otherwise), in their own name as Senior Creditors or in
the name of the Payee or otherwise, as the Senior Creditors (or their
representatives) may deem necessary or advisable for the enforcement of the
subordination provisions herein. The Payee hereby agrees, under the
circumstances set forth in the two preceding paragraphs, duly and promptly to
take such action as may be requested at any time and from time to time by the
Senior Creditors (or their representatives), to collect the debt evidenced by
this Note for the account of the Senior Creditors
4
<PAGE>
and to file appropriate proofs of claim in respect thereof, to deliver the debt
evidenced by this Note to the Senior Creditors on demand therefor, and to
execute and deliver such powers of attorney, assignments or other instruments as
may be requested by the Senior Creditors in order to enable the Senior Creditors
to enforce any and all claims upon or in respect of the debt evidenced by this
Note and to collect and receive any and all payments or distributions which may
be payable or deliverable at any time upon or in respect of the debt evidenced
by this Note.
IF ALL SENIOR INDEBTEDNESS SHALL HAVE BECOME OR SHALL BE DECLARED TO BE
IMMEDIATELY DUE AND PAYABLE, THIS NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE,
NOTWITHSTANDING ANY INCONSISTENT TERMS HEREOF, AND THEREUPON THE PAYEE MAY,
SUBJECT TO THE RIGHTS OF THE SENIOR CREDITORS, INSTITUTE PROCEEDINGS TO ENFORCE
THIS NOTE. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, THE PAYEE SHALL NOT,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE SENIOR CREDITORS, HAVE ANY RIGHT TO
ACCELERATE THE MATURITY OF, OR INSTITUTE ANY PROCEEDINGS TO ENFORCE, ANY
INDEBTEDNESS EVIDENCED BY THIS NOTE.
Should any payment or distribution or security, or the proceeds of any
thereof, be collected or received by the Payee in respect of the debt evidenced
by this Note and such collection or receipt is not expressly permitted hereunder
prior to the payment in full in cash of the Senior Indebtedness, the Payee will
forthwith deliver the same to the Senior Creditors in precisely the form
received (except for the endorsement or the assignment of the Payee where
necessary) and, until so delivered, the same shall be held in trust by the
holder thereof as the property of the Senior Creditors.
The Payee, by acceptance of this Note, hereby waives any and all notice
of renewal, extension or accrual of any of the Senior Indebtedness, present or
future, and agrees and consents that without notice to or assent by Payee:
(i) the obligations and liabilities of the Maker or any
other party or parties for, upon or in respect of the Senior
Indebtedness (and/or any promissory note(s), security document or
guaranty evidencing or securing the same) may, subject to the
limitations contained herein, from time to time, in whole or in
part, be renewed, extended, modified, amended, accelerated,
compromised, supplemented, terminated, sold, exchanged, waived or
released;
(ii) the Senior Creditors may exercise or refrain from
exercising any right, remedy or power granted by any document
creating, evidencing or otherwise related to the Senior Indebtedness
or at law, in equity, or otherwise, with respect to the Senior
Indebtedness or any collateral security or lien (legal or equitable)
held, given or intended to be given therefor (including, without
limitation, the right to perfect any lien or security interest
created in connection therewith);
(iii) any and all collateral security and/or liens
(legal or equitable) at any time, present or future, held, given or
intended to be given for the Senior
5
<PAGE>
Indebtedness, and any rights or remedies of the Senior Creditors in
respect thereof, may, from time to time, in whole or part, be
exchanged, sold, surrendered, released, modified, waived or extended
by the Senior Creditors; and
(iv) any balance or balances of funds with the Senior
Creditors at any time standing to the credit of the Maker or any
guarantor of any of the Senior Indebtedness may, from time to time,
in whole or in part, be surrendered or released;
all as the Senior Creditors may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the subordination to the Senior
Indebtedness provided for herein.
The Payee acknowledges and agrees that the Senior Creditors have relied
upon and will continue to rely upon the subordination provided for herein in
entering into documents creating, evidencing and otherwise relating to the
Senior Indebtedness and in otherwise extending credit to the Maker. The Payee
hereby waives notice of or proof of reliance hereon and protest, demand for
payment and notice of default.
So long as any of the Senior Indebtedness shall remain outstanding, the
Payee will not, without the prior written consent of the Senior Creditors:
(a) Sell, assign, pledge, encumber or otherwise dispose
of this Note unless such sale, assignment, pledge, encumbrance or
other disposition is made expressly subject to the subordination
provisions of this Note and the other party to such sale,
assignment, pledge, encumbrance or other disposition consents in
writing to be bound by the terms hereof; or
(b) Permit the terms of this Note to be changed, amended
or modified in such a manner as to have an adverse effect upon the
rights or interests of the Senior Creditors hereunder.
The Senior Creditors shall not be prejudiced in their right to enforce
the subordination contained herein in accordance with the terms hereof by any
act or failure to act on the part of the Maker.
The subordination provisions contained herein are for the benefit of
the Senior Creditors and may not be rescinded, canceled, amended or modified in
any way without the prior written consent thereto of the Senior Creditors.
In the case of the occurrence of any one or more of the following
events (herein called an "Event of Default"):
(a) If Maker defaults in the payment of any Permitted Payment
hereunder, whether at the due date thereof or a date fixed for
prepayment, by demand, or
6
<PAGE>
otherwise, and such default continues for a period of 30 days after
written notice of such default to Maker;
(b) if Maker shall (i) apply for or consent to the appointment of
a receiver, trustee, custodian or liquidator of it or any of its
property, (ii) fail generally to pay its debts as they become due, or
shall admit in writing its inability to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent or be the subject of an order for
relief under Title 11 of the United States Code or any comparable law of
any foreign jurisdiction, (v) file a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or
statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or (vi) if
corporate action shall be taken for the purpose of effecting any of the
foregoing;
(c) if an order, judgment or decree shall be entered against Maker
without the application, approval or consent of Maker by any court of
competent jurisdiction, approving a petition seeking reorganization of
Maker or appointing a receiver, trustee, custodian or liquidator of Maker
or of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of sixty
(60) days;
then in every such Event of Default and at any time thereafter during the
continuation of such default, subject to the rights of the Senior Creditors
described above, the Payee may, by written notice to Maker, declare the entire
principal of and accrued interest on this Note to be due and payable, whereupon
this Note and all accrued interest hereon will thereupon immediately become due
and payable without presentment, demand, protest, or further notice of any kind
whatsoever, all of which are hereby expressly waived.
In the event the Payee shall exercise or endeavor to exercise any of
its remedies hereunder, the Maker shall pay on demand all reasonable costs and
expenses incurred in connection therewith, including, without limitation,
reasonable attorneys fees, and the Payee may take judgment for all such amounts
in addition to all other sums due hereunder.
The Maker hereby expressly covenants to and with the holder of this
Note that, so long as any principal amount of this Note shall be outstanding,
the Maker will not:
(i) Declare or pay any dividends or distributions to its
stockholders, other than (v) payments to NationsCredit (or its
successors or assigns) in respect of Senior Indebtedness (including
payment of any obligations in respect of or pursuant to Maker's
warrants issued to NationsCredit on the date hereof), (w) payments in
respect of tax allocations pursuant to a tax sharing agreement among
the members of the Maker's consolidated group, (x) payments to Holdings
to cover expenses of maintaining Holdings' corporate existence and
other similar
7
<PAGE>
administrative costs, (y) payments to Security Capital of management
fees pursuant to the terms of its management agreement with Maker, and
(z) payments to Holdings in amounts sufficient to meet Holdings'
obligations to its management stockholders and optionholders pursuant
to a Stockholders' Agreement among Holdings and its stockholders and
optionholders dated the date hereof, as amended from time to time (the
"Stockholders' Agreement");
(ii) Directly or indirectly, increase the amount of the annual
management fee payable by Maker to Security Capital pursuant to the
terms of its management agreement to be an amount greater than
$175,000; provided, however, that from time to time Maker may agree to
an increase in the amount of such management fee, but only if any such
increase does not exceed 6% of the increase in EBITDA of the Maker for
any fiscal year over the EBITDA of the Maker for the prior fiscal year;
(iii) Directly or indirectly, make any loans to affiliates, or
guarantee any indebtedness of affiliates, other than (x) loans to or
guarantees of indebtedness of Permitted Subsidiaries and (y) loans to
Holdings in amounts sufficient to meet Holdings' obligations to its
management stockholders and optionholders pursuant to the Stockholders'
Agreement;
(iv) Purchase or hold equity securities of, or make equity
investments in, any entity other than Permitted Subsidiaries.
All provisions of this Note are expressly subject to the condition that
in no event, whether by reason of acceleration of maturity of the indebtedness
evidenced by this Note or otherwise, shall the amount paid or agreed to be paid
to the Payee which is deemed interest under applicable law exceed the maximum
permitted rate of interest under applicable law (the "Maximum Permitted Rate"),
which shall mean the law in effect on the date of this Note, except that if
there is a change in such law which results in a higher Maximum Permitted Rate,
then this Note shall be governed by such amended law from and after its
effective date. In the event that fulfillment of any provision of this Note
results in the rate of interest charged hereunder to be in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be reduced to
eliminate such excess. If, notwithstanding the foregoing, the Payee receives an
amount which under applicable law would cause the interest rate hereunder to
exceed the Maximum Permitted Rate, the portion thereof which would be excessive
shall automatically be deemed a prepayment of and be applied to the original
principal balance of this Note and not a payment of interest.
The Maker expressly waives presentment for payment, protest and demand
and notice of protest, demand and/or dishonor and nonpayment of this Note, and
all other notices or demands otherwise required by law that the Maker may
lawfully waive.
The rights and obligations of the Maker and Payee and all provisions
hereof shall be governed by and construed in accordance with the laws of the
State of Rhode Island applicable to contracts made and to be performed within
such state.
8
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be executed as a
sealed instrument as of the date first above written.
POSSIBLE DREAMS, LTD.
By /s/ Philip L. Fitting
------------------------------
Philip L. Fitting
Chairman
Attest:
/s/ Douglas G. Gray
- --------------------------------------------
EXHIBIT 4
[EXECUTION COPY]
CREDIT AGREEMENT
dated as of May 17, 1996
among
POSSIBLE DREAMS, LTD.
P.D. HOLDINGS, INC.,
The LENDERS referred to herein
and
NATIONSCREDIT COMMERCIAL CORPORATION,
as Agent
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . 1
---------------------
1.02. Accounting Terms and Determinations . . . 21
-----------------------------------
1.03. Other Definitional Provisions . . . . . . 21
-----------------------------
ARTICLE II
TRANCHE A LOANS
SECTION 2.01. Tranche A Loans . . . . . . . . . . . . . 22
---------------
2.02. Tranche A Notes . . . . . . . . . . . . . 22
---------------
2.03. Interest on the Tranche A Loans . . . . . 22
-------------------------------
2.04. Repayments and Prepayments of Tranche A
---------------------------------------
Notes . . . . . . . . . . . . . . . . . . 22
-----
ARTICLE III
TRANCHE B LOANS AND WARRANTS
SECTION 3.01. Tranche B Loan . . . . . . . . . . . . . 25
--------------
3.02. Tranche B Notes . . . . . . . . . . . . . 25
---------------
3.03. Interest on the Tranche B Loans . . . . . 25
-------------------------------
3.04. Repayments and Prepayments of Tranche B
---------------------------------------
Notes . . . . . . . . . . . . . . . . . . 25
-----
3.05. Warrants . . . . . . . . . . . . . . . . 28
--------
ARTICLE IV
WORKING CAPITAL LOANS
SECTION 4.01. Working Capital Loans and
-------------------------
Commitments . . . . . . . . . . . . . . . . . . 28
-----------
4.02. Working Capital Notes . . . . . . . . . . 29
---------------------
4.03. Interest on the Working Capital Loans . . 29
-------------------------------------
4.04. Advancing Working Capital Loans . . . . . 29
-------------------------------
2
<PAGE>
4.05. Mandatory Repayments and Prepayments . . 29
------------------------------------
4.06. Optional Prepayments . . . . . . . . . . 30
--------------------
4.07. Application of Payments . . . . . . . . . 30
-----------------------
4.08. Letters of Credit . . . . . . . . . . . . 30
-----------------
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions to Closing . . . . . . . . . . 34
---------------------
5.02. Conditions to Each Loan . . . . . . . . . 38
-----------------------
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Corporate Existence and Power . . . . . . 39
-----------------------------
6.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention . . . . . . . . . . . . . . 39
-------------
6.03. Binding Effect; Liens of Security
----------------------------------
Documents . . . . . . . . . . . . . . . 40
---------
6.04. Financial Information . . . . . . . . . . 41
---------------------
6.05. Litigation . . . . . . . . . . . . . . . 42
----------
6.06. Ownership of Property, Liens . . . . . . 43
----------------------------
6.07. No Default . . . . . . . . . . . . . . . 43
----------
6.08. No Burdensome Restrictions . . . . . . . 43
--------------------------
6.09. Labor Matters . . . . . . . . . . . . . . 44
-------------
6.10. Subsidiaries; Other Equity Investments . 44
--------------------------------------
6.11. Investment Company Act . . . . . . . . . 44
----------------------
6.12. Margin Regulations . . . . . . . . . . . 45
------------------
6.13. Taxes . . . . . . . . . . . . . . . . . . 45
-----
6.14. Compliance with ERISA . . . . . . . . . . 45
---------------------
6.15. Brokers . . . . . . . . . . . . . . . . . 46
-------
6.16. Related Transactions . . . . . . . . . . 46
--------------------
6.17. Employment, Shareholders and Subscription
-----------------------------------------
Agreements . . . . . . . . . . . . . . . 46
----------
6.18. Full Disclosure . . . . . . . . . . . . . 46
---------------
6.19. Representations and Warranties Incorporated
-------------------------------------------
from Other Operative Documents . . . . . 47
------------------------------
6.20. Private Offering . . . . . . . . . . . . 47
----------------
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<PAGE>
6.21. Compliance with Environmental Requirements;
-------------------------------------------
No Hazardous Materials . . . . . . . . . 47
----------------------
6.22. Initial Capitalization . . . . . . . . . 49
----------------------
6.23. Real Property Interests . . . . . . . . . 49
-----------------------
ARTICLE VII
AFFIRMATIVE COVENANTS
SECTION 7.01. Financial Statements and Other Reports . 50
--------------------------------------
7.02. Payment of Obligations . . . . . . . . . 55
----------------------
7.03. Conduct of Business and Maintenance of
--------------------------------------
Existence . . . . . . . . . . . . . . . . 55
---------
7.04. Maintenance of Property; Insurance . . . 56
----------------------------------
7.05. Compliance with Laws . . . . . . . . . . 58
--------------------
7.06. Inspection of Property, Books and Records 58
-----------------------------------------
7.07. Use of Proceeds . . . . . . . . . . . . . 58
---------------
7.08. Further Assurances . . . . . . . . . . . 58
------------------
7.09. Board Meetings . . . . . . . . . . . . . 59
--------------
7.10. Lenders' Meetings . . . . . . . . . . . . 59
-----------------
7.11. Consummation of the Acquisition . . . . . 59
-------------------------------
7.12. Hedging Facilities . . . . . . . . . . . 59
------------------
7.13. Hazardous Materials; Remediation . . . . 60
--------------------------------
7.14. Title Insurance . . . . . . . . . . . . . 60
---------------
7.15. Collateral Reports . . . . . . . . . . . 61
------------------
7.16. Collections; Right to Notify Account
------------------------------------
Debtors . . . . . . . . . . . . . . . . . 61
-------
7.17. Enforcement of Covenants Not to Compete . 61
---------------------------------------
7.18. Landlord and Warehouseman Waivers . . . . 61
---------------------------------
ARTICLE VIII
NEGATIVE COVENANTS
SECTION 8.01. Debt . . . . . . . . . . . . . . . . . . 62
----
8.02. Negative Pledge . . . . . . . . . . . . . 63
---------------
8.03. Capital Stock . . . . . . . . . . . . . . 63
-------------
8.04. Restricted Payments . . . . . . . . . . . 64
-------------------
8.05. ERISA . . . . . . . . . . . . . . . . . . 65
-----
8.06. Consolidations, Mergers and Sales of . . 65
------------------------------------
Assets
-------
4
<PAGE>
8.07. Purchase of Assets, Investments . . . . . 66
-------------------------------
8.08. Transactions with Affiliates . . . . . . 66
----------------------------
8.09. Amendments or Waivers . . . . . . . . . . 66
---------------------
8.10. Fiscal Year . . . . . . . . . . . . . . . 67
-----------
8.11. Limitations on Activities by Holdings . . 67
-------------------------------------
8.12. Investor Fees . . . . . . . . . . . . . . 68
-------------
8.13. Management Compensation . . . . . . . . . 68
-----------------------
8.14. Lease Payments . . . . . . . . . . . . . 68
--------------
8.15. Capital Expenditures . . . . . . . . . . 69
--------------------
8.16. Total Debt Coverage Ratio . . . . . . . . 69
-------------------------
8.17. Minimum EBITDA . . . . . . . . . . . . . 69
--------------
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default . . . . . . . . . . . . 70
-----------------
ARTICLE X
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 10.01. Fees . . . . . . . . . . . . . . . . . . 74
----
10.02. Computation of Interest and Fees . . . . 74
--------------------------------
10.03. General Provisions Regarding Payments . 75
-------------------------------------
10.04. Expenses . . . . . . . . . . . . . . . . 75
--------
10.05. Indemnity . . . . . . . . . . . . . . . 76
---------
10.06. Taxes . . . . . . . . . . . . . . . . . 77
-----
10.07. Funding Losses . . . . . . . . . . . . . 77
--------------
10.08. Maximum Interest . . . . . . . . . . . . 78
----------------
ARTICLE XI
THE AGENT
SECTION 11.01. Appointment and Authorization . . . . . 79
-----------------------------
11.02. Agent and Affiliates . . . . . . . . . . 79
--------------------
11.03. Action by Agent . . . . . . . . . . . . 79
---------------
5
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11.04. Consultation with Experts . . . . . . . 79
-------------------------
11.05. Liability of Agent . . . . . . . . . . . 79
------------------
11.06. Indemnification . . . . . . . . . . . . 80
---------------
11.07. Credit Decision . . . . . . . . . . . . 80
---------------
11.08. Successor Agent . . . . . . . . . . . . 80
---------------
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Survival . . . . . . . . . . . . . . . . 81
--------
12.02. No Waivers . . . . . . . . . . . . . . . 81
----------
12.03. Notices . . . . . . . . . . . . . . . . 81
-------
12.04. Severability . . . . . . . . . . . . . . 82
------------
12.05. Amendments and Waivers . . . . . . . . . 82
----------------------
12.06. Successors and Assigns; Registration . . 82
------------------------------------
12.07. Collateral . . . . . . . . . . . . . . . 84
----------
12.08. Headings . . . . . . . . . . . . . . . . 84
--------
12.09. GOVERNING LAW; SUBMISSION TO JURISDICTION
85
-----------------------------------------
12.10. Notice of Breach by Agent or Lender . . 85
-----------------------------------
12.11. WAIVER OF JURY TRIAL . . . . . . . . . . 85
--------------------
12.12. Counterparts; Integration . . . . . . . 86
-------------------------
12.13. Knowledge of any Person . . . . . . . . 86
-----------------------
SCHEDULE 6.17 - Employment, Shareholders' and
Subscription Agreements
SCHEDULE 6.21 - Environmental Matters
SCHEDULE 6.22 - Initial Capitalization
SCHEDULE 6.23 - Real Property Interests
SCHEDULE 7.04 - Required Insurance
SCHEDULE 8.01 - Outstanding Debt
EXHIBIT A - Tranche A Note
EXHIBIT B - Tranche B Note
EXHIBIT C - Working Capital Note
EXHIBIT D - Warrant
EXHIBIT E - Company Security Agreement
EXHIBIT F - Holdings Pledge Agreement
6
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EXHIBIT G - Security Capital Pledge and Guaranty
Agreement
EXHIBIT H - Form of Mortgage
EXHIBIT I - Borrowing Base Certificate
EXHIBIT J - Opinion of counsel to the Company
EXHIBIT K - Opinion of Davis Polk & Wardwell
Special Counsel to the Agent
EXHIBIT L - Warrantholders Rights Agreement
EXHIBIT M - Seller Note
EXHIBIT N - Seller Subordination Agreement
EXHIBIT O - Investors Subordination Agreement
EXHIBIT P - Certain Charter Provisions
7
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of May 17, 1996 among POSSIBLE DREAMS,
LTD., P.D. HOLDINGS, INC., the LENDERS listed on the signature pages hereof
and NATIONSCREDIT COMMERCIAL CORPORATION, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. The following terms have the
---------------------
following meanings:
"Acquisition" means the transactions contemplated by the
Acquisition Documents to be consummated on or before the Closing Date.
"Acquisition Corp." means Possible Dreams, Ltd., a Delaware
corporation.
"Acquisition Documents" means the Asset Purchase Agreement,
including the exhibits and schedules thereto, and all agreements, documents
and instruments executed and delivered pursuant thereto or in connection
therewith.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Company (a "Controlling
Person") or (ii) any Person (other than the Company or any of its
Subsidiaries) which is controlled by or is under common control with a
Controlling Person or (iii) the Sellers. As used herein, the term "control"
of a Person means the possession, directly or indirectly, of the power to
vote 10% or more of any class of voting securities of such Person or to
direct or cause the
<PAGE>
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means NationsCredit in its capacity as agent for the
Lenders hereunder, and its successors in such capacity.
"Applicable Premium Percentage" has the meaning set forth in
Section 2.04(c).
"Asset Purchase Agreement" means the Asset Purchase Agreement dated
as of May 14, 1996 among Possible Dreams MA, Columbia National, Leonard
Miller, Richard L. Seegal in his capacity as trustee of the Samuel C. Miller
Trust u/d/t/ 8/5/95, the Management Stockholders and Acquisition Corp.
"Asset Sale" means any sale, lease or other disposition (including
any such transaction effected by way of merger or consolidation) by the
Company or any of its Subsidiaries of any asset, but excluding (i)
dispositions of inventory in the ordinary course of business, (ii)
dispositions of obsolete, worn-out or surplus equipment and (iii)
dispositions of Temporary Cash Investments and cash payments otherwise
permitted under this Agreement; provided that a disposition of assets not
--------
excluded by clauses (i), (ii) or (iii) above during any Fiscal Year shall not
constitute an Asset Sale unless and until (and only to the extent that) the
aggregate Net Cash Proceeds from such disposition, when combined with the Net
Cash Proceeds all other such dispositions previously made during such Fiscal
Year, exceeds $50,000.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrowing Base" means, on any date in any Fiscal Year, a dollar
amount equal to the sum of (i) 85% of
2
<PAGE>
Eligible Receivables, (ii) solely if such date falls during the period from
and including March 15 to and including September 30 of such Fiscal Year, 70%
of Eligible Inventory in respect of which a book order has been recognized by
the Company ("Matched Inventory") and (iii) 50% of Eligible Inventory (other
than, solely if such date falls during the period from and including March 15
to and including September 30 of such Fiscal Year, Matched Inventory);
provided that in no event shall the aggregate amount of Eligible Inventory
--------
included in the Borrowing Base pursuant to this clause (iii) and which has
been identified as "slow-moving inventory" in the most recent written
statement delivered by the independent public accountants of the Company
pursuant to Section 7.01(d) exceed $1,000,000.
"Borrowing Base Certificate" means a certificate, duly executed by
the chief financial officer or treasurer of the Company, appropriately
completed and substantially in the form of Exhibit I.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in Chicago or New York City are authorized by law
to close.
"Capital Lease" of any Person means any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on
the balance sheet of such Person.
"Capital Partners" means Capital Partners, Inc., a Connecticut
corporation, and its successors.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as
-- ----
amended from time to time, and regulations promulgated thereunder.
"Class" refers, with respect to Loans, to whether such Loans are
Tranche A Loans, Tranche B Loans or Working Capital Loans and, with respect
to Commitments, to whether
3
<PAGE>
such Commitments are Tranche A Commitments, Tranche B Commitments or Working
Capital Commitments.
"Closing Date" means May 17, 1996, or such other date as the
parties hereto agree to in writing, but in any event not later than May 31,
1996.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" means all property mortgaged, pledged or otherwise
purported to be subjected to a Lien pursuant to the Security Documents.
"Columbia National" means Columbia National Corporation, a
Massachusetts corporation.
"Commitment" means a Tranche A Commitment, Tranche B Commitment or
Working Capital Commitment, or any combination of the foregoing, as the
context may require.
"Common Stockholders Agreement" means the Stockholders Agreement
dated the Closing Date among Holdings, Security Capital and the Management
Stockholders.
"Company" means Acquisition Corp.; provided that, when used with
--------
reference to periods prior to the Closing Date, "Company" means each of
Possible Dreams MA and Columbia National.
"Company Account" means the account specified on the signature
pages hereof into which all Loans to the Company shall be made available, or
such other account as the Company shall from time to time specify by notice
to the Lenders.
"Company Common Stock" means the Company Voting Common Stock or the
Company Non-Voting Common Stock, or both, as the context may require.
"Company Non-Voting Common Stock" means the Class B common stock of
the Company, $.01 par value per share.
4
<PAGE>
"Company Security Agreement" means the Company Security Agreement
dated as of the date hereof between the Company and the Agent, substantially
in the form of Exhibit E.
"Company Voting Common Stock" means the Class A common stock of the
Company, $.01 par value per share.
"Consolidated Capital Expenditures" means, for any period, the
aggregate amount of expenditures by Holdings and its Consolidated
Subsidiaries for plant, property and equipment during such period (including
any such expenditure by way of acquisition of a Person or by way of
assumption of indebtedness or other obligations of a Person, to the extent
reflected as plant, property and equipment), but excluding any such
expenditures made for the replacement or restoration of assets to the extent
financed by condemnation awards or proceeds of insurance received with
respect to the loss or taking of or damage to the asset or assets being
replaced or restored.
"Consolidated Free Cash Flow" means, for any period, EBITDA for
such period minus the following amounts:
(a) (i) all cash payments of income taxes by Holdings and its
Consolidated Subsidiaries during such period and (ii) to the extent not
included in clause (i), the aggregate amount of Tax Sharing Payments
during such period;
(b) Consolidated Capital Expenditures for such period, to the
extent that such Consolidated Capital Expenditures are permitted by
Section 8.15 and are not financed during such period (and will not be
financed in any future period) with the proceeds of Debt of the Company
permitted by Section 8.01(c); and
(c) any net gain in respect of Asset Sales during such period.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of Holdings in
its consolidated
5
<PAGE>
financial statements if such statements were prepared as of such date.
"Consolidated Total Debt" means at any date the Debt of Holdings
and its Consolidated Subsidiaries, determined on a consolidated basis at such
date and without giving effect to any amount attributable to original issue
discount in connection with the issuance of the Warrants.
"Dating Program Receivable" means any Receivable (other than a
Receivable payable within 30 days after the date of the issuance of the
original invoice therefor) payable on or prior to December 10 of the Fiscal
Year in which such Receivable is generated.
"Debt" of a Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all Capital Leases of such Person, (v) all
obligations of such Person to purchase securities (or other property) which
arise out of or in connection with the sale of the same or substantially
similar securities (or property), (vi) all non-contingent obligations of such
Person to reimburse any bank or other Person in respect of amounts paid under
a letter of credit or similar instrument, (vii) all equity securities of such
Person (other than the Warrants) subject to repurchase or redemption
otherwise than at the sole option of such Person, (viii) all Debt secured by
a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person, and (ix) all Debt of others Guaranteed by such
Person.
"Default" means any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
6
<PAGE>
"EBITDA" means, for any period, the consolidated net income of
Holdings and its Consolidated Subsidiaries for such period, after all
expenses and other proper charges except depreciation, interest,
amortization, income taxes and, to the extent not included in income taxes,
Tax Sharing Payments for such period, determined in accordance with GAAP
minus (i) all intercompany items, (ii) all earnings attributable to equity
------
interests in Persons that are not Subsidiaries unless actually received by
Holdings or a Consolidated Subsidiary, (iii) all income arising from the
forgiveness, adjustment, or negotiated settlement of any indebtedness, (iv)
any extraordinary items of income or expense, (v) any increase or decrease in
income arising from any change in Holdings' method of accounting, subject to
Section 1.02, (vi) any fees paid pursuant to the Management Agreement and
(vii) any interest income, in each case for such period.
"Eligible Inventory" means, at any date of determination thereof,
the aggregate value (determined at the lower of cost or market on a basis
consistent with that used in the preparation of the financial statements
referred to in Section 6.04(a)) at such date of all Inventory owned by the
Company and located in any jurisdiction in the United States of America as to
which appropriate UCC financing statements have been filed naming the Company
as "debtor" and the Agent as "secured party", all net of any amounts payable
by the Company in respect of commissions, processing fees or other charges,
excluding, however, without duplication (i) any such Inventory which has been
shipped to a customer, even if on a consignment or "sale or return" basis and
whether or not such Inventory has been subsequently returned by such customer
(other than any such Inventory which has been returned by a customer and is
in saleable condition); (ii) any Inventory subject to a Lien (other
7
<PAGE>
than Liens created pursuant to the Company Security Agreement and Liens
permitted under Section 8.02(f)), including a landlord's or warehouseman's
Lien; (iii) any Inventory against which the Company has taken a reserve; (iv)
any Inventory not subject to a valid and perfected first-priority Lien in
favor of the Agent under the Company Security Agreement, subject to no prior
or equal Lien (other than Liens permitted under Section 8.02(f)); (v) any
Inventory which is in transit; (vi) any Inventory not produced in compliance
with the applicable requirements of the Fair Labor Standards Act; and (vii)
any supply, scrap or obsolete Inventory and any Inventory that is not
reasonably marketable; provided that Inventory that is otherwise excluded
--------
from the definition of "Eligible Inventory" solely by virtue of clauses (ii),
(iv) or (v) or because it is not at such time located in any jurisdiction in
the United States of America as to which appropriate UCC financing statements
have been filed and as to which the Agent shall have a perfected security
interest (including without limitation pursuant to arrangements between the
Agent and any relevant letter of credit bank in form and substance
satisfactory to the Agent in its sole discretion), shall be included in any
determination of Eligible Inventory, but only to the extent that such
Inventory consists of finished goods in transit or Inventory held by others
and the aggregate value thereof (determined as aforesaid) does not at any
time exceed $3,500,000.
"Eligible Receivables" means, at any date of determination thereof,
the aggregate amount of all Receivables at such date due to the Company other
than the following (determined without duplication):
(a) any Receivable due from an account debtor that is not both
domiciled in the United States of America and (if not a natural person)
organized under the laws of the United States of America or any
political subdivision thereof and any Receivable that is not denominated
and payable in U.S. dollars;
(b) any Receivable that does not comply with all applicable legal
requirements, including, without limitation, all laws, rules,
regulations and orders of any governmental or judicial authority
(including any Receivable due from an account debtor located in the
States of New Jersey or Minnesota, unless the Company (at the time the
Receivable was created and at all times thereafter) (i) had filed and
has maintained effective a current notice of business activities
8
<PAGE>
report with the appropriate office or agency of the State of New Jersey
or Minnesota (but only if such notice of business activities report is
required to be filed or maintained under applicable law in the States of
New Jersey or Minnesota) or (ii) was and has continued to be exempt from
filing such report and has provided Agent with satisfactory evidence
thereof);
(c) any Receivable in respect of which there is any unresolved
dispute with the account debtor, but only to the extent of such dispute;
(d) any Receivable (other than a Dating Program Receivable)
payable more than 30 days after the date of the issuance of the original
invoice therefor;
(e) (i) any Receivable (other than a Dating Program Receivable)
that remains unpaid for more than 90 days from the original due date
specified at the time of the original issuance of the invoice therefor
and (ii) any Dating Program Receivable that remains unpaid for more than
60 days from the original due date specified at the time of the original
issuance of the invoice therefor;
(f) any unbilled Receivable and any Receivable in respect of goods
not yet shipped;
(g) any Receivable arising outside the ordinary course of business
of the Company;
(h) any Receivable in respect of which there has been established
a contra account, or which is due from an account debtor to whom the
Company owes a trade payable, but only to the extent of such account or
trade payable;
(i) any Receivable that is not subject to a first priority
perfected Lien under the Company Security Agreement (except for Liens
permitted under Section 8.02(f)) and any Receivable evidenced by an
"instrument" (as defined in the UCC) not in the
9
<PAGE>
possession of the Agent;
(j) any Receivable due from an account debtor (I) as to which on
such date (x) Receivables (other than Dating Program Receivables)
representing more than 25% of aggregate amount of all Receivables (other
than Dating Program Receivables) of such account debtor have remained
unpaid for more than 90 days from the original due date specified at the
time of the original issuance of the invoice therefor or (y) Dating
Program Receivables representing more than 25% of aggregate amount of
all Dating Program Receivables of such account debtor have remained
unpaid for more than 60 days from the original due date specified at the
time of the original issuance of the invoice therefor, (II) in respect
of which a credit loss has been recognized or reserved by the Company or
any of its Subsidiaries, (III) in respect of which the Agent shall have
notified the Company that such account debtor does not have a
satisfactory credit standing as determined in good faith by the Agent,
(IV) that is a Subsidiary or Affiliate of the Company, (V) that is the
United States of America or any department, agency or instrumentality
thereof, unless the Company has complied in all respects with the
Federal Assignment of Claims Act of 1940, or (VI) that is the subject of
a case or proceeding of the type described in clauses (g) and (h) of
Section 9.01;
(k) any Receivable due at any time (i) from an account debtor that
the Company has not instructed such account debtor in the invoice
therefor to make payments in respect of such Receivable to the Lockbox
Account (as defined in the Company Security Agreement) if at such time
such payments are required to be made to the Lockbox Account pursuant to
Section 5(B) of the Company Security Agreement or (ii) from any account
debtor that makes payments in a form that cannot be accepted in the
Lockbox Account if at such time such payments are required to be made to
the Lockbox Account pursuant to Section 5(B) of the Company Security
Agreement; and
10
<PAGE>
(l) any Receivables due from an account debtor at any time, to the
extent that the aggregate outstanding amount of Receivables due from
such account debtor and its affiliates at such time exceeds 20% of the
aggregate amount of all Receivables due to the Company at such time, but
only to the extent of such excess.
"Employment Contracts" means the employment contracts delivered by
the Company to NationsCredit on the Closing Date pursuant to Section 5.01(o).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions,
whether now or hereafter in effect, relating to human health, the environment
or to emissions, discharges or releases of pollutants, contaminants,
Hazardous Materials or wastes into the environment, including ambient air,
surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Materials or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
"ERISA Group" means the Company, any Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Company or
any Subsidiary, are treated as a single employer under Section 414 of the
Code.
"Event of Default" has the meaning set forth in Section 9.01.
"Excess Cash Flow" means, for any period, an amount equal to:
11
<PAGE>
(a) EBITDA for such period, it being understood that any fees
paid pursuant to the Management Agreement with respect to
such period have been deducted from the determination of
EBITDA for such period in accordance with the definition of
EBITDA set forth herein;
(b) minus the following amounts:
-----
(i) (x) all cash payments of taxes by Holdings and its
Consolidated Subsidiaries during such period and (y) to the extent
not included in clause (x), the aggregate amount of Tax Sharing
Payments during such period;
(ii) Consolidated Capital Expenditures for such period, to the
extent that such Consolidated Capital Expenditures are permitted by
Section 8.15 and are not financed during such period (and will not
be financed in any future period) with the proceeds of Debt of the
Company permitted by Section 8.01(c);
(iii) any net gain in respect of Asset Sales during such
period; and
(iv) the sum for such period of (x) Total Debt Service
(exclusive of amortization of debt discount or premium) for such
period, (y) all optional payments of the Tranche A Notes and
Tranche B Notes during such period pursuant to Sections 2.04(c) and
3.04(c), and (z) the aggregate amount of Restricted Payments made
during such period in accordance with clauses (i), (ii) or (iii) of
the proviso to Section 8.04(a); and
(c) plus (or minus) the following amounts:
---- -----
(i) any net cash extraordinary gains (or extraordinary cash
losses) for such period of Holdings and its Consolidated
Subsidiaries (except
12
<PAGE>
any such gains or losses in respect of Asset Sales);
(ii) any decrease (or increase) in the Net Working Investment
at the last day of such period when compared with the Net Working
Investment at the day immediately preceding the first day of such
period; and
(iii) any interest income of Holdings and its Consolidated
Subsidiaries for such period.
"Financing Documents" means this Agreement, the Notes and the
Security Documents.
"Fiscal Year" means a fiscal year of the Company.
"GAAP" has the meaning set forth in Section 1.02.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or
other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise,
of such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
--------
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Materials" means (i) any "hazardous substance" as
defined in CERCLA; (ii) asbestos; (iii) polychlorinated biphenyls; (iv)
petroleum, its derivatives, by-products and other hydrocarbons; and (v) any
other toxic,
13
<PAGE>
radioactive, caustic or otherwise hazardous substance regulated under
Environmental Laws.
"Hazardous Materials Contamination" means contamination (whether
now existing or hereafter occurring) (i) of the improvements, buildings,
facilities, personalty, soil, groundwater, air or other elements on or of any
property now or previously owned, leased or operated by the Company or any of
its Subsidiaries by Hazardous Materials, or any derivatives thereof, or (ii)
on or of any other property as a result of Hazardous Materials, or any
derivatives thereof, generated on, emanating from or disposed of in
connection with any property now or previously owned, leased or operated by
the Company or any of its Subsidiaries.
"Holdings" means P.D. Holdings, Inc., a Delaware corporation, and
its successors.
"Holdings Common Stock" means the common stock, par value $.01 per
share, of Holdings.
"Holdings Documents" has the meaning set forth in Section 8.11.
"Holdings Pledge Agreement" means the Holdings Pledge Agreement
dated as of the date hereof between Holdings and the Agent, substantially in
the form of Exhibit F.
"Indemnitees" has the meaning set forth in Section 10.05.
"Insurance Account" has the meaning set forth in the Company
Security Agreement.
"Inventory" means inventory (as defined in Article 9 of the UCC) to
the extent comprised of readily marketable materials of a type manufactured,
consumed or held for resale (including raw materials and work-in-process) by
the Company in the ordinary course of its business as presently
14
<PAGE>
conducted, or as modified from time to time in a manner not prohibited by
this Agreement.
"Investment" means any investment in any Person, whether by means
of share purchase, capital contribution, loan, time deposit or otherwise.
"Investors" means Capital Partners and Security Capital.
"Investors Subordination Agreement" means the Subordination
Agreement dated as of the date hereof among the Company, Security Capital and
the Agent, substantially in the form of Exhibit O.
"Investors Subscription Agreement" means the Subscription Agreement
dated May 16, 1996 between Security Capital and Holdings.
"IPO" means the initial sale of shares of Common Stock by and for
the account of the Holdings pursuant to an underwritten public offering
registered under the Securities Act.
"Key-Man Life Insurance Policies" has the meaning set forth in
Section 7.04(c).
"LC Issuer" means a bank or trust company, as issuer of all Letters
of Credit outstanding hereunder at any time, who shall be mutually acceptable
to the Company and the Agent and whose identity shall have been notified to
each of the Lenders (i) in the case of the initial LC Issuer, prior to the
issuance of the first Letter of Credit after the date hereof or (ii) in the
case of any substitute for the initial LC Issuer, prior to the issuance of
the first Letter of Credit issued by such substitute LC Issuer and after the
date on which all Letters of Credit issued by the initial LC Issuer shall
have expired (or shall have been made subject to arrangements satisfactory to
the Required Lenders for the release of the Reimbursement Obligation of the
Lenders with respect thereto), it being understood that the LC Issuer shall
not be an affiliate of any Lender
15
<PAGE>
without the consent of such Lender. For purposes of this definition, The
First National Bank of Boston, N.A. shall be deemed to be an "LC Issuer"
acceptable to the Company and the Agent and with respect to which notice has
been duly given to each of the Lenders.
"Lender" means NationsCredit and each other Person that becomes a
holder of a Note pursuant to Section 12.06, and their respective successors,
and "Lenders" means all of the foregoing.
"Letter of Credit" means a letter of credit issued pursuant to
Section 4.08(a) for the account of the Company by the LC Issuer.
"Letter of Credit Liabilities" means, at any time the sum, without
duplication, of (i) the aggregate amount available for drawing under all
Letters of Credit (without regard to whether any conditions to drawing
thereunder can then be met) plus (ii) the aggregate unpaid amount of all
----
Reimbursement Obligations in respect of previous drawings made under all
Letters of Credit.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other
type of preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of this
Agreement and the other Financing Documents, the Company or any Subsidiary
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset.
"Loans" means the Tranche A Loans, the Tranche B Loans and the
Working Capital Loans, or any combination of the foregoing, as the context
may require.
"Lockbox Account" has the meaning set forth in the Company Security
Agreement.
16
<PAGE>
"Lockbox Agreement" has the meaning set forth in the Company
Security Agreement.
"Lockbox Bank" has the meaning set forth in the Company Security
Agreement.
"Major Casualty Proceeds" means (i) the aggregate insurance
proceeds received in connection with one or more related events by the
Company or any of its Subsidiaries under any Property Insurance Policy or
(ii) any award or other compensation with respect to any condemnation of
property (or any transfer or disposition of property in lieu of condemnation)
received by the Company or any of its Subsidiaries, if the amount of such
aggregate insurance proceeds or award or other compensation exceeds
$1,000,000.
"Management Agreement" means the Management Advisory Services
Agreement dated as of the date hereof between Security Capital and the
Company.
"Management Stockholders" means Warren Stanley and Arnold Lee.
"Management Subscription Agreement" means the Subscription
Agreement dated as of [the date hereof] among the Management Stockholders and
Holdings.
"Margin Stock" has the meaning assigned thereto in Regulation G, U
or X of the Federal Reserve Board, as the same may be amended, supplemented
or modified from time to time.
"Material Adverse Effect" means (i) a material adverse effect upon
the business, financial position, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries or (ii) a
material adverse effect on the rights and remedies of the Agent and the
Lenders under this Agreement and the Notes and the other Financing Documents.
"Material Plan" means at any time a Plan having Unfunded
Liabilities.
17
<PAGE>
"Measuring Period" means, with respect to the last day of any
fiscal quarter of the Company (i) if such last day falls on September 30,
1996, the period from and including June 1, 1996 to and including September
30, 1996, (ii) if such last day falls on December 31, 1996, the period from
and including July 1, 1996 to and including December 31, 1996, (iii) if such
last day falls on March 31, 1997, the period from and including July 1, 1996
to and including March 31, 1997, and (iv) if such last day fall any time
thereafter, the period of four consecutive fiscal quarters of the Company
ended on such day.
"Mortgage" means the Mortgage, Assignment, Assignment of Leases and
Rents, Security Agreement and Fixture Filing dated as of the date hereof
between the Company and the Agent, substantially in the form of Exhibit H.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.
"NationsCredit" means NationsCredit Commercial Corporation, a
Delaware corporation, and its successors.
"Net Cash Proceeds" means, with respect to any transaction, an
amount equal to the cash proceeds received by the Company or any of its
Subsidiaries from or in respect of such transaction (including any cash
proceeds received as income or other proceeds of any non-cash proceeds of
such transaction), less (x) any expenses (including commissions) reasonably
incurred by such Person in respect of such transaction and (y) in the case of
an Asset Sale, the amount of any Debt secured by a Lien on the related asset
and discharged from the proceeds of such Asset Sale and any taxes paid or
payable by such Person (as estimated by the
18
<PAGE>
chief financial officer of the Company) in respect of such Asset Sale.
"Net Working Investment" means, at any date, (i) the consolidated
current assets (excluding cash and cash equivalents) of Holdings and its
Consolidated Subsidiaries minus (ii) the sum of (x) consolidated current
liabilities (excluding Debt) of the Company and its Consolidated Subsidiaries
plus (y) the current liabilities of any Person (other than Holdings or a
Consolidated Subsidiary) which are Guaranteed by Holdings or a Consolidated
Subsidiary, all determined as of such date.
"Notes" means the Tranche A Notes, the Tranche B Notes and the
Working Capital Notes, or any combination of the foregoing, as the context
may require.
"Notice of Borrowing" has the meaning set forth in Section 4.04.
"Officers' Certificate" means a certificate executed on behalf of a
Person by its chairman of the board (if an officer), chief executive officer
or president or one of its vice presidents and by its chief financial officer
or treasurer.
"Operative Documents" means the Financing Documents, the
Acquisition Documents, the Warrants, the Common Stockholders Agreement, the
Investors Subscription Agreement, the Management Subscription Agreement, the
Management Agreement, the Seller Notes, the Seller Subordination Agreement,
the Investors Subordination Agreement, the Employment Contracts, the
Warrantholders Rights Agreement and the Tax Sharing Agreement.
"Payment Account" means, with respect to each Lender, the account
specified on the signature pages hereof into which all payments by or on
behalf of the Company to such Lender under the Financing Documents shall be
made, or such other account as such Lender shall from time to time specify by
notice to the Company.
19
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Contest" means a contest maintained in good faith by
appropriate proceedings promptly instituted and diligently conducted and with
respect to which such reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; provided that
--------
compliance with the obligation that is the subject of such contest is
effectively stayed or permitted to be deferred during such challenge.
"Permitted Liens" means Liens permitted pursuant to Section 8.02.
"Person" means any natural person, corporation, limited
partnership, limited liability company, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company,
land trust, business trust or other organization, whether or not a legal
entity, and any government agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject
to the minimum funding standards under Section 412 of the Code and either (i)
is maintained, or contributed to, by any member of the ERISA Group for
employees of any member of the ERISA Group or (ii) has at any time within the
preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.
"Possible Dreams MA" means Possible Dreams, Ltd., a Massachusetts
corporation.
"Property Insurance Policy" means any insurance policy maintained
by the Company or any of its Subsidiaries covering losses with respect to
tangible real or personal
20
<PAGE>
property or improvements or losses from business interruption.
"Quarterly Date" means the first Business Day of each July,
October, January and April occurring after the Closing Date.
"Real Property" means the premises known as 2 Phelps Drive,
Foxborough, MA 02035, all as more fully described in Exhibit A to the
Mortgage.
"Receivable" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the respective invoice, of a
customer of the Company in respect of Inventory or services rendered in the
ordinary course of business, which amount has been earned by performance
under the terms of the related contract and recognized as revenue on the
books of the Company, net of any credits, rebates or offsets owed to the
customer and also net of any commissions payable to Persons other than
employees of the Company or its Subsidiaries.
"Reimbursement Obligations" means at any date the obligations of
the Company then outstanding to reimburse the LC Issuer and/or the Lenders
for payments made by the LC Issuer under all Letters of Credit and/or the
Lenders under Section 4.08(b).
"Required Lenders" means at any time Lenders holding Notes
evidencing at least 51% of the aggregate unpaid principal amount of the Loans
or, if no Loans are outstanding, having at least 51% of the aggregate amount
of the Commitments or, if the Commitments shall have been terminated and the
Notes shall have been repaid in full, holding at least 51% of the Letter of
Credit Liabilities.
"Restricted Payment" means (i) any dividend or other distribution
on any shares of the Company's capital stock (except dividends payable solely
in shares of its capital stock of the same class) or (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any
shares of the Company's capital stock
21
<PAGE>
or (b) any option, warrant or other right to acquire shares of the Company's
capital stock, it being understood that any payment made directly by the
Company to Security Capital under the Tax Sharing Agreement does not
constitute a "Restricted Payment".
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Security Capital" means Security Capital Corporation, a Delaware
corporation, and its successors.
"Security Capital Pledge Agreement" means the Pledge and Guaranty
Agreement dated as of the date hereof between the Company and Security
Capital, substantially in the form of Exhibit G.
"Security Documents" means the Company Security Agreement, the
Security Capital Pledge Agreement, the Holdings Pledge Agreement, the
Mortgage and any other agreement pursuant to which Holdings, the Company or
any of its or their Subsidiaries or Affiliates provides a Lien on its assets
in favor of the Agent for the benefit of the Lenders, and all supplementary
assignments, security agreements, pledge agreements, acknowledgments or other
documents delivered or to be delivered pursuant to the terms hereof or of any
other Security Document.
"Sellers" means Columbia National and Possible Dreams MA.
"Seller Notes" means the Notes dated the Closing Date and issued by
the Company to the Sellers in the initial aggregate principal amount of
$2,460,000, each in substantially the form of Exhibit M.
"Seller Subordination Agreement" means the Subordination Agreement
dated as of the date hereof among the Company, the Sellers and the Agent,
substantially in the form of Exhibit N.
22
<PAGE>
"Subsidiary" means with respect to any Person any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person; provided that unless the context otherwise requires,
--------
"Subsidiary" means a Subsidiary of the Company.
"Tax Sharing Agreement" means the Consolidated Income Tax Sharing
Agreement dated as of the Closing Date among Security Capital, the Company
and Holdings.
"Tax Sharing Payments" means, for any period, the aggregate amount
of cash payments made by Holdings and the Company to Security Capital
pursuant to the Tax Sharing Agreement for tax liabilities for such period.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Ratings Services and P-1 by Moody's
Investors Service, Inc., (iii) time deposits with, including certificates of
deposit issued by, any office located in the United States of any bank or
trust company which is organized under the laws of the United States or any
State thereof and has capital, surplus and undivided profits aggregating at
least $500,000,000 and which issues (or the parent of which issues)
certificates of deposit or commercial paper with a rating described in clause
(ii) above, or (iv) repurchase agreements with respect to securities
described in clause (i) above entered into with an office of a bank or trust
company meeting the criteria specified in clause (iii) above, provided in
--------
each case that such Investment matures within one year from the date of
acquisition thereof by the Company or any of its Subsidiaries.
"Total Debt Service" means, for any period, the sum of (i) the
aggregate interest charges incurred by Holdings and its Consolidated
Subsidiaries for such period,
23
<PAGE>
whether expensed or capitalized, including the portion of any obligation
under Capital Leases allocable to interest expense in accordance with GAAP
and the portion of any debt discount or premium (but not expenses of
issuance) that shall be amortized in such period and (ii) the aggregate
amount during such period of mandatory principal payments pursuant to
Sections 2.04(a) and 3.04(a) and all other scheduled principal payments on
all other Debt, including the portion of any payments under Capital Leases
that is allocable to principal.
"Tranche A Commitment" means, for NationsCredit as Lender, an
amount equal to $5,750,000.
"Tranche A Loan" has the meaning set forth in Section 2.01.
"Tranche A Note" has the meaning set forth in Section 2.02.
"Tranche B Commitment" means, for NationsCredit as Lender, an
amount equal to $3,500,000.
"Tranche B Loan" has the meaning set forth in Section 3.01.
"Tranche B Note" has the meaning set forth in Section 3.02.
"UCC" has the meaning set forth in the Company Security Agreement.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under
such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii)
the fair market value of all Plan assets allocable to such liabilities under
Title IV of ERISA (excluding any accrued but unpaid contributions), all
determined as of the then most recent valuation date for such Plan, but only
to the extent that such excess represents a potential liability of
24
<PAGE>
a member of the ERISA Group to the PBGC or any other Person under Title IV of
ERISA.
"Warrantholders Rights Agreement" means the Warrantholders Rights
Agreement dated as of the date hereof among Holdings, the Company and the
warrantholders and stockholders referred to therein, substantially in the
form of Exhibit L.
"Warrant Shares" means the shares of Company Non-Voting Common
Stock issuable upon exercise of the Warrants.
"Warrants" has the meaning set forth in Section 3.05.
"Working Capital Borrowing" means the aggregation of Working
Capital Loans of the Lenders to be made to the Company pursuant to Section
4.01 on a single date.
"Working Capital Commitment" means, (i) for NationsCredit as
Lender, initially $10,000,000, less any amount assigned to another Person
that becomes a Lender after the date hereof (a "Subsequent Lender") and (ii)
for any Subsequent Lender, the amount of Working Capital Commitment assigned
to such Lender.
"Working Capital Loans" has the meaning set forth in Section 4.01.
"Working Capital Note" has the meaning set forth in Section 4.02.
"Working Capital Outstandings" means at any time, as to any Lender,
the sum of the aggregate outstanding principal amount of such Lender's
Working Capital Loans and its pro rata share of the Letter of Credit
--- ----
Liabilities.
SECTION 1.02. Accounting Terms and Determinations. Unless
-----------------------------------
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder
25
<PAGE>
shall be prepared in accordance with generally accepted accounting principles
as in effect from time to time ("GAAP"), applied on a basis consistent
(except for changes concurred in by the Company's independent public
accountants) with the most recent audited consolidated financial statements
of the Company and its Consolidated Subsidiaries delivered to the Lenders;
provided that, if the Company notifies the Lenders that the Company wishes to
--------
amend any covenant in Article VIII or the definition of "Excess Cash Flow" or
any related definition to eliminate the effect of any change in GAAP on the
operation of such covenant or the determination of "Excess Cash Flow" (or if
the Agent notifies the Company that the Required Lenders wish to amend
Article VIII or the definition of "Excess Cash Flow" or any related
definition for such purpose), then the Company's compliance with such
covenant or "Excess Cash Flow", as the case may be, shall be determined on
the basis of GAAP in effect immediately before the relevant change in GAAP
became effective, until either such notice is withdrawn or such covenant is
amended in a manner satisfactory to the Company and the Required Lenders.
SECTION 1.03. Other Definitional Provisions. References in this
-----------------------------
Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to
Articles, Sections, Schedules or Exhibits of or to this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.01
may, unless the context otherwise requires, be used in the singular or plural
depending on the reference. "Include", "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. "Writing", "written" and
comparable terms refer to printing, typing and other means of reproducing
words in a visible form. References to any agreement or contract are to such
agreement or contract as amended, modified or supplemented from time to time
in accordance with the terms hereof and thereof. References to any Person
include the successors and assigns of such Person. References "from" or
"through" any date mean, unless otherwise specified, "from and including" or
"through and including", respectively.
26
<PAGE>
ARTICLE II
TRANCHE A LOANS
SECTION 2.01. Tranche A Loans. Upon the terms and subject to the
---------------
conditions set forth herein, NationsCredit agrees to make one senior floating
rate loan to the Company on the Closing Date pursuant to this Section 2.01 in
a principal amount equal to its Tranche A Commitment (such loan, or any
portion thereof assigned to any other Lender in accordance with Section
12.06, a "Tranche A Loan"). Tranche A Loans are not revolving in nature and
amounts of such Loans repaid or prepaid may not be reborrowed. The Tranche A
Commitment shall terminate at the close of business on the Closing Date.
SECTION 2.02. Tranche A Notes. Each Tranche A Loan shall be
---------------
evidenced by a Tranche A Note of the Company substantially in the form of
Exhibit A (each such note, a "Tranche A Note"), dated the Closing Date in a
principal amount equal to the initial principal amount of such Tranche A
Loan, duly executed and delivered by the Company and payable to the Lender of
such Tranche A Loan.
SECTION 2.03. Interest on the Tranche A Loans. Each Tranche A Loan
-------------------------------
shall bear interest on its principal amount outstanding from the Closing Date
at the ratedetermined as set forth in the Tranche A Note in respect thereof.
Interest shall be payable monthly in arrears as set forth therein.
SECTION 2.04. Repayments and Prepayments of Tranche A Notes. (a)
---------------------------------------------
Mandatory Scheduled Repayments. There shall become due and payable and the
------------------------------
Company shall repay an aggregate principal amount of the Tranche A Notes on
each Quarterly Date, commencing with the second Quarterly Date following the
Closing Date, equal to the applicable installment amount set forth below (or,
if less, the aggregate outstanding principal amount of the Tranche A Notes),
in each case together with accrued and unpaid interest on the principal
amount being repaid to and but excluding the date of payment:
27
<PAGE>
Installment Principal Amount
----------- ----------------
Nos. 1-4 $187,500.00
Nos. 5-8 $250,000.00
Nos. 9-16 $312,500.00
Nos. 17-20 $375,000.00
(b) Mandatory Incremental Prepayments. (i) There shall
---------------------------------
become due and payable, and the Company shall prepay, on the 90th day
following the last day of each Fiscal Year beginning with the Fiscal Year
ending December 31, 1996, an aggregate principal amount of the Tranche A
Notes equal to 75% of the Excess Cash Flow (or, if less, the aggregate
outstanding principal amount of the Tranche A Notes) for such Fiscal Year
(or, in the case of the payment for the first such period, for the period
beginning on the Closing Date and ending on the last day of such Fiscal
Year).
(ii) On the date on which the Company or any of its Subsidiaries
receives (x) any payment which constitutes Major Casualty Proceeds or (y) any
payment under any Key-Man Life Insurance Policy, the amount of such payment
shall be applied to prepay outstanding Tranche A Loans in an aggregate
principal amount equal to the amount of such payment (or, if less, the
aggregate outstanding principal amount of the Tranche A Notes), unless, in
the case of Major Casualty Proceeds only, the Required Lenders shall
otherwise direct (in which case the amount of such payment shall be deposited
into the Insurance Account to be held and applied in accordance with Section
5 of the Company Security Agreement).
(iii) Promptly upon receipt thereof by the Company or any
Subsidiary, 100% of the Net Cash Proceeds received in respect of any Asset
Sale shall be applied to prepay outstanding Tranche A Loans in an aggregate
principal amount equal to the amount of such Net Cash Proceeds (or, if less,
the aggregate outstanding principal amount of the Tranche A Loans).
(iv) Promptly upon receipt thereof by Holdings, 100% of the Net Cash
Proceeds from the issuance and sale of
28
<PAGE>
common stock or other equity securities after the Closing Date shall be
applied to prepay outstanding Tranche A Loans in an aggregate principal
amount equal to the amount of such Net Cash Proceeds (or, if less, the
aggregate outstanding principal amount of the Tranche A Loans).
(v) Any prepayment of the Tranche A Notes in whole under this
Section 2.04(b) shall be made together with accrued and unpaid interest on
the principal amount being prepaid to but excluding the date of payment.
(c) Optional Prepayments. (i) From and after the first
--------------------
anniversary date of the Closing Date, the Company may prepay the Tranche A
Notes in whole or in part (in principal amounts of $250,000 or in any
integral multiple of $10,000 in excess thereof) upon prior revocable written
notice to the Lenders, by paying an amount equal to the Applicable Premium
Percentage on the date of payment of the aggregate principal amount being
prepaid together, in the case of any prepayment of the remaining Tranche A
Notes in whole, with accrued and unpaid interest on the principal amount
being prepaid to but excluding the date of payment.
"Applicable Premium Percentage" means, at any date, (a) 102%
if such date is the first anniversary of the Closing Date, (b) the
percentage equal to 102% minus the Reduction Percentage at such date if
such date occurs after the first anniversary of the Closing Date but prior
to the third anniversary of the Closing Date and (c) 100% if such date
occurs on or after the third anniversary of the Closing Date.
"Reduction Percentage" means, at any date, a percentage equal
to 0.0833% multiplied by the number of times the 17th day of a month has
occurred during the period from and excluding the first anniversary of the
Closing Date to and including such date.
(ii) Notwithstanding the foregoing, the Company may not
prepay the Tranche A Notes in whole pursuant to this subsection (c) with the
proceeds of other Debt unless simultaneously with such prepayment (x) the
Company (A)
29
<PAGE>
prepays any outstanding balance of the Tranche B Notes, together with
accrued interest thereon, in accordance with Section 3.04(c) and (B) repays
all Working Capital Loans and terminates the Working Capital Commitments,
(y) all Letters of Credit are terminated with the consent of the respective
beneficiaries thereunder or cash collateral is deposited to cover the
undrawn balance of each Letter of Credit pursuant to arrangements
satisfactory to the Required Lenders and (z) the Company redeems in cash,
as provided in Section 5.2 of the Warrants, the number of Warrants which
any Lender holding such Warrants requests the Company in writing to redeem.
(d) Application of Payments. Each repayment or prepayment of
-----------------------
less than all the outstanding aggregate principal amount of the Tranche A
Notes shall be applied pro rata to all the Tranche A Notes according to their
respective outstanding principal amounts. The principal amount of each
payment pursuant to Section 2.04(b) or (c) shall be applied to reduce the
remaining payments required by Section 2.04(a) in inverse order of the
maturity thereof. No payment pursuant to Section 2.04(a) or (c) shall
(except as reflected in any determination of Excess Cash Flow) reduce the
amount of any payment required by Section 2.04(b).
ARTICLE III
TRANCHE B LOANS AND WARRANTS
SECTION 3.01. Tranche B Loans. Upon the terms and subject to
---------------
the conditions set forth herein, NationsCredit agrees to make one floating
rate loan to the Company on the Closing Date pursuant to this Section 3.01 in
a principal amount equal to its Tranche B Commitment (such loan, or any
portion thereof assigned to any other Lender in accordance with Section
12.06, a "Tranche B Loan"). Tranche B Loans are not revolving in nature and
amounts of such Loans repaid or prepaid may not be reborrowed. The Tranche B
Commitment shall terminate at the close of business on the Closing Date.
30
<PAGE>
SECTION 3.02. Tranche B Notes. Each Tranche B Loan shall be
---------------
evidenced by a Tranche B Note of the Company substantially in the form of
Exhibit B (each such note, a "Tranche B Note"), dated the Closing Date in a
principal amount equal to the initial principal amount of such Tranche B
Loan, duly executed and delivered by the Company and payable to the Lender of
such Tranche B Loan.
SECTION 3.03. Interest on the Tranche B Loans. Each Tranche B
-------------------------------
Loan shall bear interest on its principal amount outstanding from the Closing
Date at the rate determined as set forth in the Tranche B Note in respect
thereof. Interest shall be payable monthly in arrears as set forth therein.
SECTION 3.04. Repayments and Prepayments of Tranche B Notes.
---------------------------------------------
(a) Mandatory Scheduled Payments. There shall become due and payable and
----------------------------
the Company shall repay an aggregate principal amount of the Tranche B Notes
on each Quarterly Date, commencing with the second Quarterly Date following
the earlier of (i) the fifth anniversary date of the Closing Date and (ii)
the date on which the Tranche A Notes shall have been repaid in their
entirety, an aggregate principal amount of the Tranche B Notes equal to the
applicable installment amount set forth below (or, if less, the aggregate
outstanding principal amount of the Tranche B Notes), in each case together
with accrued and unpaid interest on the principal amount being repaid to and
but excluding the date of payment:
Installment Principal Amount
----------- ----------------
Nos. 1-3 $375,000.00
Nos. 4-6 $550,000.00
No. 7 $725,000.00
(b) Mandatory Incremental Prepayments. (i) There shall
---------------------------------
become due and payable, and the Company shall prepay, on the 90th day
following the last day of each Fiscal Year beginning with the Fiscal Year
ending December 31, 1996, an aggregate principal amount of the Tranche B
Notes equal to the amount (if any) by which (x) 75% of Excess Cash Flow for
31
<PAGE>
such Fiscal Year then ended (or, in the case of the payment for the first
such period, for the period beginning on the Closing Date and ending on the
last day of such Fiscal Year) exceeds (y) the amount (if any) applied to the
repayment of Tranche A Notes on such date in accordance with Section
2.04(b)(i) (or, if less, the aggregate outstanding principal amount of the
Tranche B Notes).
(ii) On the date on which the Company or any of its Subsidiaries
receives (x) any payment which constitutes Major Casualty Proceeds or (y) any
payment under any Key-Man Life Insurance Policy, the amount of such payment
shall be applied to prepay outstanding Tranche B Loans in an aggregate
principal amount equal to the amount (if any) by which the amount of such
payment exceeds the amount (if any) of such payment applied to the repayment
of Tranche A Notes on such date in accordance with Section 2.04(b)(ii) (or,
if less, the aggregate outstanding principal amount of the Tranche B Notes),
unless, in the case of Major Casualty Proceeds only, the Required Lenders
shall otherwise direct (in which case the amount of such payment shall be
deposited into the Insurance Account to be held and applied in accordance
with Section 5 of the Company Security Agreement).
(iii) Promptly upon receipt thereof by the Company or any
Subsidiary, 100% of the Net Cash Proceeds received in respect of any Asset
Sale shall be applied to prepay outstanding Tranche B Loans in an aggregate
principal amount equal to the amount (if any) by which the amount of such Net
Cash Proceeds exceeds the amount (if any) of such Net Cash Proceeds applied
to prepay Tranche A Loans in accordance with Section 2.04(b)(iii) (or, if
less, the aggregate outstanding principal amount of the Tranche B Loans).
(iv) Promptly upon receipt thereof by Holdings, 100% of the Net Cash
Proceeds from the issuance and sale of common stock or other equity
securities after the Closing Date shall be applied to prepay outstanding
Tranche B Loans in an aggregate principal amount equal to the amount (if any)
by which the amount of such proceeds exceeds the amount (if any) of such Net
Cash Proceeds applied to prepay Tranche
32
<PAGE>
A Loans in accordance with Section 2.04(b)(iv) (or, if less, the
aggregate outstanding principal amount of the Tranche B Loans).
(v) Any prepayment of the Tranche B Notes in whole under this
Section 3.04(b) shall be made together with accrued and unpaid interest on
the principal amount being prepaid to but excluding the date of payment.
(c) Optional Prepayments. (i) From and after the date on
--------------------
which the Company has paid the Tranche A Notes in full, the Company may
prepay the Tranche B Notes in whole or in part (in principal amounts of
$250,000 or in any integral multiple of $10,000 in excess thereof) upon prior
revocable written notice to the Lenders, by paying an amount equal to the
Applicable Premium Percentage of the aggregate principal amount being prepaid
together, in the case of any prepayment of the Tranche B Notes in whole, with
accrued and unpaid interest on the principal amount being prepaid to but
excluding the date of payment.
(ii) Notwithstanding the foregoing, the Company may not
prepay the Tranche B Notes in whole pursuant to this Section 3.04(c) with the
proceeds of other Debt unless simultaneously with such prepayment (x) the
Company (A) prepays any outstanding balance of the Tranche A Notes in
accordance with Section 2.04(c) and (B) repays all Working Capital Loans
and terminates the Working Capital Commitments, (y) all Letters of Credit
are terminated with the consent of the respective beneficiaries thereunder
or cash collateral is deposited to cover the undrawn balance of each Letter
of Credit pursuant to arrangements satisfactory to the Required Lenders and
(z) the Company redeems in cash, as provided in Section 5.2 of the Warrants,
the number of Warrants which any Lender holding such Warrants requests the
Company, in writing, to redeem.
(d) Application of Payments. Each payment or prepayment of
-----------------------
less than all the outstanding aggregate principal amount of the Tranche B
Notes shall be applied pro rata to all the Tranche B Notes according to their
respective outstanding principal amounts. The principal
33
<PAGE>
amount of each payment pursuant to Section 3.04(b) or (c) shall be applied to
reduce the remaining payments required by Section 3.04(a) in inverse order of
the maturity thereof. No payment pursuant to Section 3.04(a) or (c) shall
(except as reflected in any determination of Excess Cash Flow) reduce the
amount of any payment required by Section 3.04(b).
SECTION 3.05. Warrants. On the Closing Date, the Company
--------
shall issue to NationsCredit, in consideration for making the initial Tranche
B Loan, warrants exercisable for shares of Company Non-Voting Common Stock
equivalent to 12.5% of the Company Common Stock on a fully diluted basis (the
"Warrants"). The Warrants shall be substantially in the form of Exhibit D
hereto, and shall be duly executed and registered in such name or names and
in such denominations as NationsCredit shall have notified the Company not
less than one Business Day before the Closing Date. The Company and
NationsCredit agree that, for Federal income tax purposes, (i) the initial
Tranche B Loans and the Warrants constitute an investment unit and (ii) the
aggregate issue price of the Tranche B Loans is $3,071,429 and the aggregate
purchase price for the Warrants is $428,571. None of the Company, Holdings
nor any Lender shall voluntarily take any action inconsistent with the
agreement set forth in the immediately preceding sentence.
ARTICLE IV
WORKING CAPITAL LOANS
SECTION 4.01. Working Capital Loans and Commitments. Upon
-------------------------------------
the terms and subject to the conditions set forth herein, each Lender
severally and not jointly agrees to make working capital loans ("Working
Capital Loans") from time to time to the Company in an aggregate principal
amount at any time outstanding not to exceed such Lender's Working Capital
Commitment. Each Working Capital Borrowing shall be in an aggregate amount of
$100,000 or an integral multiple of $10,000 in excess thereof. No more than
two Working Capital Borrowings shall be made within any
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week beginning on Monday of such week and ending on the last Business Day of
such week. Within the foregoing limits, the Company may borrow under this
Section 4.01, prepay or repay Working Capital Loans as required under Section
4.05(b) or to the extent permitted by Section 4.06, and reborrow pursuant to
this Section 4.01.
SECTION 4.02. Working Capital Notes. The Working Capital
---------------------
Loans of each Lender shall be evidenced by a single Working Capital Note,
substantially in the form of Exhibit C (each such note, a "Working Capital
Note"), dated the Closing Date in an aggregate principal amount equal to the
amount of such Lender's Working Capital Commitment, duly executed and
delivered and payable to such Lender. Each Lender shall record the date and
amount of each Working Capital Loan made by it and the date and amount of
each payment of principal made by the Company with respect thereto, and prior
to any transfer of its Working Capital Note shall endorse on Schedule A
thereto (or any continuation thereof) forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such
Working Capital Loan then outstanding; provided that the failure of any
--------
Lender to make any such recordation or endorsement shall not affect the
obligations of the Company hereunder or under the Working Capital Notes.
Each Lender is hereby irrevocably authorized by the Company so to endorse its
Working Capital Note and to attach to and make a part of its Working Capital
Note a continuation of any such schedule as and when required.
SECTION 4.03. Interest on the Working Capital Loans. Interest
-------------------------------------
on the Working Capital Loans shall accrue on the aggregate unpaid principal
amount thereof at the rate determined as set forth in the Working Capital
Note with respect thereto. Interest shall be payable monthly in arrears as
set forth therein.
SECTION 4.04. Advancing Working Capital Loans. (a) Except
-------------------------------
with respect to any Working Capital Borrowing made on the Closing Date, the
Company shall give each Lender notice (a "Notice of Borrowing") not later
than Noon (New York City time) on the Business Day immediately preceding
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each Working Capital Borrowing, signed by the chief financial
officer or treasurer of the Company, specifying the date (which shall be a
Business Day) and aggregate principal amount of such Working Capital
Borrowing, and certifying as to the satisfaction of the conditions set forth
in clauses (b), (c) and (d) of Section 5.02.
(b) Not later than 1:00 P.M. (New York City time) on the date
of each borrowing specified in a Notice of Borrowing, each Lender shall make
available its ratable share of such Working Capital Borrowing, in Federal or
other immediately available funds, to the Company Account.
SECTION 4.05. Mandatory Repayments and Prepayments. (a) The
------------------------------------
Working Capital Commitment of each Lender shall terminate at the opening of
business on the earlier of (i) May 17, 2003 and (ii) the date on which both
the Tranche A Notes and the Tranche B Notes shall have been paid in full (the
"Termination Date"), and there shall become due and the Company shall pay on
the Termination Date, the entire outstanding principal amount of each Working
Capital Loan, together with accrued and unpaid interest thereon to but
excluding the Termination Date.
(b) (i) If at any time the aggregate Working Capital
Outstandings exceed the Borrowing Base, then, on the next succeeding Business
Day, the Company shall prepay Working Capital Loans or cash collateralize
Letter of Credit Liabilities, or both, in an aggregate amount equal to such
excess.
(ii) In addition, the Company shall from time to time repay or
prepay Working Capital Loans so that for a period of 15 consecutive calendar
days during the first quarter of each Fiscal Year ended after December 31,
1996 the aggregate principal amount of Working Capital Loans outstanding on
each day during such period shall not exceed $1,000,000.
SECTION 4.06. Optional Prepayments. The Company may prepay
--------------------
the Working Capital Loans in whole or in part (in minimum principal amounts
of $100,000 or in any larger
36
<PAGE>
integral multiple of $10,000) upon at least one Business Day's prior
revocable written notice to the Lenders, in an amount equal to 100% of the
principal amount being prepaid.
SECTION 4.07. Application of Payments. Each payment or
-----------------------
prepayment of less than all the outstanding aggregate principal amount of the
Working Capital Loans shall be applied pro rata to all the Working Capital
Loans according to their respective outstanding principal amounts.
SECTION 4.08. Letters of Credit.
-----------------
(a) Issuance of Letters of Credit; Lender Reimbursement
---------------------------------------------------
Agreement. (i) Subject to the terms and conditions hereof and such
---------
additional terms and conditions as the LC Issuer shall require, the LC Issuer
agrees to issue from time to time prior to the [30]th day prior to the
Termination Date, letters of credit for the account of the Company. No Letter
of Credit issued hereunder shall have a term (i) in excess of one year from
the date of issuance thereof or (ii) extending beyond the 10th day prior to
the Termination Date.
(ii) Each Lender agrees for the benefit of the LC Issuer that in
the event that the Company fails to reimburse the LC Issuer on the date of
any drawing under any Letter of Credit for the full amount of such drawing,
each Lender shall be obligated to pay to the LC Issuer, for value on the
second Business Day following such drawing to the relevant account notified
by the LC Issuer to the Lenders in the notice referred to in the following
sentence, an amount equal to its pro rata share (determined by reference to
the Working Capital Commitments of each of the Lenders) of such unreimbursed
amount. The LC Issuer shall notify each Lender of any such unreimbursed
amount (together with the account to which such Lender's share in respect
thereof is to be paid) not later than 11:00 A.M. (New York City time) on the
Business Day immediately preceding the date that payment by such Lender is
due.
(iii) In consideration of the foregoing, the parties hereto agree
(and the LC Issuer by accepting the benefits conferred on it hereby shall be
deemed to have
37
<PAGE>
agreed) that upon the issuance of any Letter of Credit, the LC Issuer shall
be deemed, without further action on the part of the LC Issuer or of any
party hereto, to have sold to each Lender and each Lender shall be deemed,
without further action by the LC Issuer or any party hereto, to have
purchased from the LC Issuer, a participation in such Letter of Credit and
the related Letter of Credit Liabilities, in the amount required so that the
participations of the Lenders therein shall be in proportion to their
respective Working Capital Commitments.
(iv) The several obligations of the Lenders to the LC Issuer under
this Section 4.08(a) shall be absolute, irrevocable and unconditional under
any and all circumstances whatsoever and shall not be affected by any
circumstance, including, without limitation, (1) any set-off, counterclaim,
recoupment, defense or other right which any such Lender or any other Person
may have against the LC Issuer or any other Person for any reason whatsoever;
(2) the occurrence or continuance of a Default or the termination of the
Working Capital Commitments; (3) any adverse change in the condition
(financial or otherwise) of the Company or any other Person; (4) any breach
of any Financing Document by any party thereto; (5) the fact that any
condition precedent to the issuance of, or the making of any payment under,
any Letter of Credit was not in fact met; (6) any violation or asserted
violation of law by any Lender or any affiliate thereof; or (7) to the extent
permitted under applicable law, any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. Each payment by
each Lender to the LC Issuer for its own account shall be made without any
offset, abatement, withholding or reduction whatsoever.
(v) Each Lender acknowledges and agrees that the LC Issuer will
rely upon the provisions of this Section 4.08(a) in issuing any Letter of
Credit for the account of the Company.
(b) Reimbursement Obligations of the Company. The Company
----------------------------------------
agrees, as a separate obligation, independent from any obligation it may have
to reimburse the LC Issuer,
38
<PAGE>
that if at any time any Lender shall make a payment to the LC Issuer pursuant
to Section 4.08(a)(ii), the Company shall be irrevocably and unconditionally
obligated to reimburse such Lender within 2 Business Days after such payment
is made by such for the amount of such payment in like currency, without
presentment, demand, protest or other formalities of any kind. Each Lender
shall give the Company prompt notice of any such payment made by such Lender;
provided that failure by any Lender to give any such notice shall not affect
--------
the obligations of the Company pursuant to this subsection (b). All such
amounts paid by such Lender shall bear interest, payable on demand, (i) for
each day from the day such payment is made to and including the second
Business Day thereafter, at the rate applicable to Working Capital Loans for
such day and (ii) thereafter, until the Company reimburses such Lender
therefor, at a rate per annum equal to the sum of 2% plus the rate applicable
to Working Capital Loans for such day.
(c) Reimbursement and Other Payments by the Company. The
-----------------------------------------------
obligations of the Company to reimburse each Lender pursuant to Section
4.08(b) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(1) any lack of validity or enforceability of any Letter
of Credit or any related document;
(2) any amendment or waiver of or any consent to
departure from any Letter of Credit or any related document;
(3) the existence of any claim, set-off, defense or
other right which the Company may have at any time against the
beneficiary of any Letter of Credit (or any Person or entity
for whom such beneficiary may be acting), the Agent, the LC
Issuer or any Lender or any other Person or entity, whether in
connection with this Agreement,
39
<PAGE>
any other Financing Document or any unrelated transaction;
(4) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
(5) payment by the LC Issuer under any Letter of Credit
against presentation of a draft or document which does not
comply with the terms of such Letter of Credit;
(6) any affiliation between the LC Issuer and any
Lender; or
(7) to the extent permitted under applicable law, any
other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
(d) Notice of Issuance. The Company shall give the Agent
------------------
notice (the "Notice of Issuance") at least two Business Days before the
proposed date of issuance of any Letter of Credit specifying the stated
amount of such Letter of Credit, the transactions to be supported thereby and
any other terms thereof, all consistent with and subject to this Section
4.08.
(e) Conditions to Issuance of Letters of Credit. The Company
-------------------------------------------
shall not request or permit any Letter of Credit to be issued for its account
unless each of the following conditions shall have been satisfied, in
addition to the conditions set forth in Sections 5.01 and 5.02:
(i) each Lender shall have received the Notice of Issuance
with respect to such Letter of Credit in accordance with Section 4.08(d)
and a Borrowing Base Certificate in accordance with Section 7.01(l);
(ii) immediately after giving effect to the issuance of such
Letter of
40
<PAGE>
Credit, (x) the Letter of Credit Liabilities shall not exceed $1,500,000
and (y) the aggregate amount of the Working Capital Outstandings for all
Lenders does not exceed the lesser of (1) the Borrowing Base and (2) the
aggregate amount of the Working Capital Commitments;
(iii) the fact that, immediately before and immediately after the
issuance of such Letter of Credit, no Default shall have occurred and be
continuing; and
(iv) the fact that the representations and warranties of the
Company or Holdings contained in the Financing Documents (other than (x)
the representations and warranties set forth in Section 6.19 with
respect to any Letter of Credit issued after the Closing Date and (y)
any representation and warranty made as of a specific date, which date
has occurred prior to the date of issuance of such Letter of Credit)
shall be true in all material respects on and as of the date of issuance
of such Letter of Credit (or the fact that the Required Lenders shall
have waived such condition with respect to all or any of such
representations and warranties in accordance with Section 12.05).
The issuance of each Letter of Credit shall be deemed to be a representation
and warranty by the Company to the Lenders and the Agent as of the date of
such issuance as to the facts specified in clauses (ii), (iii) and (iv)
above.
SECTION 4.09. Obligation to Make Working Capital Loans. If
----------------------------------------
any Lender shall fail to perform its obligation to make a Working Capital
Loan hereunder, the amount of the Working Capital Commitment of such Lender
shall be assumed by the other Lenders ratably in proportion to their Working
Capital Commitments so that the aggregate amount of the Working Capital
Commitments to make any Working Capital Loans provided for herein shall not
be reduced and the Working Capital Commitment of each other Lender shall be
appropriately adjusted. No such assumption and adjustment shall relieve any
Lender from its Working Capital Commitment, and each such defaulting Lender
agrees to repay
41
<PAGE>
on demand the other Lenders that have assumed such Working Capital Commitment
any Working Capital Loans made by such other Lenders in respect thereof,
together with interest thereon from the date of such Loan to but excluding
the date of repayment at the rate applicable to such Working Capital Loans
plus 1%.
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions to Closing. The obligation of each
---------------------
Lender to make Loans on the Closing Date shall be subject to the satisfaction
of the following conditions precedent:
(a) receipt by the Agent of counterparts hereof signed by
each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by NationsCredit of a duly executed Tranche A
Note, Tranche B Note and Working Capital Note for its account, each in
the form provided for herein, and of certificates representing the
Warrants, all duly executed and registered in such name or names and in
such denominations as NationsCredit shall have requested;
(c) receipt by the Agent of duly executed counterparts of
each Security Document required to be effective on the Closing Date
(excluding the Lockbox Agreement which shall be delivered to the Agent
within 30 days of the Closing Date), together with evidence satisfactory
to it in its sole good faith discretion of the effectiveness of the
security contemplated thereby and the policy of the title insurance,
title commitment and other documents referred to in Section 7.14;
42
<PAGE>
(d) receipt by NationsCredit of evidence satisfactory to it
in its sole good faith discretion of the satisfaction (without waiver)
of all other conditions to the closing of the Acquisition on the Closing
Date, and that all transactions contemplated by the Operative Documents
to be consummated on the closing date of the Acquisition will take place
prior to or simultaneously with the transactions hereunder contemplated
to take place on the Closing Date, and satisfaction of NationsCredit in
its sole good faith discretion with the terms and conditions of the
Acquisition Documents;
(e) receipt by NationsCredit of (i) evidence satisfactory to
it in its sole good faith discretion of the effectiveness of all other
Operative Documents, each of which shall be in form and substance
satisfactory to NationsCredit in its sole good faith discretion, and
(ii) each opinion required to be delivered pursuant to the Acquisition
Documents in connection with the Acquisition, with a letter from each
Person delivering any such opinion authorizing reliance thereon by the
Agent and the Lenders, all in form and substance reasonably satisfactory
to NationsCredit;
(f) receipt by NationsCredit of evidence satisfactory to it
that (i) Holdings shall have issued shares of Holdings Common Stock to
Security Capital for aggregate cash proceeds of not less than $2,700,000
and to the Management Stockholders for aggregate cash proceeds of not
less than $300,000, and contributed all of such cash proceeds to the
capital of the Company and (ii) the Company shall have issued the Seller
Notes;
(g) receipt by the Agent of an opinion of Edwards & Angell,
counsel for the Company and Holdings, substantially in the form of
Exhibit J (by its execution and delivery of this Agreement, each of the
Company and Holdings authorizes and directs such counsel to deliver such
opinion to the Agent);
43
<PAGE>
(h) receipt by the Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Agent, substantially in the form of
Exhibit K, and covering such additional matters relating to the
transactions contemplated hereby as NationsCredit may reasonably
request;
(i) receipt by NationsCredit, including in its capacity as
Agent, of all fees and any other amounts due and payable hereunder
(including fees and expenses payable pursuant to Section 10.04) of which
the Company has received notice;
(j) receipt by NationsCredit of an environmental report
prepared by GZA GeoEnvironmental, Inc., a true and complete copy of
which has been delivered to the Agent prior to the Closing Date, stating
that all properties owned, leased or operated by the Company and its
Subsidiaries are free of Hazardous Materials Contamination, and
providing such detail and containing such information in support of such
conclusions as NationsCredit may request;
(k) receipt by NationsCredit of a certificate signed by the
chief financial officer or treasurer of the Company to the effect that,
both before and immediately after the making of the Loans, the issuance
of the Warrants and the consummation of the Acquisition and the other
transactions contemplated hereunder to take place on the Closing Date,
(i) no Default shall have occurred and be continuing and (ii) the
representations and warranties of Acquisition Corp. made in the
Operative Documents to which Acquisition Corp. is a party are true in
all material respects;
(l) receipt by NationsCredit of the certificate referred to
in Section 7.04(b) and of a copy of the Key-Man Life Insurance Policy
referred to in the first sentence of Section 7.04(c) and a duly executed
instrument of assignment assigning such Key-Man Life
44
<PAGE>
Insurance Policy to the Agent as collateral under the Security
Documents;
(m) receipt by NationsCredit of employment contracts between
the Company and each Management Stockholder that are in form and
substance satisfactory to NationsCredit in its sole good faith
discretion, to include provisions relating to cash and non-cash
compensation, stock repurchase and non-compete;
(n) receipt by NationsCredit of (i) the financial statements
and pro forma balance sheet referred to in Sections 6.04(a), (b) and
(c), (ii) a statement of sources and uses of funds covering all payments
reasonably expected to be made by the Company in connection with the
transactions contemplated by the Operative Documents to be consummated
on the Closing Date, including an itemized estimate of all fees,
expenses and other closing costs in an aggregate amount not to exceed
the aggregate amount provided for such fees, expenses and closing costs
in the commitment letter dated April 16, 1996 from NationsCredit to the
Investors and (iii) payment instructions with respect to each wire
transfer to be made by the Agent, Holdings or the Company on the Closing
Date setting forth the amount of such transfer, the purpose of such
transfer, the name and number of the account to which such transfer is
to be made, the name and ABA number of the bank or other financial
institution where such account is located and the name and telephone
number of an individual that can be contacted to confirm receipt of such
transfer;
(o) receipt by the Agent of evidence satisfactory to it that
the certificate of incorporation of the Company and Holdings shall each
include provisions substantially in the form of Exhibit P;
(p) receipt by the Agent of evidence satisfactory to it in its
sole good faith discretion that all outstanding obligations of the
Company under the Revolving Credit Agreement dated as of September 27,
45
<PAGE>
1994 by and among Fleet National Bank as successor in interest by merger
to Shawmut Bank, N.A. and the Sellers and all agreements, documents and
instruments executed in writing in connection therewith have been paid
in full, all commitments thereunder have been terminated and all Liens
securing such obligations and all guarantees thereof have been released;
and
(q) receipt by the Agent, for each of Holdings, the Company
and Security Capital, of (i) a certified copy of the certificate of
incorporation as in effect on the Closing Date, (ii) a short-form good
standing certificate, (iii) a bring-down telegram, (iv) a certified copy
of the by-laws as in effect on the Closing Date, (v) a certified copy of
the resolutions of the board of directors authorizing the execution,
delivery and performance of the Financing Documents and the other
Operative Documents and (vi) an incumbency certificate, all in form and
substance satisfactory to the Agent in its sole good faith discretion.
The documents referred to in this Section shall be delivered to the Agent no
later than the Closing Date. The certificates and opinions referred to in
this Section shall be dated the Closing Date.
SECTION 5.02. Conditions to Each Loan. The obligation of any
-----------------------
Lender to make a Loan on the occasion of any borrowing thereof (including on
the Closing Date) is subject to the satisfaction of the following additional
conditions:
(a) in the case of a Working Capital Borrowing, receipt by
each Lender of a Notice of Borrowing in accordance with Section 4.04 and
a Borrowing Base Certificate as of the close of business on the Business
Day immediately preceding the date of such borrowing and, in the case of
the Borrowing Base Certificate delivered in connection with the initial
borrowing, on a pro forma basis after giving effect to the Acquisition;
46
<PAGE>
(b) the fact that, immediately after such borrowing, the
aggregate Working Capital Outstandings will not exceed the lesser of (i)
the Borrowing Base and (ii) the aggregate amount of the Working Capital
Commitments;
(c) the fact that, immediately before and after such
borrowing, no Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the
Company, Holdings and Security Capital contained in the Financing
Documents to which each is a party (other than (x) the representations
and warranties set forth in Section 6.19, with respect to any Working
Capital Borrowing made after the Closing Date and (y) any representation
and warranty made as of a specific date, which date has occurred prior
to the date of such Borrowing) shall be true in all material respects on
and as of the date of such borrowing (or the fact that the Required
Lenders shall have waived such condition with respect to all or any of
such representations and warranties in accordance with Section 12.05).
Each borrowing hereunder shall be deemed to be a representation and warranty
by the Company on the date of such borrowing as to the facts specified in
clauses (b), (c) and (d) of this Section.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company and Holdings, jointly and severally, represent and
warrant (including, in the case of any such representation and warranty made
or deemed made before the consummation of the Acquisition, at the time such
representation and warranty is made or deemed made and immediately after
giving effect to the consummation of the Acquisition) that:
47
<PAGE>
SECTION 6.01. Corporate Existence and Power. Each of the
-----------------------------
Company and Holdings is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
as will be conducted immediately after the Acquisition. The Company is
qualified to do business as a foreign corporation in each jurisdiction in
which the Company is required to be so qualified, except in those
jurisdictions in which the failure to so qualify would not reasonably be
expected to have a Material Adverse Effect and except for any qualification
to do business as a foreign corporation in the Commonwealth of Massachusetts,
which qualification will be in full force and effect at all times on and
after the 30th day after the Closing Date.
SECTION 6.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by each of the
-------------
Company and Holdings of the Operative Documents to which it is a party are
within the Company's or Holdings' (as the case may be) corporate powers, have
been duly authorized by all necessary corporate action, require no action by
or in respect of, or filing with, any governmental body, agency or official
(other than the filing of UCC-1 financing statements and recording of the
Mortgage, all of which will be made on or within 3 Business Days after the
Closing Date and will be in full force and effect at all times thereafter)
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries or Holdings or of any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Company or any of its Subsidiaries or Holdings (except for such
contraventions and defaults under agreements, judgments, injunctions, orders,
decrees or other instruments binding upon the Company or any of its
Subsidiaries or Holdings that in the aggregate would not reasonably be
expected to have a Material Adverse Effect) or result in the creation or
imposition of any Lien (other than the Liens
48
<PAGE>
created by the Security Documents) on any asset of the Company or any of its
Subsidiaries or Holdings.
SECTION 6.03. Binding Effect; Liens of Security Documents.
-------------------------------------------
(a) Each of the Operative Documents to which the Company is a party (other
than the Warrants and the Notes) constitutes a valid and binding agreement of
the Company, and each of the Warrants and the Notes, when executed and
delivered in accordance with this Agreement, will constitute a valid and
binding obligation of the Company, in each case enforceable in accordance
with its respective terms subject, however, to general principles of equity
and to applicable bankruptcy, fraudulent transfer, insolvency,
reorganization, moratorium and other similar laws from time to time in effect
and affecting the enforcement of creditors' rights generally (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
The Company has reserved and will keep available for issuance upon exercise
of the Warrants the total number of Warrant Shares deliverable upon exercise
of all Warrants from time to time outstanding. The issuance of the Warrant
Shares has been duly and validly authorized and, when issued and sold in
accordance with the Warrants, the Warrant Shares will be duly and validly
issued, fully paid and nonassessable and free of preemptive rights.
(b) Each of the Operative Documents to which Holdings is a
party constitutes a valid and binding agreement of Holdings, in each case
enforceable in accordance with its respective terms subject, however, to
general principles of equity and to applicable bankruptcy, fraudulent
transfer, insolvency, reorganization, moratorium and other similar laws from
time to time in effect and affecting the enforcement of creditors' rights
generally (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(c) The Security Documents create valid security interests
in, and first mortgage Liens on, the Collateral purported to be covered
thereby, which security interests and mortgage Liens are and will remain
perfected security interests (subject to the filing of UCC continuation
49
<PAGE>
statements) and mortgage Liens, prior to all other Liens other than Permitted
Liens (including without limitation Liens permitted under Section 8.02(f)).
Each of the representations and warranties made by the Company or Holdings in
the Security Documents to which each is a party is true and correct in all
material respects; provided that any representation and warranty made as of a
--------
specific date shall be made by the Company pursuant to this subsection (c)
only on such specific date.
SECTION 6.04. Financial Information.
---------------------
(a) The consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows
for the Fiscal Year then ended, reported on by Lefkowitz, Garfinkel, Champi &
DeRienzo, P.C., copies of which have been delivered to each of the Lenders,
fairly present in all material respects, in conformity with GAAP, the
consolidated financial position of the Company and its Consolidated
Subsidiaries as of such date and their consolidated results of operations,
changes in stockholders' equity and cash flows for such period.
(b) The unaudited consolidated balance sheet of the Company
and its Consolidated Subsidiaries as of March 31, 1996 and the related
unaudited consolidated statements of operations and cash flows for the 3
months then ended, copies of which have been delivered to each of the
Lenders, fairly present in all material respects, in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
Section 6.04(a), the consolidated financial position of the Company and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for the 3 months then ended (subject to normal
year-end adjustments and the absence of footnotes).
(c) The pro forma balance sheet of the Company as of March
31, 1996, copies of which have been delivered to each of the Lenders, fairly
presents, in conformity with GAAP applied on a basis consistent with the
financial
50
<PAGE>
statements referred to in Section 6.04(a), the consolidated financial
position of the Company as of such date, adjusted to give effect (as if such
events had occurred on such date) to (i) the transactions contemplated by the
Acquisition Documents, Investors Subscription Agreement and the Management
Subscription Agreement, (ii) the making of the Loans, the issuance by the
Company of the Seller Notes and the Warrants, and the issuance and sale by
Holdings of shares of common stock as described in clause (i) of Section
5.01(f), (iii) the application of the proceeds therefrom as contemplated by
the Acquisition Documents and the Financing Documents and (iv) the payment of
all legal, accounting and other fees related thereto to the extent known at
the time of the preparation of such balance sheet. As of the date of such
balance sheet and the date hereof, the Company had and has no material
liabilities, contingent or otherwise, including liabilities for taxes,
long-term leases or forward or long-term commitments, which are not properly
reflected on such balance sheet.
(d) The information contained in the most recently delivered
Borrowing Base Certificate is complete and correct and the amounts shown
therein as "Eligible Receivables" and "Eligible Inventory" have been
determined as provided in the Financing Documents.
(e) Since December 31, 1995, there has been no material
adverse change in the business, operations, properties, prospects or
condition (financial or otherwise) of the Company and its Consolidated
Subsidiaries, taken as a whole.
(f) Each of Acquisition Corp. and Holdings was organized to
effect the Acquisition, and except in connection therewith (and as
contemplated by this Agreement) has no significant assets or liabilities.
SECTION 6.05. Litigation. There is no action, suit or
----------
proceeding pending against, or to the knowledge of the Company or Holdings
threatened against or affecting, the Company or any of its Subsidiaries or
Holdings before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision
which would materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Company and its
Consolidated Subsidiaries or which in any manner draws into question the
validity of any of the Operative Documents. To the knowledge of the Company,
there is no action, suit or proceeding pending against, or to the knowledge
of the Company or Holdings threatened against or affecting, any party to any
of the Operative Documents (other than the Company and Holdings) before any
court or arbitrator or any governmental body, agency or
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official which in any manner draws into question the validity of any of the
Operative Documents.
SECTION 6.06. Ownership of Property, Liens. On and as of the
----------------------------
Closing Date, after giving effect to the Acquisition, the Company is the
lawful owner of, has good and marketable title to and is in lawful possession
of, or has valid leasehold interests in, all properties and other assets
(real or personal, tangible, intangible or mixed) purported to be owned or
leased (as the case may be) by the Company on the balance sheet referred to
in Section 6.04(c), and none of its properties and assets is subject to any
Liens, except Permitted Liens (including without limitation Liens permitted
under Section 8.02(f)). The Company and its Subsidiaries conduct their
business without infringement or claim of infringement of any material
license, patent, trademark, trade name, service mark, copyright, trade secret
or other intellectual property right of others (except for such infringements
or claims of infringement that in the aggregate would not reasonably be
expected to have a Material Adverse Effect) and to the knowledge of the
Company, there is no infringement or claim of infringement by others of any
material license, patent, trademark, trade name, service mark, copyright,
trade secret or other intellectual property right of the Company or any of
its Subsidiaries.
SECTION 6.07. No Default. No Default or Event of Default has
----------
occurred and is continuing and neither the Company nor any of its
Subsidiaries is in default under or
52
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with respect to any material contract, agreement, lease or other instrument
to which it is a party or by which its property is bound or affected (except
for such defaults that in the aggregate would not reasonably be expected to
have a Material Adverse Effect).
SECTION 6.08. No Burdensome Restrictions. No contract,
--------------------------
lease, agreement or other instrument to which the Company or any of its
Subsidiaries is a party or by which any of its property is bound or affected,
no charge, corporate restriction, judgment, decree or order and no provision
of applicable law or governmental regulation is reasonably likely to have a
material adverse effect on the business, operations, properties or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries,
taken as a whole.
SECTION 6.09. Labor Matters. There are no strikes or other
-------------
labor disputes pending or, to the best knowledge of the Company, threatened,
against the Company or any of its Subsidiaries. Hours worked and payments
made to the employees of the Company and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or, in any material respect, any
other applicable law dealing with such matters, except as disclosed in the
Asset Purchase Agreement. All payments due from the Company or any of its
Subsidiaries, or for which any claim known to the Company which is reasonably
expected to be made against any of them, on account of wages and employee and
retiree health and welfare insurance and other benefits have been paid or
accrued as a liability on their books, as the case may be. The consummation
of the transactions contemplated by the Financing Documents and the other
Operative Documents will not give rise to a right of termination or right of
renegotiation on the part of any union under any collective bargaining
agreement to which it is a party or by which it is bound.
SECTION 6.10. Subsidiaries; Other Equity Investments. The
--------------------------------------
Company has no Subsidiaries on the date hereof and on the Closing Date. With
respect to any corporate or partnership Subsidiary formed after the Closing
Date, each of such additional corporate or partnership Subsidiaries will be
at each time that this representation is made or deemed to be made after the
Closing
53
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Date, a wholly-owned Subsidiary that is a corporation or partnership (as the
case may be) duly organized or formed, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, and
shall have all corporate or partnership powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as then conducted. Neither Holdings, the Company nor any of its
Subsidiaries is engaged in any joint venture or partnership with any other
Person.
SECTION 6.11. Investment Company Act. Neither Holdings nor
----------------------
the Company is an "investment company" as defined in the Investment Company
Act of 1940, as amended. The consummation of the transactions contemplated
by the Financing Documents do not and will not violate any provision of such
Act or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
SECTION 6.12. Margin Regulations. None of the proceeds from
------------------
the Loans have been or will be used, directly or indirectly, for the purpose
of purchasing or carrying any Margin Stock, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
any Margin Stock or for any other purpose which might cause any of the loans
under this Agreement to be considered a "purpose credit" within the meaning
of Regulation G, U or X of the Board of Governors of the Federal Reserve
Board.
SECTION 6.13. Taxes. Holdings' federal tax identification
-----
number is 51-0374161 and the Company's federal tax identification number is
51-0374162. All Federal, state and local tax returns, reports and statements
required to be filed by or on behalf of the Company and its Subsidiaries have
been filed with the appropriate governmental agencies in all jurisdictions in
which such returns, reports and statements are required to be filed, and all
taxes (including real property taxes) and other charges shown to be due and
payable have been timely paid prior to the date on which any fine, penalty,
interest, late
54
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charge or loss may be added thereto for nonpayment thereof. All state and
local sales and use taxes required to be paid by the Company or any of its
Subsidiaries have been paid. All Federal and state returns have been filed
by the Company and its Subsidiaries for all periods for which returns were
due with respect to employee income tax withholding, social security and
unemployment taxes, and the amounts shown thereon to be due and payable have
been paid in full or adequate provisions therefor have been made.
SECTION 6.14. Compliance with ERISA. To the knowledge of the
---------------------
Company, each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each
Plan. Each Plan and Benefit Arrangement is in compliance in all material
respects with the presently applicable provisions of ERISA and each Plan and
Benefit Arrangement meet in all material respects any applicable requirements
for favorable tax treatment under the Code in both form and operation. To
the knowledge of the Company, no member of the ERISA Group has (i) sought a
waiver of the minimum funding standard under Section 412 of the Code in
respect of any Plan, (ii) failed to make any contribution or payment to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made
any amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA.
SECTION 6.15. Brokers. Acquisition Corp. has and will have
-------
no obligation to any Person in respect of any finder's or brokerage fees in
connection herewith or with the Acquisition.
SECTION 6.16. Related Transactions. The closing of the
--------------------
Acquisition will occur simultaneously with the making of the initial Loans
and purchase of the Warrants hereunder and no party has waived, without the
consent of the Required Lenders, any condition precedent to their obligations
to close as set forth in the Acquisition Documents. True and
55
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complete copies of all of the Acquisition Documents have been delivered or
made available to the Agent, together with a true and complete copy of each
document to be delivered at the closing of the Acquisition.
SECTION 6.17. Employment, Shareholders and Subscription
-----------------------------------------
Agreements. Except for the Operative Documents and the other agreements
----------
described in Schedule 6.17, true and complete copies of which have been
delivered to the Lenders, there are no (i) employment agreements covering the
management of the Company and its Subsidiaries, (ii) collective bargaining
agreements or other labor agreements covering any employees of the Company,
(iii) agreements for managerial, consulting or similar services to which the
Company is a party or by which it is bound or (iv) agreements regarding the
Company or Holdings, its assets or operations or any investment therein to
which any of its stockholders is a party or by which it is bound.
SECTION 6.18. Full Disclosure. None of the information
---------------
(financial or otherwise) furnished by or on behalf of Holdings or the Company
to the Agent or any Lender in connection with the consummation of the
transactions contemplated by any of the Operative Documents contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading
in the light of the circumstances under which such statements were made. All
financial projections delivered to the Lenders have been prepared on the
basis of the assumptions stated therein. Such projections represent the
Company's best estimate of the Company's future financial performance as of
the date of delivery of such financial projections and such assumptions are
believed by the Company to be reasonable in light of current business
conditions.
SECTION 6.19. Representations and Warranties Incorporated
-------------------------------------------
from Other Operative Documents. As of the Closing Date, each of the
------------------------------
representations and warranties made by the Company in the Operative Documents
to which it is a party are true and correct in all material respects, and
such representations and warranties are hereby
56
<PAGE>
incorporated herein by reference with the same effect as though set forth in
their entirety herein, as qualified therein.
SECTION 6.20. Private Offering. Neither Holdings, the
----------------
Company nor any Person acting on its or their behalf has offered the Notes or
Warrants or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than the Lenders and not more than five other
institutional investors. Neither Holdings, the Company nor any Person acting
on its or their behalf has taken, or will take, any action which would
subject the issuance or sale of the Notes or the Warrants or Warrant Shares
to Section 5 of the Securities Act, other than as provided in the Warrants
and the Warrantholders Rights Agreement.
SECTION 6.21. Compliance with Environmental Requirements; No
----------------------------------------------
Hazardous Materials. After giving effect to the Acquisition and except as
-------------------
provided on Schedule 6.21:
(a) Other than generation in compliance with all applicable
Environmental Laws, no Hazardous Materials are located on any properties
now or previously owned, leased or operated by the Company or any of its
Subsidiaries or have been released into the environment, or deposited,
discharged, placed or disposed of at, on, under or, to the knowledge of
the Company, near any of such properties. No portion of any such
property is being used, or has been used at any previous time, for the
disposal, storage, treatment, processing or other handling of Hazardous
Materials (other than processing or handling incidental to the
generation of Hazardous Materials in compliance with all applicable
Environmental Laws), nor is any such property affected in any material
respect by any Hazardous Materials Contamination.
(b) No asbestos or asbestos-containing materials are present
on any of the properties now or previously
57
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owned, leased or operated by the Company or any of its Subsidiaries.
(c) No polychlorinated biphenyls are located on or in any
properties now or previously owned, leased or operated by the Company or
any of its Subsidiaries, in the form of electrical transformers,
fluorescent light fixtures with ballasts, cooling oils or any other
device or form other than non-leaking polychlorinated biphenyls within a
transformer, capacitor, or other piece of equipment or a florescent
light fixture, the presence and retention of which is permitted by and
is maintained in compliance with all Environmental Laws.
(d) No underground storage tanks are located on any
properties now or to the knowledge of the Company previously owned,
leased or operated by the Company or any of its Subsidiaries, or were
located on any such property and subsequently removed or filled.
(e) No notice, notification, demand, request for information,
complaint, citation, summons, investigation, administrative order,
consent order and agreement, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamination is in existence
or, to the Company's knowledge, proposed, threatened or anticipated with
respect to or in connection with the operation of any properties now or
previously owned, leased or operated by the Company or any of its
Subsidiaries. All such properties and their existing and, to the
knowledge of the Company, prior uses comply and at all times have
complied, in all material respects, with any applicable governmental
requirements relating to Environmental Laws. There is no condition on
any of such properties which is in violation of any applicable
governmental requirements relating to Hazardous Materials, and neither
the Company nor any of its Subsidiaries has received any communication
from or on behalf of any governmental authority that any such condition
exists. None of such properties nor any property to which the Company
has, directly or indirectly, transported or
58
<PAGE>
arranged for the transportation of any material is listed or, to the
Company's knowledge, proposed for listing on the National Priorities
List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA)
or on any similar federal, state or foreign list of sites requiring
investigation or cleanup, nor, to the knowledge of the Company, is any
such property anticipated or threatened to be placed on any such list.
(f) There has been no environmental investigation, study,
audit, test, review or other analysis conducted of which the Company has
knowledge in relation to the current or prior business of the Company or
any property or facility now or previously owned, leased or operated by
the Company or any of its Subsidiaries which has not been delivered to
the Lenders at least five days prior to the date hereof.
(g) For purposes of this Section 6.21, the terms "Company"
and "Subsidiary" shall include any business or business entity
(including a corporation) which is, in whole or in part, a predecessor
of the Company or any Subsidiary.
(h) For purposes of this Section 6.21, any representation or
warranty made with respect to properties not presently owned, leased or
operated by the Company or any of its Subsidiaries (other than
representations and warranties made in the last sentence of clause (e)
of this Section 6.21 and in clause (f) of this Section 6.21) shall be
limited to conditions existing, activities occurring or compliance with
governmental requirements during the period of such ownership, leasing
or operation.
SECTION 6.22. Initial Capitalization. Set forth on Schedule
----------------------
6.22 is a schedule of the initial capitalization of the Company and of
Holdings, after giving effect to the transactions contemplated to take place
on the Closing Date and the issuance of the Warrant Shares upon exercise of
the
59
<PAGE>
Warrants, specifying each class of interest held and the amount and holder
thereof.
SECTION 6.23. Real Property Interests. Except for the
-----------------------
ownership, leasehold or other interests set forth in Schedule 6.23, the
Company and its Subsidiaries have, as of the Closing Date, no ownership,
leasehold or other interest in real property.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company (and in the cases of Sections 7.08, 7.09 and 7.11,
Holdings) agrees that, so long as any Lender has any Commitment hereunder or
any amount payable under any Note remains unpaid:
SECTION 7.01. Financial Statements and Other Reports. The Company
--------------------------------------
will maintain a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial
statements in accordance with GAAP, and will deliver to each of the Lenders:
(a) as soon as practicable and in any event within 30 days
after the end of each month, a consolidated balance sheet of Holdings
and its Consolidated Subsidiaries as at the end of such month and the
related consolidated statements of operations and cash flows for such
month, and for the portion of the Fiscal Year ended at the end of such
month setting forth in each case in comparative form, for any such
financial statements for any month ended on or after June 30, 1997, the
figures for the corresponding periods of the previous Fiscal Year and
the figures for such month and for such portion of the Fiscal Year ended
at the end of such month set forth in the annual operating and capital
expenditure budgets and cash flow forecast delivered pursuant to Section
7.01(k), all in reasonable detail and certified by the chief financial
60
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officer of Holdings as fairly presenting in all material respects the
financial condition and results of operations of Holdings and its
Consolidated Subsidiaries and as having been prepared in accordance with
GAAP applied on a basis consistent with the audited financial statements
of Holdings, subject to changes resulting from audit and normal year-end
adjustments and to the absence of footnotes;
(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year, a consolidated balance sheet of
Holdings and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related consolidated statements of operations,
stockholders' equity and cash flows for such Fiscal Year, setting forth
in each case (except with respect to the consolidated financial
statements of Holdings as of and for the Fiscal Year ending December 31,
1996) in comparative form the figures for the previous Fiscal Year, such
consolidated financial statements to be certified without qualification
by Lefkowitz, Garfinkel, Champi & DeRienzo, P.C., or other independent
public accountants of nationally recognized standing. In addition, each
set of consolidated financial statements delivered by the Company
pursuant to this clause (b) with respect to any Fiscal Year (except with
respect to the consolidated financial statements of Holdings as of and
for the Fiscal Year ending December 31, 1996) shall set forth in
comparative form the figures for such Fiscal Year set forth in the
annual operating and capital expenditure budgets and cash flow forecast
delivered pursuant to Section 7.01(k), it being understood that the
certification of such consolidated financial statements by independent
public accountants referred to in the immediately preceding sentence
shall in no event be required to be made with respect to any such
budgets and forecasts;
(c) (i) together with each delivery of financial statements
pursuant to (a) and (b) above, an Officers' Certificate of the Company
stating that the officers
61
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executing such certificate have reviewed the terms of this Agreement and
have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of the Company
during the accounting period covered by such financial statements and
that such review has not disclosed the existence during or at the end of
such accounting period, and that such officers do not have knowledge of
the existence as at the date of such Officers' Certificate, of any
Default, or, if any such Default existed or exists, specifying the
nature and period of existence thereof and what action the Company has
taken or is taking or proposes to take with respect thereto; (ii)
together with each delivery of financial statements for each month and
Fiscal Year, a compliance certificate of the chief financial officer or
treasurer of the Company (w) providing details of all transactions
between the Company and any Person referred to in Section 8.08, (x)
demonstrating in reasonable detail compliance during and at the end of
such accounting period with the restrictions contained in Sections 8.13
through 8.17 and (y) if not specified in the financial statements
delivered pursuant to (a) or (b) above, as the case may be, specifying
the aggregate amount of interest paid or accrued and the aggregate
amount of depreciation and amortization charged, during such accounting
period; and (iii) together with each delivery of financial statements
pursuant to (b) above, a statement setting forth in reasonable detail
the computation of Excess Cash Flow, if any, for such Fiscal Year,
certified by the chief financial officer of the Company as having been
prepared from such financial statements in accordance with this
Agreement;
(d) together with each delivery of financial statements
pursuant to (b) above, a written statement by the independent public
accountants giving the report thereon (i) stating that their audit
examination has included a review of the terms of this Agreement as it
relates to accounting matters, (ii) stating the aggregate amount of
Eligible Inventory at the end of
62
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such Fiscal Year which constitutes "slow moving inventory" (determined
in a manner consistent with the financial statements delivered by the
Company pursuant to Section 6.04) and setting forth in reasonable detail
the computation thereof and (iii) stating whether, in connection with
their audit examination, any Default has come to their attention, and if
such a condition or event has come to their attention, specifying the
nature and period of existence thereof
(e) promptly upon receipt thereof, copies of all reports
submitted to the Company or Holdings by independent public accountants
in connection with each annual, interim or special audit of the
financial statements of the Company or Holdings made by such
accountants, including the comment letter, if any, submitted by such
accountants to management in connection with their annual audit;
(f) promptly upon their becoming available, copies of (i) all
financial statements, reports, notices and proxy statements sent or made
available generally by the Company to its security holders, (ii) all
regular and periodic reports and all registration statements and
prospectuses filed by the Company with any securities exchange or with
the Securities and Exchange Commission or any governmental authority
succeeding to any of its functions and (iii) all press releases and
other statements made available generally by the Company to the public
concerning material developments in the business of the Company;
(g) promptly upon any officer of the Company obtaining
knowledge (i) of the existence of any Default, or becoming aware that
the holder of any Debt of the Company has given any notice or taken any
other action with respect to a claimed default thereunder, (ii) of any
change in the Company's certified accountant, (iii) that any Person has
given any notice to the Company or taken any other action with respect
to a claimed default under any material agreement or instrument (other
than the Financing Documents) to
63
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which the Company or any of its Subsidiaries is a party or by which any
of their assets are bound or (iv) of the institution of any litigation
or arbitration involving an alleged liability of the Company or any of
its Subsidiaries equal to or greater than $100,000 or any adverse
determination in any litigation or arbitration involving a potential
liability of the Company or any of its Subsidiaries equal to or greater
than $100,000, an Officers' Certificate of the Company specifying the
nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and
the nature of such claimed default (including any Default), event or
condition, and what action the Company has taken, is taking or proposes
to take with respect thereto;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA with respect to any Multiemployer Plan or notice
that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer any Plan, a copy of such notice; (iv)
applies for a waiver of the minimum funding standard under Section 412
of the Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any required payment or
64
<PAGE>
required contribution to any Plan or Multiemployer Plan or in respect of
any Benefit Arrangement within the period required by applicable law,
including ERISA and the Code, and by the terms of the Plan,
Multiemployer Plan or Benefit Arrangement to make such contribution or
payment or makes any amendment to any Plan or Benefit Arrangement which
has resulted or could result in the imposition of a Lien under Section
412(n) of the Code or the posting of a bond or other security under
Section 307 of ERISA, a certificate of the chief financial officer or
the chief accounting officer of the Company setting forth details as to
such occurrence and action, if any, which the Company or applicable
member of the ERISA Group is required or proposes to take;
(i) simultaneously with the financial statements referred to
in (a) above, operating plans and financial forecasts, including cash
flow projections covering proposed fundings, repayments, additional
advances, investments and other cash receipts and disbursements, as
prepared from time to time by the management of the Company for internal
use (but only if any such plans and forecasts have in fact been prepared
by the management of the Company for internal use);
(j) upon the reasonable request of any Lender, copies of any
reports or notices related to taxes and any other material reports or
notices received by the Company from, or filed by the Company with, any
Federal, state or local governmental agency or body regulating the
activities of the Company;
(k) within 30 days following the conclusion of each Fiscal
Year, the Company's annual operating and capital expenditure budgets and
cash flow forecast for the following Fiscal Year presented on a monthly
basis, which shall be in a format reasonably consistent with
projections, budgets and forecasts theretofore provided to the Lenders;
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(l) on the date on which each Notice of Borrowing is
delivered and on the first Business Day of each week, a Borrowing Base
Certificate setting forth (i) Eligible Inventory as of the close of
business of the last day of the calendar month most recently ended prior
to the date on which such Borrowing Base Certificate is being delivered
and (ii) Eligible Receivables as of the close of business of the last
day of the calendar week most recently ended prior to the date on which
such Borrowing Base Certificate is being delivered;
(m) within two Business Days after any request therefor, such
information in such detail concerning the amount, composition and manner
of calculation of the Borrowing Base as any Lender may reasonably
request;
(n) within ten days after the end of each month, a report, in
form and substance reasonably acceptable to the Required Lenders, as to
all accounts receivable of the Company outstanding as of the last day of
such month (a "Receivables Report"), which shall set forth in summary
form an aging of such receivables and which shall, if any Lender
reasonably so requests, include a detailed aged trial balance of all
such receivables specifying the names, addresses, face amount and dates
of all invoices for each account debtor obligated on a receivable so
listed; upon the reasonable request of any Lender and to the extent
available, each Receivables Report shall be accompanied by copies of
customer statements, and all documents, including repayment histories
and present status reports, relating to the receivables so scheduled and
such other matters and information relating to the status of any
receivables as any Lender shall reasonably request;
(o) together with the next delivery of a Receivables Report
after the Company becomes aware thereof, notice of any dispute between
any account debtor and the Company with respect to any amounts due and
owing in excess of $10,000 in the aggregate, with
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an explanation in reasonable detail of the reason for the dispute, all
claims related thereto and the amount in controversy; and
(p) with reasonable promptness, such other information and
data with respect to the Company or any of its Subsidiaries or Holdings
as from time to time may be reasonably requested by any Lender.
SECTION 7.02. Payment of Obligations. The Company (i) will
----------------------
pay and discharge, and will cause each of its Subsidiaries to pay and
discharge, at or before maturity, all of their respective material
obligations and liabilities, including tax liabilities, except where the same
may be the subject of a Permitted Contest, (ii) shall maintain, and cause
each of its Subsidiaries to maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same and (iii) shall not breach or
permit any of its Subsidiaries to breach, in any material respect, or permit
to exist any material default under, the terms of any material lease,
commitment, contract, instrument or obligation to which it is a party, or by
which its properties or assets are bound, except where the same is the
subject of a Permitted Contest.
SECTION 7.03. Conduct of Business and Maintenance of
--------------------------------------
Existence. The Company will continue, and will cause each of its
---------
Subsidiaries to continue, to engage in business of the same general type as
now conducted by the Company and its Subsidiaries, and except as permitted by
or as a result of any transaction permitted by Section 8.06 hereof, will
preserve, renew and keep in full force and effect, and will cause each
Subsidiary to preserve, renew and keep in full force and effect their
respective partnership or corporate existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business.
SECTION 7.04. Maintenance of Property; Insurance. (a) The
----------------------------------
Company will keep, and will cause each of its Subsidiaries to keep, all
property useful and necessary in
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its business in good working order and condition, ordinary wear and tear
excepted.
(b) The Company will maintain, and will cause each of its
Subsidiaries to maintain, (i) physical damage insurance on all real and
personal property on an all risks basis (including the perils of flood to the
extent that any buildings or personal property are located in a flood zone),
covering the repair and replacement cost of all such property and
consequential loss coverage for business interruption and extra expense,
covering such risks, for amounts not less than those, and with deductible
amounts not greater than those, set forth in Part I of Schedule 7.04, (ii)
public liability insurance (including products/completed operations liability
coverage) covering such risks, for amounts not less than those, and with
deductible amounts not greater than those, set forth in Part II of Schedule
7.04 and (iii) such other insurance coverage in such amounts and with respect
to such risks as the Required Lenders may reasonably request. All such
insurance shall be provided by insurers having an A.M. Best policyholders
rating of not less than B+ or such other insurers as the Required Lenders may
approve in writing. On or prior to the Closing Date, the Company shall cause
the Agent to be named as an additional insured and loss payee on each
insurance policy required to be maintained pursuant to this Section 7.04(b).
The Company will deliver to the Lenders (i) on the Closing Date, a
certificate from the Company's insurance broker dated such date showing the
amount of coverage as of such date, and certifying that, in the opinion of
such broker, such amounts are reasonable and customary for companies of
established repute engaged in the same or a similar business, that such
policies will include effective waivers (whether under the terms of any such
policy or otherwise) by the insurer of all claims for insurance premiums
against all loss payees and additional insureds and of all rights of
subrogation against all loss payees and additional insureds, and that if all
or any part of such policy is canceled, terminated or expires, the insurer
will forthwith give notice thereof to each additional insured and loss payee
and that no cancellation, reduction in amount or material change in coverage
thereof
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shall be effective until at least 30 days after receipt by each additional
insured and loss payee of written notice thereof, (ii) upon the request of
any Lender through the Agent from time to time full information as to the
insurance carried, (iii) within five days of receipt of notice from any
insurer, a copy of any notice of cancellation, nonrenewal or material change
in coverage from that existing on the date of this Agreement and
(iv) forthwith, notice of any cancellation or nonrenewal of coverage by the
Company. Any proceeds in excess of $100,000 from any Property Insurance
Policy which are payable to the insured in respect of any claim, or any
condemnation award or other compensation in respect of a condemnation (or any
transfer or disposition of property in lieu of condemnation) for which the
Company or any of its Subsidiaries receives a condemnation award or other
compensation in excess of $100,000, shall be paid to the Agent to be held,
applied or released for application in accordance with Section 5 of the
Company Security Agreement and each Property Insurance Policy shall provide
that all insurance proceeds in excess of $100,000 per claim which are payable
to the insured shall be payable to the Company and the Agent and, if an Event
of Default has occurred and is continuing, adjusted with the Agent. The
Company hereby appoints the Agent as its attorney-in-fact to make, solely
while an Event of Default has occurred and is continuing, proof of loss,
claim for insurance and adjustments with insurers, and to execute or endorse
all documents, checks or drafts in connection with payments under Property
Insurance Policies.
(c) The Company will maintain a term life insurance policy in
form and substance and issued by a life insurance company, in each case
acceptable to the Agent in its sole good faith discretion, with respect to
Warren Stanley in an amount not less than $2,000,000 (such insurance policy,
together with the term life insurance policy (if any) obtained by the Company
pursuant to the immediately succeeding sentence, the "Key-Man Life Insurance
Policies"). In addition, the Company shall use its best efforts to obtain
within 60 days of the Closing Date an additional term life insurance policy
in form and substance and issued by a life insurance company, in each case
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acceptable to the Agent in its sole good faith discretion, with respect to
Warren Stanley in an amount not less than $2,000,000. The Company shall
deliver to the Agent a copy of the term life insurance policy (if any)
obtained by the Company pursuant to the immediately preceding sentence within
3 Business Days of receipt thereof, together with a duly executed instrument
of assignment assigning such Key-Man Life Insurance Policy to the Agent as
Collateral under the Security Documents. Any proceeds payable to the Company
under any Key-Man Life Insurance Policy shall be paid to the Agent for
application in accordance with Section 5 of the Company Security Agreement.
SECTION 7.05. Compliance with Laws. The Company will comply,
--------------------
and cause each of its Subsidiaries to comply, in all material respects with
all applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including Environmental Laws and ERISA and the
rules and regulations thereunder).
SECTION 7.06. Inspection of Property, Books and Records. The
-----------------------------------------
Company will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and
activities; and will permit, and will cause each of its Subsidiaries to
permit, representatives of any Lender at such Lender's expense to visit and
inspect any of their respective properties, to examine and make abstracts or
copies from any of their respective books and records, to conduct a
collateral audit and analysis of their respective inventories and accounts
receivable and to discuss their respective affairs, finances and accounts
with their respective executive officers and independent public accountants,
all at such reasonable times and as often as may reasonably be desired.
SECTION 7.07. Use of Proceeds. The Company will use the
---------------
proceeds of Loans borrowed on the Closing Date solely for payment of amounts
due under the Acquisition Documents (including the repayment of Debt
thereunder) and transaction fees incurred in connection with the Operative
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Documents. Working Capital Loans borrowed after the Closing Date and the
Letters of Credit shall be used by the Company solely for working capital
needs of the Company and its Subsidiaries. None of such proceeds will be
used in violation of any applicable law or regulation.
SECTION 7.08. Further Assurances. Each of Holdings and the
------------------
Company will, and the Company will cause each of its Subsidiaries to, at its
own cost and expense, cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances
(x) as may from time to time be necessary or as the Required Lenders may from
time to time reasonably request in order to carry out the intent and purposes
of the Financing Documents and the transactions contemplated thereby,
including all such actions to establish, preserve, protect and perfect the
estate, right, title and interest of the Lenders to the Collateral (including
Collateral acquired after the date hereof), including first priority Liens
thereon, subject only to Permitted Liens (including without limitation any
Liens permitted under Section 8.02(f)) and (y) as the Required Lenders may
from time to time reasonably request, to establish, preserve, protect and
perfect first priority Liens in favor of the Lenders on any and all assets of
Holdings, the Company and its Subsidiaries, now owned or hereafter acquired,
that are not Collateral on the date hereof. The Company shall promptly give
notice to the Agent of the acquisition after the Closing Date by the Company
or any Subsidiary of any real property (including leaseholds in respect of
real property), trademark, copyright or patent.
SECTION 7.09. Board Meetings. The Company will notify the
--------------
Lenders of all meetings and actions by written consent of the board of
directors of the Company and each committee thereof at the same time and in
the same manner as notice of any meetings of such board or committee is
required to be given to its directors who do not waive such notice (or, if
such action requires no notice, then prior written notice thereof describing
the matters upon which action is to be taken). The Lenders shall have the
right to send two representatives selected by them to each such meeting, who
shall be permitted to attend such meeting and
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any adjournments thereof (other than any portion of such meeting devoted to
discussion of the Lenders solely in their respective capacities as holders of
the Notes or the Warrants).
SECTION 7.10. Lenders' Meetings. Upon the reasonable request
-----------------
of any Lender, the Company will conduct a meeting of the Lenders to discuss
any fiscal quarter's results and the financial condition of the Company at
which shall be present the chief executive officer and the chief financial
officer of the Company and such other officers of the Company as the
Company's chief executive officer shall designate. Such meetings shall be
held at the Company and at a time convenient to the Lenders and to the
Company. The costs and expenses incurred by any Lender with respect to any
such meeting shall be for such Lender's own account.
SECTION 7.11. Consummation of the Acquisition. Each of the
-------------------------------
Company and Holdings will cause the closing of the Acquisition to occur
concurrently with the making of the Loans on the Closing Date, and will not
without the prior written consent of the Required Lenders waive any condition
to its obligations to consummate the Acquisition.
SECTION 7.12. Hedging Facilities. Not later than 45 days
------------------
following the Closing Date, the Company will, at its sole cost and expense,
enter into and thereafter maintain in full force and effect for a period of
three years interest rate cap agreements in such amounts and on such terms as
shall reasonably be requested by the Required Lenders and that shall result
in effectively limiting the "Commercial Paper Rate" (as defined in Exhibit A)
at a level not more than 3.00% higher than such Commercial Paper Rate in
effect on the Closing Date with respect to $12,000,000 aggregate principal
amount of the Loans for a period of three years.
SECTION 7.13. Hazardous Materials; Remediation. The Company
--------------------------------
will (i) promptly give notice to the Lenders in writing of any complaint,
order, citation, notice or other written communication from any Person with
respect to, or if the Company becomes aware of, (x) the existence or alleged
existence of a material violation of any applicable Environmental Law or the
incurrence of any material liability, obligation, loss, damage, cost,
expense, fine, penalty or sanction or the requirement to commence any
remedial action resulting from or in connection with any air emission, water
discharge, noise emission, Hazardous Material or any other environmental,
health or safety matter at, upon, under or within any of the properties now
or previously owned, leased or operated by the Company or any of its
Subsidiaries, or due to the operations or activities of the Company, any
Subsidiary or any other Person on or in connection with any such property or
any part thereof or (y) any release on any of such properties of Hazardous
Materials in a quantity that is reportable under any applicable Environmental
Law; and (ii) promptly comply with any governmental requirements requiring
the removal, treatment or disposal of such Hazardous Materials or Hazardous
Materials Contamination and provide evidence reasonably satisfactory to the
Required Lenders of such compliance.
SECTION 7.14. Title Insurance.
---------------
On the Closing Date, the Company will furnish the Agent with
an ALTA extended coverage lender's policy of title insurance in an aggregate
amount of $1,500,000 insuring the Mortgage as a valid, enforceable first
mortgage Lien on the Company's interest in the Real Property, subject only to
Permitted Encumbrances (as defined in the Mortgage), Liens permitted under
Section 8.02(f) and to such other exceptions as are satisfactory to the
Agent. Prior to the Closing Date, the Company shall furnish a title
commitment for such policy to the Agent, together with legible copies of all
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documents affecting title, which shall show all recording information. The
policy, including each of the exceptions to coverage contained therein, shall
be subject to the approval of the Agent, and shall be issued by a title
company acceptable to the Agent. Attached to the policy shall be any and all
endorsements reasonably required by the Agent and available in Massachusetts,
including, (a) a comprehensive endorsement (ALTA 100 or equivalent) covering
restrictions and other matters, (b) a broad form zoning endorsement, which
specifically ensures that applicable parking requirements, if any, have been
satisfied, (c) an endorsement ensuring that the lien of each Mortgage is
valid against any applicable usury laws or other laws prohibiting the
charging of interest on interest in Massachusetts, (d) an endorsement
ensuring that the Real Property has access to a dedicated public street, (e)
a revolving credit endorsement, (f) a contiguity endorsement and (g) an
endorsement deleting the so-called "doing business" exclusion.
SECTION 7.15. Collateral Reports. The Company shall keep
------------------
accurate and complete records of its accounts receivable in at least so much
detail as to enable the Company to provide the Receivables Reports and other
information described in Section 7.01.
SECTION 7.16. Collections; Right to Notify Account Debtors.
--------------------------------------------
At any time following the occurrence of an Event of Default and during the
continuance thereof, in addition to the Lenders' rights under the Security
Documents, the Company hereby authorizes the Agent, at any time, to (i)
notify any or all account debtors that the accounts receivable of the Company
and its Subsidiaries have been assigned to the Agent and that the Agent has a
security interest therein and (ii) direct such account debtors to make all
payments due from them to the Company upon such accounts receivable directly
to the Agent or to a lockbox designated by the Agent. The Agent shall
contemporaneously furnish the Company with a copy of any such notice sent.
Any such notice, in the Agent's sole discretion, may be sent on the Company's
stationery, in which event the Company shall, if requested by the Agent,
co-sign such notice with the Agent.
SECTION 7.17. Enforcement of Covenants Not to Compete. The
---------------------------------------
Company shall preserve, protect and defend, to the extent permitted by
applicable law, all of its rights, if any, with respect to any covenant not
to compete contained in any of the material contracts of the Company or
contained in any employment agreement with any employee whose annual salary
and other compensation payable by the Company and its Subsidiaries is $50,000
or more, if the board of directors of the Company shall determine in its good
faith that such preservation, protection and defense is necessary or
advisable.
SECTION 7.18. Landlord and Warehouseman Waivers.
---------------------------------
The Company shall use its best efforts (i) to deliver to the Agent waivers of
contractual and statutory landlord's, landlord's mortgagee's and
warehouseman's Liens in form and substance satisfactory to the Agent under
each existing lease, warehouse agreement or similar agreement to which the
Company or any Subsidiary is a party, (ii) to cause such waivers to be
incorporated when the existing lease, warehouse agreement or similar
agreement is amended, renewed or extended and (iii) to obtain waivers of both
contractual and statutory landlord's, landlord's mortgagee's and
warehouseman's Liens in form and substance reasonably satisfactory to the
Agent in connection with each new lease, warehouse agreement or similar
agreement entered into by the Company or any Subsidiary. Without limiting
the obligations of the Company under this Section 7.18, it is understood and
agreed that unless otherwise agreed to in mortgagee's or warehouseman's Lien
or any other Lien not created by the Security Documents shall not be included
in Eligible Inventory.
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ARTICLE VIII
NEGATIVE COVENANTS
The Company (and, in the case of Sections 8.03, 8.09 and 8.11,
Holdings) agrees that, so long as any Lender has any Commitment hereunder or
any amount payable under any Note remains unpaid:
SECTION 8.01. Debt. The Company will not, and will not
----
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee or otherwise become or remain directly or indirectly liable
with respect to, any Debt, except for:
(a) Debt of the Company outstanding on the date of this
Agreement as set forth in Schedule 8.01;
(b) Debt of the Company under the Financing Documents;
(c) Debt of the Company or any of its Subsidiaries incurred
or assumed for the purpose of financing all or any part of the cost of
acquiring any fixed asset (including through Capital Leases), in an
aggregate principal amount at any time outstanding not greater than
$250,000;
(d) Debt of the Company or any of its Subsidiaries to a
wholly-owned Subsidiary of the Company, or of any Subsidiary of the
Company to the Company;
(e) Debt of the Company under the Seller Notes;
(f) Debt of the Company owed to the Management Stockholders
or their respective estates incurred for the purpose of making
distributions referred to in Section 8.04(a)(ii) to purchase shares (or
options to purchase shares) of Holdings Common Stock held by such
Management Stockholders or their respective estates, in an aggregate
outstanding principal amount not greater than $300,000; provided that
--------
any such Debt shall be subordinated on terms acceptable to the Required
Lenders in their sole and reasonable discretion; and
(g) Debt of the Company not otherwise permitted by the
foregoing clauses of this Section 8.01 in an aggregate principal amount
at any time outstanding not greater than $50,000.
SECTION 8.02. Negative Pledge. Neither the Company nor any
---------------
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) any Lien on any asset securing Debt permitted under
Section 8.01(c) incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such asset, provided that such Lien
--------
attaches to such asset concurrently with or within 90 days after the
acquisition thereof;
(b) Liens existing on the date of this Agreement securing
Debt outstanding on such date permitted by Section 8.01(a);
(c) Liens arising in the ordinary course of its business
which (i) do not secure Debt, (ii) do not secure any obligation in an
amount exceeding $10,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use
thereof in the operation of its business;
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(d) Liens created by the Security Documents;
(e) with respect to Collateral subject to the Lien of the
Mortgage, Permitted Encumbrances, as defined in the Mortgage; and
(f) inchoate tax Liens securing obligations of the Company
for the payments of taxes payable to the Commonwealth of Massachusetts
pursuant to the Massachusetts General Law Section 62C, 51 in connection
with the Acquisition, so long as arrangements satisfactory to the
Required Lenders in their sole and reasonable discretion for the payment
in full of the obligations secured by such Liens are in effect
(including without limitation the deposit into an escrow account on
terms satisfactory to the Required Lenders in their sole and reasonable
discretion of an amount satisfactory to the Required Lenders in their
sole and reasonable discretion).
SECTION 8.03. Capital Stock. Except for the Warrants and the
-------------
Warrant Shares, neither the Company nor any of its Subsidiaries shall issue
any shares of capital stock except shares of capital stock issued by any
Subsidiary to the Company and shares of capital stock of the Company issued
to Holdings. Holdings shall not issue any capital stock that under its
certificate of incorporation is entitled to a preference over the Holdings
Common Stock as to payment of dividends or distributions.
SECTION 8.04. Restricted Payments. (a) The Company will
-------------------
not, and will not permit any Subsidiary to, directly or indirectly, declare,
order, pay, make or set apart any sum for any Restricted Payment; provided
--------
that the foregoing shall not restrict or prohibit the following:
(i) purchases or redemptions of Warrants under the terms
thereof;
(ii) dividends or distributions to Holdings at such times and
in such amounts as are necessary to permit purchases of shares of (or
options to purchase shares of) Holdings Common Stock from employees of
the Company upon their death, termination or retirement, so long as, (x)
before and after giving effect to any such dividend or distribution for
such purpose, no Event of Default shall have occurred and be continuing
and (y) such purchases or payments after the date hereof do not exceed
in any one Fiscal Year $200,000 and do not exceed in the aggregate
$600,000;
(iii) dividends or distributions to Holdings at such times and in
such amounts as are necessary to permit payment of taxes (other than
taxes for any period with respect to which the returns and obligations
of Holdings have been consolidated with the comparable returns and
obligations of Security Capital for such period) and administrative
expenses payable by Holdings in compliance with Section 8.11; and
(iv) dividends or distributions to Holdings at such times and
in such amounts as are necessary to enable Holdings to make cash
payments to Security Capital pursuant to the terms of the Tax Sharing
Agreement to the extent permitted by Section 8.11(b); provided that the
--------
aggregate amount of such dividends or distributions made with respect to
any period shall not exceed the aggregate amount of Income Taxes (as
defined in Section 8.11(b)) which would have been payable by Holdings
with respect to such period but for the fact that Income Taxes returns
of Holdings for such period have been consolidated with corresponding
returns of Security Capital with respect to such period.
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(b) Without the prior written consent of the Required
Lenders, neither the Company nor any of its Subsidiaries will (i) consent to
the transfer of the Seller Notes or (ii) pay, repay, prepay, redeem,
purchase, acquire or make any other payment in respect of the Seller Notes,
except as specifically provided therein and expressly permitted thereby and
by the terms of the Seller Subordination Agreement.
SECTION 8.05. ERISA. The Company will not, and will not
-----
permit any of its Subsidiaries to:
(a) engage in any transaction in connection with which the
Company or any of its Subsidiaries could be subject to any material
liability arising from either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code;
(b) terminate any Plan in a manner, or take any other action,
which could result in any material liability of any member of the ERISA
Group to the PBGC;
(c) fail to make full payment when due of all amounts which,
under the provisions of any Plan, it is required to pay as contributions
thereto, or permit to exist any accumulated funding deficiency, whether
or not waived, with respect to any Plan;
(d) permit the present value of all accrued benefits (whether
or not vested) under all Plans at the end of any Plan year to exceed the
fair market value of the assets of such Plans as determined by the
Plans' actuaries in good faith using reasonable actuarial assumptions
and in a manner consistent with Statement of Accounting Standards No.
35; or
(e) fail to make any payments to any Multiemployer Plan that
it may be required to make under any agreement relating to such
Multiemployer Plan or any law pertaining thereto.
SECTION 8.06. Consolidations, Mergers and Sales of Assets.
-------------------------------------------
The Company will not, and will not permit any of its Subsidiaries to, (i)
consolidate or merge with or into any other Person; provided that nothing in
--------
this Section 8.06 shall prohibit the merger of a Subsidiary into the Company
or the merger or consolidation of a Subsidiary into or with another
Subsidiary or (ii) sell, lease or otherwise transfer, directly or indirectly,
any of its or their assets, other than (w) sales of inventory in the ordinary
course of their respective businesses, (x) dispositions of Temporary Cash
Investments, (y) dispositions of fixed assets so long as the proceeds of any
such disposition are applied to purchase comparable assets and (z)
dispositions for cash and fair value of assets that the board of directors of
the Company determines in good faith are no longer used or useful in the
business of the Company and its Subsidiaries, provided that immediately after
--------
any such disposition, the aggregate fair market value of all such assets
disposed of pursuant to this clause (z) after the date hereof does not exceed
$100,000 and the aggregate fair market value of all such assets during the
Fiscal Year in which such disposition is made does not exceed $50,000.
SECTION 8.07. Purchase of Assets, Investments. The Company
-------------------------------
will not, and will not permit any Subsidiary to, acquire any assets other
than in the ordinary course of business. The Company will not, and will not
permit any Subsidiary to, make, acquire or own any Investment in any Person
other than (a) Temporary Cash Investments, (b) Investments in Subsidiaries;
provided that the aggregate amount of Investments in Subsidiaries (whether
--------
now existing or hereafter created or acquired) made after the date hereof
shall not exceed $100,000 and (c) Investments in Holdings as contemplated by
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Section 8.11(a)(i)(y). Without limiting the generality of the foregoing, the
Company will not, and will not permit any Subsidiary to, (i) acquire or
create any Subsidiary without the consent of the Required Lenders and
arrangements satisfactory to the Required Lenders for (x) a pledge of the
stock of such Subsidiary to the Agent for the benefit of the Lenders, (y) a
guaranty by such Subsidiary of the obligations of the Company hereunder and
(z) a grant of a Lien on all of the assets of such Subsidiary to the Agent
for the benefit of the Lenders to secure such guaranty or (ii) engage in any
joint venture or partnership with any other Person.
SECTION 8.08. Transactions with Affiliates. The Company will
----------------------------
not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale, lease
or exchange of any property or the rendering of any service) with any
Affiliate of the Company, any stockholder of Holdings or any affiliate of any
such stockholder on terms that are less favorable to the Company or such
Subsidiary, as the case may be, than those which might be obtained at the
time from a Person who is not an Affiliate of the Company, a stockholder of
Holdings or an affiliate of such stockholder, as the case may be; provided
--------
that the Company shall be permitted to (i) make payments to Holdings to the
extent permitted by Section 8.04, (ii) make Investments in Holdings as
contemplated by Section 8.11(a)(1)(y) and (iii) pay fees to Investors and
compensation to Management Stockholders to the extent permitted by Sections
8.12 and 8.13, respectively.
SECTION 8.09. Amendments or Waivers. Without the prior
---------------------
written consent of the Required Lenders, neither Holdings nor the Company
will, nor will either of them permit any Subsidiary to, agree to any
amendment to or waiver of or in respect of the certificate of incorporation
of Holdings or the Company or any Operative Document.
SECTION 8.10. Fiscal Year. The Company shall not change its
-----------
fiscal year from a fiscal year ending on December 31.
SECTION 8.11. Limitations on Activities by Holdings; Payments
-----------------------------------------------
by Holdings and the Company under the Tax Sharing Agreement. (a) Holdings
-----------------------------------------------------------
shall not, directly or indirectly, (i) enter into or permit to exist any
transaction or agreement (including any agreement for incurrence or
assumption of Debt, any purchase, sale, lease or exchange of any property or
the rendering of any service), between itself and any other Person, other
than (x) the Operative Documents to which it is a party (the "Holdings
Documents") or (y) the incurrence of Debt to the Company solely to the extent
that Holdings applies the proceeds of such Debt to finance the repurchases or
redemptions of Holdings Common Stock referred to in Section 8.04(ii), (ii)
engage in any business or conduct any activity (including the making of any
Investment or payment or any distribution) or transfer any of its assets,
other than the making of the Investments in the Company contemplated in
Schedule 6.22, the performance of the Holdings Documents in accordance with
the terms thereof and performance of ministerial activities and payment of
taxes and administrative fees necessary for compliance with the next
succeeding sentence and, subject to subsection (b), the making of any
payments to Security Capital in order to comply with the provisions of the
Tax Sharing Agreement or (iii) consolidate or merge with or into any other
Person. Holdings shall preserve, renew and keep in full force and effect its
corporate existence and any rights, privileges and franchises necessary or
desirable in the conduct of its business, and shall comply in all material
respects with all material applicable laws, ordinances, rules, regulations,
and requirements of governmental authorities, provided that Holdings may
--------
terminate any such right, privilege or franchise (other than its corporate
existence) if its board of directors in good faith determines that such
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termination is in the best interests of Holdings and not materially
disadvantageous to the Lenders.
(b) Neither Holdings nor the Company shall make any payments
or any distributions to any holders of Holdings Common Stock other than
payments to be made by Holdings or the Company to Security Capital pursuant
to the provisions of the Tax Sharing Agreement with respect to any period so
long as the returns and obligations of Holdings or the Company, as the case
may be, for such period have been consolidated with the returns and
obligations of Security Capital for such period; provided that (x) the
--------
aggregate amount of cash payments made, directly or indirectly, by Holdings
or the Company to Security Capital with respect to any period shall not
exceed the aggregate amount of federal, state and local income taxes ("Income
Taxes") which would have been payable by Holdings with respect to such period
but for the fact that Income Taxes returns of Holdings for such period have
been consolidated with corresponding returns of Security Capital with respect
to such period and (y) solely with respect to cash distributions and other
payments made by Holdings or the Company with respect to any period ending on
or prior to December 31, 1998, Holdings or the Company, as the case may be,
shall deposit the excess of (1) the aggregate amount of such distributions
and other payments over (2) the Permitted Distribution Amount into the Cash
Collateral Account (as defined in the Security Capital Pledge Agreement).
"Permitted Distribution Amount" means, with respect to any period ending on
or prior to December 31, 1998, an amount equal to the aggregate amount of
Income Taxes payable in cash by Security Capital with respect to such period
and properly allocable to net income generated by Holdings and its
Subsidiaries, such allocation to be determined by multiplying the aggregate
amount of Income Taxes payable in cash by Security Capital for such period by
a fraction (1) the numerator of which shall be the consolidated taxable
income of Holdings and its Subsidiaries for such period and (2) the
denominator of which shall be the consolidated taxable income of Security
Capital and its consolidated subsidiaries for such period (without taking
into account the application of any net operating loss carryforward in such
period).
SECTION 8.12. Investor Fees. The Company shall not, and
-------------
shall not permit any Subsidiary to, directly or indirectly, pay or become
obligated to pay any fees or other amounts to or for the account of any
Investor except (i) so long as no Event of Default is then continuing or
would result therefrom, pursuant to the Management Agreement and subject to
the terms of the Investors Subordination Agreement and (ii) distributions by
the Company permitted pursuant to Section 8.04(a)(iv).
SECTION 8.13. Management Compensation. The Company shall
-----------------------
not, and shall not permit any Subsidiary to, directly or indirectly, pay or
become obligated to pay, any compensation for services in any form to or for
the account of any Management Stockholder, except as expressly provided in
the Employment Contracts.
SECTION 8.14. Lease Payments. The Company will not, and will
--------------
not permit any Subsidiary to, incur or assume (whether pursuant to a
Guarantee or otherwise) any liability for rental payments under a lease with
a lease term (as defined in Financial Accounting Standards Board Statement
No. 13, as in effect on the date hereof) of one year or more if, after giving
effect thereto, the aggregate amount of minimum lease payments that the
Company and its Consolidated Subsidiaries have so incurred or assumed will
exceed, on a consolidated basis, $50,000 for any calendar year under all such
leases (excluding Capital Leases).
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SECTION 8.15. Capital Expenditures. The aggregate amount of
--------------------
Consolidated Capital Expenditures for any Fiscal Year set forth below shall
not the amount set forth below opposite such Fiscal Year:
Fiscal Year Amount
----------- ------
1996 $150,000
Thereafter $100,000
SECTION 8.16. Total Debt Coverage Ratio. The Company shall
-------------------------
not permit the ratio on the last day of any fiscal quarter set forth below of
(i) Consolidated Free Cash Flow to (ii) Total Debt Service, in each case for
the Measuring Period at such day, to be less than the ratio set forth below
opposite such fiscal quarter; provided that for purposes of calculating such
--------
ratio on the last day of any fiscal quarter ending on or prior to March 31,
1997, Total Debt Service for the relevant period shall be equal to (x) Total
Debt Service for such period plus (y) the aggregate amount of the first
----
scheduled interest payments to be made by the Company pursuant to Sections
2.03 and 3.03 after the last day of such period plus (z) the aggregate amount
----
of the first scheduled principal payment to be made by the Company pursuant
to Section 2.04 after the last day of such period:
Fiscal Quarter Ended Ratio
-------------------- -------
September 30, 1996 1.10:1
December 31, 1996 1.10:1
March 31, 1997 1.00:1
Thereafter 1.10:1
SECTION 8.17. Minimum EBITDA. As of the last day of each
--------------
fiscal quarter set forth below, EBITDA for the Measuring Period at such day
shall not be less than the corresponding amount set forth below opposite such
period:
Fiscal Quarter Ended Amount
-------------------- ------
September 30, 1996 $1,500,000
December 31, 1996 2,800,000
March 31, 1997 2,250,000
June 30, 1997 3,000,000
September 30, 1997 3,000,000
December 31, 1997 3,050,000
March 31, 1998 3,050,000
June 30, 1998 3,100,000
September 30, 1998 3,150,000
December 31, 1998 3,200,000
March 31, 1999 3,200,000
June 30, 1999 3,250,000
September 30, 1999 3,375,000
Thereafter 3,500,000
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. If any one or more of the
-----------------
following events (hereinafter called "Events of Default") shall occur and be
continuing for any reason whatsoever (whether voluntary or involuntary, by
operation of law or otherwise):
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(a) the Company shall fail to pay when due any principal, or
shall fail to pay within five days after the due date thereof any
interest, premium, fees or other amount payable hereunder;
(b) the Company shall fail to observe or perform any covenant
contained in Section 7.14, or Article VIII hereof, or Section 5 or
Sections 4(A), (E) or (I) of the Company Security Agreement or Holdings
shall fail to perform any covenant contained in Section 3(B) of the
Holdings Pledge Agreement or Security Capital shall fail to perform any
covenant contained in the Security Capital Pledge Agreement;
(c) the Company or Holdings shall fail to observe or perform
any covenant or agreement required to be observed or performed by the
Company or Holdings, as the case may be, contained in the Financing
Documents (other than those covered by clause (a) or (b) above) for 30
days after notice thereof has been given to the Company by the Agent;
(d) any representation, warranty, certification or statement
made by the Company, Holdings or Security Capital in any Financing
Document or in any certificate, financial statement or other document
delivered pursuant to the Financing Documents shall prove to have been
incorrect in any respect (or in any material respect if such
representation, warranty, certification or statement is not by its terms
already qualified as to materiality) when made (or deemed made);
(e) the Company or any of its Subsidiaries shall fail to make
any payment in respect of any Debt (other than the Notes) arising in one
or more related or unrelated transactions, in an aggregate principal
amount exceeding $50,000;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt (other than the Notes) of the
Company or any of its Subsidiaries arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding
$50,000, or enables (or, with the giving of notice or lapse of time or
both, would enable) the holder of such Debt or any Person acting on such
holder's behalf to accelerate the maturity thereof;
(g) Holdings, the Company or any of its Subsidiaries shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be
commenced against Holdings, the Company or any of its Subsidiaries
seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against Holdings, the
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Company or any of its Subsidiaries under the federal bankruptcy laws as
now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $50,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination
of the foregoing; or the PBGC shall institute proceedings under Title IV
of ERISA to terminate, to impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $50,000;
(j) a judgment or order not covered by insurance for the
payment of money in excess of $50,000 shall be rendered against
Holdings, the Company or any of its Subsidiaries and such judgment or
order shall continue unsatisfied and unstayed for a period of 30 days;
(k) except as the result of any transfer made by Capital
Partners to any of its affiliates, Capital Partners shall cease to be
the record and beneficial owner of at least 50% of the capital stock of
Security Capital owned by Capital Partners on the Closing Date; or
Capital Partners shall cease at any time to have the ability to elect a
majority of the board of directors of Security Capital (either through
the ownership of voting stock, by contract or otherwise); or, except as
the result of any transfer made pursuant to the Holdings Pledge
Agreement or as a result of the exercise of any Warrants, Holdings shall
cease to be the record and beneficial owner of 100% of the issued and
outstanding capital stock of the Company; or, exclusive of shares of
Holdings Common Stock issued in an IPO by Holdings or issued to members
of senior management of the Company (other than the Management
Stockholders) representing in the aggregate not more than 5% of the
aggregate number of shares of Holdings Common Stock outstanding
(determined assuming the exercise of all options or warrants to purchase
Holdings Common Stock held by such Person and adjusted for stock splits,
combinations and similar events), shares of Holdings Common Stock shall
be held by any Person other than the Investors or the Management
Stockholders and their respective Permitted Transferees (as defined in
the Common Stockholders Agreement); or Warren Stanley shall cease to be
chief executive officer of the Company and a successor shall not have
been appointed by the Company and approved by the Required Lenders
within 180 days thereafter; or except as the result of repurchases or
redemptions referred to in Section 8.04(a)(ii), each Management
Stockholder and his Permitted Transferees (as defined in the Common
Stockholders Agreement) shall cease to own beneficially in the aggregate
at least the number of shares (determined assuming the exercise of all
options or warrants to purchase Common Stock held by such Person and
adjusted for stock splits, combinations and similar events) of Common
Stock owned by such Management Stockholder and the members of his
immediate family on the Closing Date (determined as aforesaid);
(l) the auditor's report or reports on the audited statements
delivered pursuant to Section 7.01 shall include any material
qualification (including with respect to the scope of audit) or
exception;
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(m) the Lien created by any of the Security Documents shall
at any time fail to constitute a valid and perfected Lien on all of the
Collateral purported to be secured thereby, subject to no prior or equal
Lien except Permitted Liens (including without limitation any Liens
permitted under Section 8.02(f)), or Holdings or the Company or any of
its Subsidiaries shall so assert in writing;
(n) the Company shall be prohibited or otherwise materially
restrained from conducting substantially the business theretofore
conducted by it by virtue of any determination, ruling, decision, decree
or order of any court or regulatory authority of competent jurisdiction
and such determination, ruling, decision, decree or order remains
unstayed and in effect for any period of 10 days beyond any period for
which any business interruption insurance policy of the Company shall
provide full coverage to the Company of any losses and lost profits; or
(o) any of the Operative Documents shall for any reason fail
to constitute the valid and binding agreement of any party thereto, or
the Company shall so assert in writing;
then, and in every such event and at any time thereafter during the
continuance of such event, the Agent shall if requested by the Required
Lenders, (i) by notice to the Company terminate the Commitments and they
shall thereupon terminate and/or (ii) by notice to the Company declare the
Notes (together with accrued and unpaid interest thereon) to be, and the
Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company; provided that in the case of any of the Events
--------
of Default specified in clause (g) or (h) above with respect to the Company,
without any notice to the Company or any other act by the Agent or the
Lenders, the Commitments shall thereupon terminate and all of the Notes
(together with accrued and unpaid interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Company.
ARTICLE X
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 10.01. Fees. (a) Participation Fees. On the
---- ------------------
Closing Date, the Company shall pay to each Lender a fee in an amount equal
to 1.5% of the sum of such Lender's Tranche A Commitment, Tranche B
Commitment and Working Capital Commitment.
(b) Unused Commitment Fee. During the period from the
---------------------
Closing Date through the date on which Working Capital Commitments are
terminated, the Company shall pay to each Lender a fee at the rate of 1/2 of
1% per annum on the daily average amount by which the amount of such Lender's
Working Capital Commitment exceeds such Lender's Working Capital
Outstandings. Accrued fees under this Section shall be payable quarterly in
arrears on each Quarterly Date prior to the date on which the Working Capital
Commitments are terminated and on the date of such termination.
(c) Letter of Credit Fee. The Company agrees to pay to the
--------------------
Agent for the benefit of the Lenders, ratably in proportion to their
respective Working Capital Commitments, a letter of credit fee with respect
to each Letter of Credit, computed for each day from and including the date
of issuance of such Letter of Credit to but excluding the last day a drawing
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is available under such Letter of Credit, at a rate of 2% per annum on the
aggregate amount available for drawing under such Letter of Credit from time
to time (whether or not any conditions to drawing can then be met). Such fee
shall be payable in arrears on each Quarterly Date prior to the date on which
the Working Capital Commitments are terminated and on the Termination Date.
SECTION 10.02. Computation of Interest and Fees. Commitment
--------------------------------
fees pursuant to Section 10.01(b) and all interest hereunder and under the
Notes shall be calculated on the basis of a 360-day year for the actual
number of days elapsed.
SECTION 10.03. General Provisions Regarding Payments. All
-------------------------------------
payments (including prepayments) to be made by the Company under any
Financing Document, including payments of principal of and premium and
interest on the Notes, fees, expenses and indemnities, shall be made without
set-off or counterclaim and in immediately available funds. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension. The Company shall make all
payments in immediately available funds to each Lender's Payment Account
before 11:00 A.M. (New York City time) on the date when due. Each payment
(including prepayments) by the Company on account of principal of and
interest on any Loans shall be made pro rata according to the respective
--- ----
outstanding principal amounts of such Class of Loans held by each Lender.
All amounts payable by the Company hereunder or under any other Financing
Document not paid when due (other than payments of principal and interest on
the Notes, which shall bear interest as set forth therein) shall bear
interest, payable on demand, for each day until paid at a rate per annum
equal to 5% plus the rate announced by NationsBank, N.A. from time to time as
its prime rate (calculated on the basis of a 360-day year for the actual
number of days elapsed).
SECTION 10.04. Expenses. Whether or not the transactions
--------
contemplated hereby shall be consummated, the Company agrees to pay on demand
(i) all costs and expenses of preparation of this Agreement, the other
Financing Documents and the Warrants and of the Company's performance of and
compliance with all agreements and conditions contained herein and therein,
(ii) the reasonable fees, expenses and disbursements of counsel (including
the reasonable allocation of the compensation, costs and expenses of in-house
counsel, based upon time spent) to, and independent appraisers and
consultants retained by, the Lenders in connection with the negotiation,
preparation, execution and administration of this Agreement, the other
Financing Documents and the Warrants and any amendments hereto or thereto and
waivers hereof and thereof, (iii) all costs and expenses of creating,
perfecting and maintaining Liens pursuant to the Financing Documents,
including filing and recording fees and expenses, the costs of any bonds
required to be posted in respect of future filing and recording fees and
expenses, title investigations and reasonable fees and expenses of such local
counsel as the Agent shall request, (iv) the fees, expenses and disbursements
(in an aggregate amount in any calendar year of not more than $5,000) of
independent accountants or other experts retained by the Agent in connection
with not more than one accounting and collateral audit or review of the
Company and its affairs during each calendar year and (v) if an Event of
Default occurs, all out-of-pocket expenses incurred by the Agent and each
Lender, including fees and disbursements of counsel (including the reasonable
allocation of the compensation, costs and expenses of in-house counsel, based
upon time spent), in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
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SECTION 10.05. Indemnity. Whether or not the transactions
---------
contemplated hereby shall be consummated, the Company agrees to indemnify,
pay and hold harmless the Agent and each Lender and any subsequent holder of
any of the Notes, Warrants, Warrant Shares and Letter of Credit Liabilities
and the officers, directors, employees and agents of the Agent, each Lender
and such holders (collectively called the "Indemnitees") from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel
for such Indemnitee) in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitee shall be designated a
party thereto and including any such proceeding initiated by or on behalf of
an Obligor, and the reasonable expenses of investigation by engineers,
environmental consultants and similar technical personnel and any commission,
fee or compensation claimed by any broker (other than any broker retained by
NationsCredit) asserting any right to payment for the transactions
contemplated hereby, which may be imposed on, incurred by or asserted against
such Indemnitee as a result of or in connection with the transactions
contemplated hereby or by the other Operative Documents (including (i)(A) as
a direct or indirect result of the presence on or under, or escape, seepage,
leakage, spillage, discharge, emission or release from, any property now or
previously owned, leased or operated by the Company or any of its
Subsidiaries of any Hazardous Materials or any Hazardous Materials
Contamination, (B) arising out of or relating to the offsite disposal of any
materials generated or present on any such property or (C) arising out of or
resulting from the environmental condition of any such property or the
applicability of any governmental requirements relating to Hazardous
Materials, whether or not occasioned wholly or in part by any condition,
accident or event caused by any act or omission of the Company or any of its
Subsidiaries, and (ii) proposed and actual extensions of credit under this
Agreement) and the use or intended use of the proceeds of the Notes and
Warrants, except that the Company shall have no obligation hereunder to an
Indemnitee with respect to any liability resulting from the gross negligence
or wilful misconduct of such Indemnitee. To the extent that the undertaking
set forth in the immediately preceding sentence may be unenforceable, the
Company shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all such
indemnified liabilities incurred by the Indemnitees or any of them. Without
limiting the generality of any provision of this Section, to the fullest
extent permitted by law, the Company hereby waives all rights for
contribution or any other rights of recovery with respect to liabilities,
losses, damages, costs and expenses arising under or relating to
Environmental Laws that it might have by statute or otherwise against any
Indemnitee, except that the Company shall have no obligation under this
sentence to an Indemnitee with respect to any liability resulting from the
gross negligence or wilful misconduct of such Indemnitee.
SECTION 10.06. Taxes. The Company agrees to pay all
-----
governmental assessments, charges or taxes (except income or other similar
taxes imposed on any Lender or any holder of a Note), including any interest
or penalties thereon, at any time payable or ruled to be payable in respect
of the existence, execution or delivery of this Agreement, the other
Financing Documents or the Warrants, or the issuance of the Notes, Warrants,
Warrant Shares or any Letter of Credit, and to indemnify and hold each Lender
and each and every holder of the Notes, Warrants, Warrant Shares and Letter
of Credit Liabilities harmless against liability in connection with any such
assessments, charges or taxes.
SECTION 10.07. Funding Losses. If the Company fails to
--------------
borrow any Working Capital Loans after notice has been given to any Lender in
accordance with Section 4.04 or make any payment when due (including pursuant
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to a notice of optional prepayment), the Company shall reimburse each Lender
within 15 days after demand for any resulting loss or expense incurred by it
(or by an existing or prospective participant in the related Loan), including
any loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment
or failure to borrow; provided that such Lender shall have delivered to the
--------
Company a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
SECTION 10.08. Maximum Interest. (a) In no event shall the
----------------
interest charged with respect to the Notes or any other obligations of the
Company under the Financing Documents exceed the maximum amount permitted
under the laws of the State of New York or of any other applicable
jurisdiction.
(b) Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest charged or payable for the
account of any Lender hereunder or under any Note or other Financing Document
(the "Stated Rate") would exceed the highest rate of interest permitted under
any applicable law to be charged by such Lender (the "Maximum Lawful Rate"),
then for so long as the Maximum Lawful Rate would be so exceeded, the rate of
interest payable for the account of such Lender shall be equal to the Maximum
Lawful Rate; provided, that if at any time thereafter the Stated Rate is less
--------
than the Maximum Lawful Rate, the Company shall, to the extent permitted by
law, continue to pay interest for the account of such Lender at the Maximum
Lawful Rate until such time as the total interest received by such Lender is
equal to the total interest which such Lender would have received had the
Stated Rate been (but for the operation of this provision) the interest rate
payable. Thereafter, the interest rate payable for the account of such
Lender shall be the Stated Rate unless and until the Stated Rate again would
exceed the Maximum Lawful Rate, in which event this provision shall again
apply.
(c) In no event shall the total interest received by any
Lender exceed the amount which such Lender could lawfully have received had
the interest been calculated for the full term hereof at the Maximum Lawful
Rate with respect to such Lender.
(d) In computing interest payable with reference to the
Maximum Lawful Rate applicable to any Lender, such interest shall be
calculated at a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made.
(e) If any Lender has received interest hereunder in excess
of the Maximum Lawful Rate with respect to such Lender, such excess amount
shall be applied to the reduction of the principal balance of its Loans or to
other amounts (other than interest) payable hereunder, and if no such
principal or other amounts are then outstanding, such excess or part thereof
remaining shall be paid to the Company.
ARTICLE XI
THE AGENT
SECTION 11.01. Appointment and Authorization. Each Lender
-----------------------------
irrevocably appoints and authorizes the Agent to enter into each of the
Security Documents on its behalf and to take such action as agent on its
behalf and to exercise such powers under the Financing Documents as are
delegated to the Agent by the terms thereof, together with all such powers as
are reasonably incidental thereto.
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SECTION 11.02. Agent and Affiliates. NationsCredit shall
--------------------
have the same rights and powers under the Financing Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and NationsCredit and its affiliates may lend money to and
generally engage in any kind of business with the Company or any Subsidiary
or affiliate of the Company as if it were not the Agent hereunder.
SECTION 11.03. Action by Agent. The obligations of the Agent
---------------
hereunder are only those expressly set forth herein and under the other
Financing Documents. Without limiting the generality of the foregoing, the
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in Article IX.
SECTION 11.04. Consultation with Experts. The Agent may
-------------------------
consult with legal counsel (who may be counsel for the Company), independent
public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken by it in good faith in accordance
with the advice of such counsel, accountants or experts.
SECTION 11.05. Liability of Agent. Neither the Agent nor any
------------------
of its directors, officers, agents or employees shall be liable for any
action taken or not taken by it in connection with the Financing Documents
(i) with the consent or at the request of the Required Lenders or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with any Financing Document or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Company; (iii) the satisfaction of any
condition specified in Article V, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness, sufficiency or
genuineness of any Financing Document or any other instrument or writing
furnished in connection therewith. The Agent shall not incur any liability
by acting in reliance upon any notice, consent, certificate, statement, or
other writing (which may be a bank wire, telex, facsimile transmission or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties.
SECTION 11.06. Indemnification. Each Lender shall, ratably
---------------
in accordance with its Working Capital Commitment (whether or not the Working
Capital Commitments have been terminated), indemnify the Agent (to the extent
not reimbursed by the Company) against any cost, expense (including counsel
fees and disbursements), claim, demand, action, loss or liability (except
such as result from the Agent's gross negligence or willful misconduct) that
the Agent may suffer or incur in connection with the Financing Documents or
any action taken or omitted by the Agent hereunder or thereunder.
SECTION 11.07. Credit Decision. Each Lender acknowledges
---------------
that it has, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking any action under the
Financing Documents.
SECTION 11.08. Successor Agent. The Agent may resign at any
---------------
time by giving written notice thereof to the Lenders and the Company. Upon
any such resignation, the Required Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
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Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Agent gives notice of resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent, which shall be an
institution organized or licensed under the laws of the United States of
America or of any State thereof. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Survival. All agreements, representations and
--------
warranties made herein shall survive the execution and delivery of this
Agreement and the other Operative Documents and the execution, sale and
delivery of the Notes, Warrants and Warrant Shares. The indemnities and
agreements set forth in Articles X and XI shall survive the payment of the
Notes, the exercise, redemption or expiration of the Warrants and the
termination of this Agreement.
SECTION 12.02. No Waivers. No failure or delay by the Agent
----------
or any Lender in exercising any right, power or privilege under any Financing
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein and therein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 12.03. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including prepaid
overnight courier, telex, facsimile transmission or similar writing) and
shall be given to such party at its address or telecopy or telex number set
forth on the signature pages hereof (or, in the case of any such Lender who
becomes a Lender after the date hereof, in a notice delivered to the Company
and the Agent by the assignee Lender forthwith upon such assignment) or at
such other address or telecopy or telex number as such party may hereafter
specify for the purpose by notice to the Agent and the Company. Each such
notice, request or other communication shall be effective (i) if given by
telex or telecopy, when such telex or telecopy is transmitted to the telex or
telecopy number specified in this Section and the appropriate answerback is
received (in the case of telex) or telephonic confirmation of receipt thereof
is obtained (in the case of telecopy) or (ii) if given by mail, prepaid
overnight courier or any other means, when received at the address specified
in this Section or when delivery at such address is refused.
obligation under this Agreement or the Notes or any other Financing Document
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way
be affected or impaired thereby.
SECTION 12.05. Amendments and Waivers. Any provision of this
----------------------
Agreement or the Notes may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by Holdings, the Company and
the Required Lenders (and, if the rights or duties of the Agent are affected
thereby, by the Agent); provided that no such amendment or waiver shall,
--------
87
<PAGE>
unless signed by all the Lenders, (i) increase or decrease any Commitment of
any Lender (except for a ratable decrease in the Commitments of all Lenders)
or subject any Lender to any additional obligation, (ii) reduce the principal
of or rate of interest on any Loan or fees hereunder, (iii) postpone the date
fixed for any payment of principal of any Loan pursuant to Section 2.04(a),
3.04(a) or 4.05(a), or of interest on any Loan or any fees hereunder or for
any termination of any Commitment or (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes which
shall be required for the Lenders or any of them to take any action under
this Section or any other provision of this Agreement.
SECTION 12.06. Successors and Assigns; Registration. (a)
------------------------------------
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
(including any transferee of any Note or Warrant), except that neither
Holdings nor the Company may assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of all Lenders.
(b) The terms and provisions of this Agreement shall inure to
the benefit of any transferee or assignee of any Note or Warrant and, in the
event of such transfer or assignment, the rights and privileges herein
conferred upon the assigning Lender shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and
conditions hereof. Any assignment shall be for an equal percentage of each
Class of such assignor Lender's Loans and its Working Capital Commitment, and
any such assignee Lender shall, upon its registration in the Note Register
referred to below, become a "Lender" for all purposes hereunder. Upon any
such assignment, the assignor Lender shall be released from its Working
Capital Commitment to the extent assigned to and assumed by the assignee
Lender.
(c) Upon any assignment of any Note(s), the assigning Lender
shall surrender its Note(s) to the Company for exchange or registration of
transfer, and the Company will promptly execute and deliver in exchange
therefor a new Note or Note(s) of the same tenor and registered in the name
of the assignor Lender (if less than all of such Lender's Notes are assigned)
and the name of the assignee Lender.
(d) The Company shall maintain a register (the "Note
Register") of the Lenders and all assignee Lenders that are the holders of
all the Notes issued pursuant to this Agreement. The Company will allow any
Lender to inspect and copy such list at the Company's principal place of
business during normal business hours. Prior to the due presentment for
registration of transfer of any Note, the Company may deem and treat the
Person in whose name a Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and premium and interest
on such Note and for all other purposes whatsoever, and the Company shall not
be affected by notice to the contrary.
(e) Each Lender (including any assignee Lender at the time of
such assignment) represents that it (i) is acquiring its Notes solely for
investment purposes and not with a view toward, or for sale in connection
with, any distribution thereof, (ii) has received and reviewed such
information as it deems necessary to evaluate the merits and risks of its
investment in the Notes, (iii) is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and (iv) has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment in the Notes, including a complete
loss of its investment.
88
<PAGE>
(f) Each Lender understands that the Notes are being offered
only in a transaction not involving any public offering within the meaning of
the Securities Act, and that, if in the future such Lender decides to resell,
pledge or otherwise transfer any of the Notes, such Notes may be resold,
pledged or transferred only (i) to the Company, (ii) to a person who such
Lender reasonably believes is a qualified institutional buyer that purchases
for its own account or for the account of a qualified institutional buyer to
whom notice is given that such resale, pledge or transfer is being made in
reliance on Rule 144A under the Securities Act or (iii) pursuant to an
exemption from registration under the Securities Act.
(g) Each Lender understands that the Notes will, unless
otherwise agreed by the Company and the holder thereof, bear a legend to the
following effect:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO THE
COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (3) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
(h) If any Note becomes mutilated and is surrendered by the
Lender with respect thereto to the Company, or if any Lender claims that any
of its Notes has been lost, destroyed or wrongfully taken, the Company shall
execute and deliver to such Lender a replacement Note, upon the affidavit of
such Lender attesting to such loss, destruction or wrongful taking with
respect to such Note and such lost, destroyed, mutilated, surrendered or
wrongfully taken Note shall be deemedto be canceled for all purposes hereof.
Such affidavit shall be accepted as satisfactory evidence of the loss,
wrongful taking or destruction thereof and no surety or bond shall be
required as a condition of the execution and delivery of a replacement Note.
Any costs and expenses of the Company in replacing any such Note shall be for
the account of such Lender.
SECTION 12.07. Collateral. Each of the Lenders represents to
----------
the Agent and each of the other Lenders that it in good faith is not relying
upon any Margin Stock as collateral in the extension or maintenance of the
credit provided for in this Agreement.
SECTION 12.08. Headings. Headings and captions used in the
--------
Financing Documents (including the Exhibits and Schedules hereto and thereto)
are included herein and therein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 12.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.
-----------------------------------------
THIS AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE COMPANY AND HOLDINGS
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT
SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH
OF THE COMPANY AND HOLDINGS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
89
<PAGE>
INCONVENIENT FORUM. EACH OF THE PARTIES HERETO IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.03.
NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS
AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 12.10. Notice of Breach by Agent or Lender. Each of
-----------------------------------
the Company and Holdings agrees to give the Agent and the Lenders notice of
any action or inaction by the Agent or any Lender or any agent or attorney of
the Agent or any Lender in connection with this Agreement or any other
Financing Document or the obligations of the Company or Holdings under this
Agreement or any other Financing Document that may be actionable against the
Agent or any Lender or any agent or attorney of the Agent or any Lender or a
defense to payment of any obligations of the Company or Holdings under this
Agreement or any other Financing Document for any reason, including
commission of a tort or violation of any contractual duty or duty implied by
law. Each of the Company and Holdings agrees, to the fullest extent that it
may lawfully do so, that unless such notice is given promptly (and in any
event within thirty (30) days after the Company or Holdings has knowledge, or
with the exercise of reasonable diligence could have had knowledge, of any
such action or inaction), the Company and Holdings shall not assert, and the
Company and Holdings shall be deemed to have waived, any claim or defense
arising therefrom to the extent that the Agent or any Lender could have
mitigated such claim or defense after receipt of such notice.
SECTION 12.11. WAIVER OF JURY TRIAL. EACH OF THE COMPANY,
--------------------
HOLDINGS, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND TO THE
FULLEST EXTENT PERMITTED BY LAW WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM
OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 12.12. Counterparts; Integration. This Agreement may
-------------------------
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement, the other Financing Documents, the
Warrantholders Rights Agreement and the Warrants constitute the entire
agreement and understanding among the parties hereto and supersede any and
all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
SECTION 12.13. Knowledge of any Person. As used herein,
-----------------------
"knowledge" means, with respect to any Person, any fact, circumstance or
situation of which such Person has actual knowledge or any fact, circumstance
or situation of which such Person would have had knowledge upon due inquiry
but without expenditure of funds for special studies and the like. The
knowledge of the Company or Holdings shall be limited to the knowledge of the
directors and Chairman, President and Chief Executive Officer of the Company
or Holdings, as the case may be.
90
<PAGE>
SECTION 12.14. Permitted Lien. The Lenders agree that, with
--------------
respect to any representation made or covenant agreed to by the Company in
the Financing Documents regarding the existence of any Lien, the Liens
permitted under Section 8.02(f) of this Agreement shall be Liens permitted to
exist.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
POSSIBLE DREAMS, LTD.
By /s/ Philip L. Fitting
-----------------------------------
Name: Philip L. Fitting
Title: Chairman
Address:
Telecopy number:
Telex number:
Company Account Designation:
---------------------------
[Name of bank]
ABA No.:
Account No.:
Account Name:
Reference:
P.D. HOLDINGS, INC.
By /s/ Philip L. Fitting
-------------------------
Name: Philip L. Fitting
Title: Chairman
Address:
Telecopy number:
Telex number:
91
<PAGE>
NATIONSCREDIT COMMERCIAL
CORPORATION, as Lender and Agent
By /s/ Rebecca Carey
------------------------------
Title: Authorized Signatory
One Canterbury Green
P.O. Box 120013
Stamford, CT 06912-0013
Telecopy: 203-352-4171
Payment Account Designation:
---------------------------
First Chicago National Bank
Chicago, Illinois
ABA No.: 071000013
Account No.: 52-56933
Account Name: NationsCredit
Commercial Corporation
92
<PAGE>
EXHIBIT A
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) TO THE COMPANY, (2) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES
ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
POSSIBLE DREAMS, LTD.
TRANCHE A NOTE
$ __________ ___, 199_
POSSIBLE DREAMS, LTD., a Delaware corporation
(together with its successors, the "Company"), for value
received, promises to pay [NAME OF LENDER] (the "Lender"),
or registered assigns, an aggregate principal amount of
________________ Dollars ($__________), by paying on each of
the dates set forth in Schedule A attached hereto (or, if
any such day is not a Business Day, on the next succeeding
Business Day) (each, an "Amortization Date"), the aggregate
principal amount set forth opposite such Amortization Date
on such Schedule A, together with accrued and unpaid
interest thereon to but excluding the date of payment, and
to pay, monthly in arrears with respect to each calendar
month on the first Business Day of the next succeeding
calendar month, commencing with July, 1996, interest
(computed on the basis of the actual number of days elapsed
over a year of 360 days) on the aggregate unpaid principal
amount hereof from time to time at a rate equal to the sum
of 4% per annum plus the Commercial Paper Rate (as
hereinafter defined) and to pay on demand interest at a rate
equal to the sum of 6% per annum plus the Commercial Paper
Rate (in each case subject to Section 10.08 of the Credit
Agreement referred to below) on any overdue principal,
premium and interest from the due date thereof to the date
of actual payment (after as well as before judgment and
during any bankruptcy proceeding). Changes in the rate of
interest applicable hereto shall occur as of the opening of
business on any day on which the Commercial Paper Rate
changes.
"Commercial Paper Rate" means for any day in any
calendar month, the rate of interest equivalent to the money
market yield for the Interest Determination Date falling in
such month on the 30-day Commercial Paper Rate for
dealer-placed commercial paper of issuers whose corporate
bonds are rated "AA" or its equivalent by a nationally
recognized rating agency, as such rate is made available on
<PAGE>
a discount basis or otherwise by the Federal Reserve Bank of
New York and published weekly by the Board of Governors of
the Federal Reserve System in its H.15 report, or any
successor publication published by the Board of Governors of
the Federal Reserve System or, if such rate for such date is
not yet published in such statistical release, the rate for
that date will be the rate set forth in the weekly
statistical release designated as such, or any successor
publication, published by the Board of Governors of the
Federal Reserve System. "Interest Determination Date" means
May 17, 1996 and the first Business Day of each calendar
month thereafter.
This Note is one of the Tranche A Notes referred
to in the Credit Agreement dated as of May 17, 1996 (as
amended from time to time, the "Credit Agreement") among the
Company, Holdings, the lenders referred to therein and
NationsCredit Commercial Corporation, as Agent. The Credit
Agreement and the Security Documents referred to therein
contain additional rights of the holder of, and the security
for, this Note. Capitalized terms used but not defined
herein have the meanings assigned thereto in the Credit
Agreement.
If an Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note
together with all accrued but unpaid interest hereon may
become or be declared forthwith due and payable in the
manner and with the effect provided in the Credit Agreement.
This Note also may and must be prepaid as provided
in the Credit Agreement, together with any premiums set
forth therein, under the circumstances therein described.
Payments of principal hereof and interest and
premium hereon shall be made in lawful money of the United
States of America.
This Note shall be governed by, and construed in
accordance with, the laws of the State of New York in all
respects, including all matters of construction, validity
and performance, without regard to the choice of law
provisions thereof.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Note to be duly executed as of the day and year first above
written.
POSSIBLE DREAMS, LTD.
By_________________________
Name: Philip L. Fitting
Title: Chairman
3
<PAGE>
SCHEDULE A
TO TRANCHE A NOTE
Amortization Schedule
---------------------
Payment Due Date Principal Amount
---------------- ----------------
The first Business
Day of each of the
following months:
October, 1996 $187,500.00
January, 1997 $187,500.00
April, 1997 $187,500.00
July, 1997 $187,500.00
October, 1997 $250,000.00
January, 1998 $250,000.00
April, 1998 $250,000.00
July, 1998 $250,000.00
October, 1998 $312,500.00
January, 1999 $312,500.00
April, 1999 $312,500.00
July, 1999 $312,500.00
October, 1999 $312,500.00
January, 2000 $312,500.00
April, 2000 $312,500.00
July, 2000 $312,500.00
October, 2000 $375,000.00
January, 2001 $375,000.00
April, 2001 $375,000.00
July, 2001 $375,000.00
<PAGE>
EXHIBIT B
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) TO THE COMPANY, (2) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES
ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
POSSIBLE DREAMS, LTD.
TRANCHE B NOTE
$ ____________ ___, 199_
POSSIBLE DREAMS, LTD., a Delaware corporation
(together with its successors, the "Company"), for value
received, promises to pay [NAME OF LENDER] (the "Lender"),
or registered assigns, an aggregate principal amount of
____________________ Dollars ($__________), by paying on
each July 1, October 1, January 1 and April 1, commencing
with the second such date following the earlier of (i) May
17, 2001 and (ii) the date on which the Tranche A Notes (as
defined in the Credit Agreement referred to below) shall
have been repaid in their entirety (or if any such day is
not a Business Day, on the next succeeding Business Day)
(each, an "Amortization Date"), the aggregate principal
amount of (x) Three Hundred Seventy-Five Thousand Dollars
($375,000.00), if such Amortization Date is the first,
second or third Amortization Date, (y) Five Hundred Fifty
Thousand Dollars ($550,000.00), if such Amortization Date is
the fourth, fifth or sixth Amortization Date, and (z) Seven
Hundred Twenty Five Thousand Dollars ($725,000.00), if such
Amortization Date is any other Amortization Date, together
with accrued and unpaid interest thereon to but excluding
the date of payment, and to pay, monthly in arrears with
respect to each calendar month on the first Business Day of
the next succeeding calendar month, commencing with July,
1996, interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) on the aggregate
unpaid principal amount hereof from time to time at a rate
equal to the sum of 6% per annum plus the Commercial Paper
Rate (as hereinafter defined) and to pay on demand interest
at a rate equal to the sum of 8% per annum plus the
Commercial Paper Rate (in each case subject to Section 10.08
of the Credit Agreement referred to below) on any overdue
principal, premium and interest from the due date thereof to
the date of actual payment (after as well as before judgment
and during any bankruptcy proceeding). Changes in the rate
of interest applicable hereto shall occur as of the opening
<PAGE>
of business or any day on which the Commercial Paper Rate
changes.
"Commercial Paper Rate" means for any day in any
calendar month, the rate of interest equivalent to the money
market yield for the Interest Determination Date falling in
such month on the 30-day Commercial Paper Rate for
dealer-placed commercial paper of issuers whose corporate
bonds are rated "AA" or its equivalent by a nationally
recognized rating agency, as such rate is made available on
a discount basis or otherwise by the Federal Reserve Bank of
New York and published weekly by the Board of Governors of
the Federal Reserve System in its H.15 report, or any
successor publication published by the Board of Governors of
the Federal Reserve System or, if such rate for such date is
not yet published in such statistical release, the rate for
that date will be the rate set forth in the weekly
statistical release designated as such, or any successor
publication, published by the Board of Governors of the
Federal Reserve System. "Interest Determination Date" means
May 17, 1996 and the first Business Day of each calendar
month thereafter.
This Note is one of the Tranche B Notes referred
to in the Credit Agreement dated as of May 17, 1996 (as
amended from time to time, the "Credit Agreement") among the
Company, Holdings, the lenders referred to therein and
NationsCredit Commercial Corporation, as Agent. The Credit
Agreement and the Security Documents referred to therein
contain additional rights of the holder of, and the security
for, this Note. Capitalized terms used but not defined
herein have the meanings assigned thereto in the Credit
Agreement.
If an Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note
together with all accrued but unpaid interest hereon may
become or be declared forthwith due and payable in the
manner and with the effect provided in the Credit Agreement.
This Note also may and must be prepaid as provided
in the Credit Agreement, together with any premiums set
forth therein, under the circumstances therein described.
Payments of principal hereof and interest and
premium hereon shall be made in lawful money of the United
States of America.
This Note shall be governed by, and construed in
accordance with, the laws of the State of New York in all
respects, including all matters of construction, validity
and performance, without regard to the choice of law
provisions thereof.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Note to be duly executed as of the day and year first above
written.
POSSIBLE DREAMS, LTD.
By_________________________
Name: Philip L. Fitting
Title: Chairman
3
<PAGE>
EXHIBIT C
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) TO THE COMPANY, (2) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES
ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
POSSIBLE DREAMS, LTD.
WORKING CAPITAL NOTE
$ __________ __, 199_
POSSIBLE DREAMS, LTD., a Delaware corporation
(together with its successors, the "Company"), for value
received, promises to pay [NAME OF LENDER] (the "Lender"),
or registered assigns, the principal amount of
____________ Dollars ($___________) or the aggregate
outstanding principal amount of the Working Capital Loans
made by the Lender, whichever is less, on the Working
Capital Termination Date (as herein defined), and to pay,
monthly in arrears with respect to each calendar month on
the first Business Day of the next succeeding calendar
month, commencing with July, 1996, until the Working Capital
Termination Date and on the Working Capital Termination
Date, interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) on the aggregate
unpaid principal amount hereof on each day from time to time
at a rate equal to the sum of 4% per annum plus the
Commercial Paper Rate (as hereinafter defined) and to pay on
demand interest at a rate equal to the sum of 6% per annum
plus the Commercial Paper Rate (in each case subject to
Section 10.08 of the Credit Agreement referred to below) on
any overdue principal and interest from the due date thereof
to the date of actual payment (after as well as before
judgment and during any bankruptcy proceeding). Changes in
the rate of interest applicable hereto shall occur as of the
opening of business on any day on which the Commercial Paper
Rate changes.
"Working Capital Termination Date" means the
earlier of May 17, 2003 and the date on which all of the
Tranche A Notes and the Tranche B Notes shall have been paid
in full in accordance with their terms.
"Commercial Paper Rate" means for any day in any
calendar month, the rate of interest equivalent to the money
<PAGE>
market yield for the Interest Determination Date falling in
such month on the 30-day Commercial Paper Rate for
dealer-placed commercial paper of issuers whose corporate
bonds are rated "AA" or its equivalent by a nationally
recognized rating agency, as such rate is made available on
a discount basis or otherwise by the Federal Reserve Bank of
New York and published weekly by the Board of Governors of
the Federal Reserve System in its H.15 report, or any
successor publication published by the Board of Governors of
the Federal Reserve System or, if such rate for such date is
not yet published in such statistical release, the rate for
that date will be the rate set forth in the weekly
statistical release designated as such, or any successor
publication, published by the Board of Governors of the
Federal Reserve System. "Interest Determination Date" means
May 17, 1996 and the first Business Day of each calendar
month thereafter.
This Note is one of the Working Capital Notes
referred to in the Credit Agreement dated as of May 17, 1996
(as amended from time to time, the "Credit Agreement") among
the Company, Holdings, the lenders referred to therein and
NationsCredit Commercial Corporation, as Agent. The Credit
Agreement and the Security Documents referred to therein
contain additional rights of the holder of, and the security
for, this Note. Capitalized terms used but not defined
herein have the meanings assigned thereto in the Credit
Agreement.
If an Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note
together with all accrued but unpaid interest hereon may
become or be declared forthwith due and payable in the
manner and with the effect provided in the Credit Agreement.
This Note also may and must be prepaid as provided
in the Credit Agreement, together with any premiums set
forth therein, under the circumstances therein described.
Payments of principal hereof and interest hereon
shall be made in lawful money of the United States of
America.
This Note shall be governed by, and construed in
accordance with, the laws of the State of New York in all
respects, including all matters of construction, validity
and performance, without regard to the choice of law
provisions thereof.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Note to be duly executed as of the day and year first above
written.
POSSIBLE DREAMS, LTD.
By__________________________
Name: Philip L. Fitting
Title: Chairman
3
<PAGE>
SCHEDULE A TO WORKING CAPITAL NOTE
_________________________________________________________________
Principal Payment
Amount of of Notation
Date Loan Principal Made by
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_______________________________________________________________
EXHIBIT 5
THIS WARRANT AND THE SHARES OF NON-VOTING COMMON STOCK PURCHASABLE HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THIS WARRANT AND THE SHARES OF NON-VOTING COMMON STOCK PURCHASABLE HEREUNDER ARE
SUBJECT TO AND HAVE THE BENEFIT OF A WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF
MAY 17, 1996 AMONG POSSIBLE DREAMS, LTD., P.D. HOLDINGS, INC. AND THE
STOCKHOLDERS AND WARRANTHOLDERS LISTED ON THE SIGNATURE PAGES THEREOF, A COPY OF
WHICH IS ON FILE WITH POSSIBLE DREAMS, LTD.
Dated: May 17, 1996
WARRANT
To Purchase 250 Shares of Non-Voting Common Stock of
POSSIBLE DREAMS, LTD.
Expiring May 17, 2006
THIS IS TO CERTIFY THAT, for value received, NATIONSCREDIT COMMERCIAL
CORPORATION or registered assigns ("Holder") is entitled to purchase from
POSSIBLE DREAMS, LTD., a Delaware corporation (the "Company"), at any time or
from time to time after 9:00 a.m., New York City time, on the date hereof and
prior to 5:00 p.m., New York City time, on the earlier of May 17, 2006 and the
Business Day preceding the date of redemption of this Warrant, at the place
where the Warrant Agency is located, at the Exercise Price, the number of shares
of Class B Common Stock, par value $0.01 per share (the "Non-Voting Common
Stock") of the Company shown above, all subject to adjustment and upon the terms
and conditions hereinafter provided, and is entitled also to exercise the other
appurtenant rights, powers and privileges hereinafter described.
This Warrant is one of one or more warrants (the "Warrants") of the same
form and having the same terms as this Warrant, entitling the holders initially
to purchase up to an aggregate of 250 shares of Non-Voting Common Stock. The
Warrants have been issued pursuant to the Credit Agreement dated as of May 17,
1996 (as amended from time to
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time, the "Credit Agreement") among the Company, P.D. Holdings, Inc., a Delaware
corporation ("Holdings"), the Lenders listed on the signature pages thereof and
NationsCredit Commercial Corporation ("NationsCredit"), as Agent, and the Holder
is entitled to certain benefits as set forth therein and to certain benefits
described in the Warrantholders Rights Agreement. The Company shall keep a copy
of the Credit Agreement and the Warrantholders Rights Agreement, and any
amendments thereto, at the Warrant Agency and shall furnish, without charge,
copies thereof to the Holder upon request.
Certain terms used in this Warrant are defined in Article VI.
ARTICLE I
EXERCISE OF WARRANTS
1.1. Method of Exercise. To exercise this Warrant in whole or in part,
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the Holder shall deliver on any Business Day to the Company, at the Warrant
Agency, (a) this Warrant, (b) a written notice of such Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Non-
Voting Common Stock to be purchased (which shall be a whole number of shares if
for less than all the shares then issuable hereunder), the denominations of the
share certificate or certificates desired and the name or names in which such
certificates are to be registered, and (c) payment of the Exercise Price with
respect to such shares. Such payment may be made, at the option of the Holder,
to be specified in such notice, either (a) by cash, certified or bank cashier's
check or wire transfer in an amount equal to the product of (i) the Exercise
Price times (ii) the number of Warrant Shares as to which this Warrant is being
exercised or (b) by receiving from the Company the number of Warrant Shares
equal to (i) the number of Warrant Shares as to which this Warrant is being
exercised minus (ii) the number of Warrant Shares having a value, based on the
Closing Price on the trading day immediately prior to the date of such exercise,
equal to the product of (x) the Exercise Price times (y) the number of Warrant
Shares as to which this Warrant is being exercised; provided that the Holder may
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make payment as set forth in clause (b) only if at the time this Warrant is
being exercised the Common Stock is listed or admitted for trading on a national
securities exchange or is traded in the over-the-counter market.
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The Company shall, as promptly as practicable and in any event within
seven days after receipt of such documents and payment, execute and deliver or
cause to be executed and delivered, in accordance with such notice, a
certificate or certificates representing the aggregate number of shares of Non-
Voting Common Stock specified in said notice together with cash in lieu of any
fractions of a share as provided in Section 1.3. The share certificate or
certificates so delivered shall be in such denominations as may be specified in
such notice, and shall be issued in the name of the Holder or such other name or
names as shall be designated in such notice. This Warrant shall be deemed to
have been exercised and such certificate or certificates shall be deemed to have
been issued, and such Holder or any other Person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
shares, as of the date the aforementioned notice and payment is received by the
Company. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of such certificate or certificates, deliver to
the Holder a new Warrant evidencing the rights to purchase the remaining shares
of Non-Voting Common Stock called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and delivery of
share certificates and new Warrants, except that, if share certificates or new
Warrants shall be registered in a name or names other than the name of the
Holder, funds sufficient to pay all transfer taxes payable as a result of such
transfer shall be paid by the Holder at the time of delivery of the
aforementioned notice of exercise or promptly upon receipt of a written request
of the Company for payment.
1.2. Shares to be Fully Paid and Nonassessable. All shares of Non-
-----------------------------------------
Voting Common Stock issued upon the exercise of this Warrant and all shares of
Voting Common Stock issued upon the conversion of such Non-Voting Common Stock
shall be validly issued, fully paid and nonassessable and, if such class of
Common Stock is then listed on any national securities exchange (as defined in
the Exchange Act) or quoted on NASDAQ, shall be duly listed or quoted thereon,
as the case may be.
1.3. No Fractional Shares Required to be Issued. The Company shall not
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be required to issue fractions of shares of Non-Voting Common Stock upon
exercise of this Warrant. If any fraction of a share would, but for this
Section, be issuable upon final exercise of this Warrant, in
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lieu of such fractional share the Company shall pay to the Holder, in cash, an
amount equal to the same fraction of the Fair Market Value of the Company per
share of outstanding Common Stock on the Business Day immediately prior to the
date of such exercise.
1.4. Share Legend. Each certificate for shares of Non-Voting Common
------------
Stock issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities Act of
1933 and may not be sold or offered for sale unless registered under said
Act and any applicable state securities laws or unless an exemption from
such registration is available. This security is also subject to and has
the benefit of a Warrantholders Rights Agreement dated as of May 17, 1996
among Possible Dreams, Ltd., P.D. Holdings, Inc. and the Stockholders and
Warrantholders listed on the signature pages thereof, copies of which are
on file with Possible Dreams, Ltd."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public offering pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected by
the holder of such certificate (who may be an employee of such holder) and
reasonably acceptable to the Company, the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
1.5. Reservation. The Company has duly reserved and will keep
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available for issuance upon exercise of the Warrants the total number of Warrant
Shares deliverable from time to time upon exercise of all Warrants from time to
time outstanding and the total number of shares of Voting Common Stock
deliverable upon conversion of such Warrant Shares to Voting Common Stock. The
Company will not change the Non-Voting Common Stock from par value $0.01 per
share to any higher par value which exceeds the Exercise Price then in effect,
and will reduce the par value of the Non-Voting Common Stock upon any event
described in Article IV that provides for an increase in the number of shares of
Non-Voting Common Stock subject to purchase upon exercise of this Warrant, in
inverse proportion to and effective at the same time as such number of shares is
increased, but only to
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the extent that such increase in the number of shares, together with all other
such increases after the date hereof, causes the aggregate Exercise Price of all
Warrants (without giving effect to any exercise or redemption thereof) to be
greater than $1,000.
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE AND
REPLACEMENT OF WARRANTS
2.1. Warrant Agency. As long as any of the Warrants remain
--------------
outstanding, the Company shall perform the obligations of and be the warrant
agency with respect to the Warrants (the "Warrant Agency") at its address set
forth in the Credit Agreement or at such other address as the Company shall
specify by notice to all Warrantholders.
2.2. Ownership of Warrant. The Company may deem and treat the person
--------------------
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until due presentment of this Warrant for registration of
transfer as provided in this Article II.
2.3. Transfer of Warrant. The Company agrees to maintain at the
-------------------
Warrant Agency books for the registration of transfers of the Warrants, and
transfer of this Warrant and all rights hereunder shall be registered, in whole
or in part, on such books, upon surrender of this Warrant at the Warrant Agency,
together with a written assignment of this Warrant duly executed by the Holder
or its duly authorized agent or attorney, with (if the Holder is a natural
person) signatures guaranteed by a bank or trust company or a broker or dealer
registered with the NASD, and funds sufficient to pay any transfer taxes payable
upon such transfer. Upon surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in the instrument of assignment
(which shall be whole numbers of shares only) and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled.
2.4. Division or Combination of Warrants. This Warrant may be divided
-----------------------------------
or combined with other Warrants upon presentment hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Agency,
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together with a written notice specifying the names and denominations (which
shall be whole numbers of shares only) in which the new Warrant or Warrants are
to be issued, signed by the holders hereof and thereof or their respective duly
authorized agents or attorneys. Subject to compliance with Section 2.3 as to
any transfer or assignment which may be involved in the division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
2.5. Loss, Theft, Destruction of Warrant Certificates. Upon receipt of
------------------------------------------------
evidence satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Company (it being understood and agreed that if the holder of such Warrant is
NationsCredit, then a written agreement of indemnity given by NationsCredit
alone shall be satisfactory to the Company and no further security shall be
required) or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Non-
Voting Common Stock.
2.6. Expenses of Delivery of Warrants. The Company shall pay all
--------------------------------
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
ARTICLE III
CERTAIN RIGHTS
3.1. Rights and Obligations under the Warrantholders Rights Agreement.
----------------------------------------------------------------
This Warrant is entitled to the benefits and subject to the terms of the
Warrantholders Rights Agreement dated as of May 17, 1996 among the Company,
Holdings and the Stockholders and Warrantholders listed on the signature pages
thereof (as amended from time to time, the "Warrantholders Rights Agreement").
The Company shall keep or cause to be kept a copy of the Warrantholders Rights
Agreement, and any amendments thereto, at the Warrant Agency and shall furnish,
without charge, copies thereof to the Holder upon request.
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<PAGE>
3.2. Determination of Fair Market Value. Subject to Section 3.3
----------------------------------
hereof, each determination of Fair Market Value hereunder shall be made in good
faith by the Company. Upon each determination of Fair Market Value by the
Company hereunder, the Company shall promptly give notice thereof to all
Warrantholders, setting forth in reasonable detail the calculation of such Fair
Market Value and the method and basis of determination thereof (the "Company
Determination").
3.3. Contest and Appraisal Rights. (a) If the holders of Warrants
----------------------------
entitling such holders to purchase a majority of the Non-Voting Common Stock
subject to purchase upon exercise of Warrants at the time outstanding (exclusive
of Warrants then owned by the Company or any Subsidiary (as defined in the
Credit Agreement) or Affiliate (as defined in the Credit Agreement) thereof (the
"Required Interest") shall disagree with the Company Determination and shall by
notice to the Company given within 30 days after the Company's notice of the
Company Determination (an "Appraisal Notice") elect to dispute the Company
Determination, such dispute shall be resolved as set forth in subsection (b) of
this Section.
(b) The Company shall within 30 days after receipt of an Appraisal
Notice pursuant to subsection (a) of this Section engage an investment bank or
other qualified appraisal firm reasonably acceptable to the Required Interest
(the "Appraiser") to make an independent determination of Fair Market Value (the
"Appraiser Determination"). The Appraiser Determination shall be final and
binding on the Company and all Warrantholders. If the Company Determination and
the Appraiser Determination differ by an amount of 10% or less of the Company
Determination, then the costs of conducting the appraisal shall be borne equally
by the Company and the Warrantholders; if the Company Determination is greater
than the Appraiser Determination by more than 10% of the Company Determination,
then the costs of conducting the appraisal shall be borne entirely by the
Warrantholders; and if the Appraiser Determination is greater than the Company
Determination by more than 10% of the Company Determination, then the costs of
conducting the appraisal shall be borne entirely by the Company; provided that
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in each case costs separately incurred by the Company and any Warrantholders
shall be separately borne by them.
3.4. Board Meetings. The Company shall give to the Warrantholders
--------------
notice of all meetings and actions by written consent of its board of directors,
at the same time and in the same manner as notice of any meetings of such
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board is required to be given to directors who do not waive such notice (or, if
such meeting requires no notice, then 10 days written notice thereof describing
the matters upon which action is to be taken). Warrantholders shall have the
right to send, at their expense, two representatives selected by them to each
such meeting, who shall be permitted to attend such meeting and any adjournments
thereof (other than any portion of such meeting devoted to discussion of the
Warrantholders solely in their respective capacities as holders of the
Warrants).
3.5 Financial Statements and Other Information. The Company will, and
------------------------------------------
will cause its Subsidiaries to, maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in accordance with generally accepted accounting
principles ("GAAP"), and will deliver to each of the Warrantholders:
(i) as soon as practicable and in any event within 30 days after the
end of each month, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at the end of such month and the related
consolidated statements of operations and cash flows for such month, and for
the portion of the Fiscal Year ended at the end of such month setting forth
in each case in comparative form, for any such financial statements for any
month ended on or after June 30, 1997, the figures for the corresponding
periods of the previous Fiscal Year, all in reasonable detail and certified
by the chief financial officer of the Company as fairly presenting in all
material respects the financial condition and results of operations of the
Company and its Consolidated Subsidiaries and as having been prepared in
accordance with GAAP applied on a basis consistent with the audited financial
statements of the Company, subject to changes resulting from audit and normal
year-end adjustments and to the absence of footnotes;
(ii) as soon as available and in any event within 90 days after the end
of each Fiscal Year, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of operations, stockholders' equity and cash flows
for such Fiscal Year, setting forth in each case (except with respect to the
consolidated financial
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statements of the Company as of and for the Fiscal Year ending December 31,
1996) in comparative form the figures for the previous Fiscal Year, such
consolidated financial statements to be certified without qualification by
Lefkowitz, Garfinkel, Champi & DeRienzo, P.C., or other independent public
accountants of nationally recognized standing;
(iii) promptly following the filing thereof with the Secretary of State
of the State of Delaware, a copy of each amendment to, or restatement of, the
Certificate of Incorporation of the Company, and promptly following the
adoption thereof by the Company, a copy of each amendment to, or restatement
of, the By-laws of the Company;
(iv) as promptly as practicable following each meeting of the board of
directors of the Company, a copy of the minutes of such meeting, and promptly
following the execution by all of the directors on the board of directors of
the Company, a copy of each unanimous written consent of directors in lieu of
a meeting of the board of directors of the Company, in each case, including
all exhibits and attachments, if any, to such minutes or unanimous written
consents; and
(v) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as from time to time may be
reasonably requested by any Warrantholder.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1. Adjustment Generally. The Exercise Price and the number of shares
--------------------
of Non-Voting Common Stock (or other securities or property) issuable upon
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events as provided in this Article IV; provided that
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notwithstanding anything to the contrary contained herein, the Exercise Price
shall not be less than the par value of the Non-Voting Common Stock, as such par
value is reduced from time to time in accordance with Section 1.5.
4.2. Common Stock Reorganization. If the Company shall subdivide its
---------------------------
outstanding shares of Common Stock (or any class thereof) into a greater number
of shares or consolidate its outstanding shares of Common Stock (or any class
thereof) into a smaller number of shares (any such event being called a "Common
Stock Reorganization"), then (a) the Exercise Price shall be adjusted, effective
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immediately after the effective date of such Common Stock Reorganization, to a
price determined by multiplying the Exercise Price in effect immediately prior
to such effective date by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding on such effective date before giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding after giving effect to such
Common Stock Reorganization, and (b) the number of shares of Non-Voting Common
Stock subject to purchase upon exercise of this Warrant shall be adjusted,
effective at such time, to a number determined by multiplying the number of
shares of Non-Voting Common Stock subject to purchase immediately before such
Common Stock Reorganization by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding after giving effect to such Common
Stock Reorganization and the denominator of which shall be the number of shares
of Common Stock outstanding immediately before such Common Stock Reorganization.
4.3. Common Stock Distribution. (a) If the Company shall issue, sell
-------------------------
or otherwise distribute any shares of Common Stock, other than pursuant to a
Common Stock Reorganization (which is governed by Section 4.2 hereof) (any such
event, including any event described in paragraphs (b) and (c) below, being
herein called a "Common Stock Distribution"), for a consideration per share less
than the Exercise Price then in effect or less than the Fair Market Value of the
Company per share of outstanding Common Stock on a Fully Diluted Basis on the
date of such Common Stock Distribution (before giving effect to such Common
Stock Distribution), then, effective upon such Common Stock Distribution, the
Exercise Price shall be reduced, if such consideration per share shall be less
then the Exercise Price then in effect but not less than such Fair Market Value
per share, to the lower of the prices (calculated to the nearest one-thousandth
of one cent) determined as provided in clauses (i) and (ii) below or, if such
consideration per share shall be less than such Fair Market Value per share, to
the lowest of the prices (calculated to the nearest one-thousandth of one cent)
determined as provided in clauses (i), (ii) and (iii) below:
(i) if the Company shall receive any consideration for the Common
Stock issued, sold or distributed in such Common Stock Distribution, the
consideration per share of Common Stock received by the Company upon such
issue, sale or distribution;
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(ii) by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such Common Stock
Distribution multiplied by the then existing Exercise Price, plus (2) the
consideration, if any, received by the Company upon such Common Stock
Distribution by (B) the total number of shares of Common Stock outstanding
immediately after such Common Stock Distribution; and
(iii) by multiplying the Exercise Price in effect immediately prior to
such Common Stock Distribution by a fraction, the numerator of which shall
be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such Common Stock Distribution multiplied by such Fair
Market Value per share on the date of such Common Stock Distribution, plus
(B) the consideration, if any, received by the Company upon such Common
Stock Distribution, and the denominator of which shall be the product of
(1) the total number of shares of Common Stock outstanding immediately
after such Common Stock Distribution multiplied by (2) such Fair Market
Value per share on the date of such Common Stock Distribution.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price pursuant to the foregoing provisions of this paragraph (a),
including by operation of paragraph (b) or (c) below, then, effective at the
time such adjustment is made, the number of shares of Non-Voting Common Stock
subject to purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of shares of Non-Voting Common Stock
subject to purchase immediately before such Common Stock Distribution by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after giving effect to such Common Stock Distribution
and the denominator of which shall be the sum of the number of shares
outstanding immediately before giving effect to such Common Stock Distribution
(both calculated on a Fully Diluted Basis) plus the number of shares of Common
Stock which the aggregate consideration received by the Company with respect to
such Common Stock Distribution would purchase at the Fair Market Value of the
Company per share of outstanding Common Stock on a Fully Diluted Basis on the
date of such Common Stock Distribution (before giving effect to such Common
Stock Distribution). In computing adjustments under this paragraph, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
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The provisions of this paragraph (a), including by operation of
paragraph (b) or (c) below, shall not operate to increase the Exercise Price or
reduce the number of shares of Non-Voting Common Stock subject to purchase upon
exercise of this Warrant.
(b) If the Company shall issue, sell, distribute or otherwise grant in
any manner (including by assumption) any rights to subscribe for or to purchase,
or any warrants or options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such rights,
warrants or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such Options or the rights to convert or exchange any such
Convertible Securities in respect of such Options are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities in
respect of such Options (determined by dividing (i) the aggregate amount, if
any, received or receivable by the Company as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the case
of Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issuance or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Exercise Price then in effect or less than the Fair Market Value of the Company
per share of outstanding Common Stock on a Fully Diluted Basis on the date of
granting such Options (before giving effect to such grant), then, for purposes
of paragraph (a) above, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to have been issued as of the date of granting
of such Options and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration of such price per share,
determined as provided above, therefor. Except as otherwise provided in
paragraph (d) below, no additional adjustment of the Exercise Price shall be
made upon the actual exercise of such Options or upon conversion or exchange of
such Convertible Securities.
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(c) If the Company shall issue, sell or otherwise distribute (including
by assumption) any Convertible Securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the aggregate amount received or receivable by the Company as
consideration for the issuance, sale or distribution of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Exercise
Price then in effect or less than the Fair Market Value of the Company per share
of outstanding Common Stock on a Fully Diluted Basis on the date of such
issuance, sale or distribution (before giving effect to such issuance, sale or
distribution), then, for purposes of paragraph (a) above, the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
of the issuance, sale or distribution of such Convertible Securities and
thereafter shall be deemed to be outstanding and the Company shall be deemed to
have received as consideration such price per share, determined as provided
above, therefor. Except as otherwise provided in paragraph (d) below, no
additional adjustment of the Exercise Price shall be made upon the actual
conversion or exchange of such Convertible Securities.
(d) If (i) the purchase price provided for in any Option referred to in
paragraph (b) above or the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in paragraph
(b) or (c) above or the rate at which any Convertible Securities referred to in
paragraph (b) or (c) above are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution upon an event which results in a related adjustment
pursuant to this Article IV), or (ii) any of such Options or Convertible
Securities shall have terminated, lapsed or expired, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of this Warrant after such readjustment) to the Exercise Price which
would then be in effect had the adjustment made upon the issuance, sale,
distribution or grant of such Options or Convertible Securities been made based
upon such changed purchase price, additional consideration or conversion rate,
as the case may be (in the case of any event referred to in clause (i) of
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this paragraph (d)) or had such adjustment not been made (in the case of any
event referred to in clause (ii) of this paragraph (d)).
(e) If the Company shall pay a dividend or make any other distribution
upon any capital stock of the Company payable in Common Stock, Options or
Convertible Securities, then, for purposes of paragraph (a) above, such Common
Stock, Options or Convertible Securities shall be deemed to have been issued or
sold without consideration.
(f) If any shares of Common Stock, Options or Convertible Securities
shall be issued, sold or distributed for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor,
after deduction therefrom of any expenses incurred in connection therewith. If
any shares of Common Stock, Options or Convertible Securities shall be issued
sold or distributed for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
Fair Market Value of such consideration, after deduction of any expenses
incurred in connection therewith. If any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the Fair Market Value of such portion of the assets and
business of the non-surviving corporation as shall be attributable to such
Common Stock, Options or Convertible Securities, as the case may be. If any
Options shall be issued in connection with the issuance and sale of other
securities of the Company, together comprising one integral transaction in which
no specific consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued without consideration.
4.4. Special Dividends. If the Company shall issue or distribute to
-----------------
any holder or holders of shares of Common Stock evidences of indebtedness, any
other securities of the Company or any cash, property or other assets (excluding
a Common Stock Reorganization or a Common Stock Distribution), whether or not
accompanied by a purchase, redemption or other acquisition of shares of Common
Stock (any such nonexcluded event being herein called a "Special Dividend"), (a)
the Exercise Price shall be decreased, effective immediately after the effective
date of such Special Dividend, to a price determined by multiplying the Exercise
Price then in effect by a fraction, the numerator of which shall be the Fair
Market Value of the Company per share of outstanding Common Stock as of such
effective date
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less any cash and the then Fair Market Value of any evidences of indebtedness,
securities or property or other assets issued or distributed in such Special
Dividend with respect to one share of Common Stock, and the denominator of which
shall be such Fair Market Value per share and (b) the number of shares of Non-
Voting Common Stock subject to purchase upon exercise of this Warrant shall be
increased to a number determined by multiplying the number of shares of Non-
Voting Common Stock subject to purchase immediately before such Special Dividend
by a fraction, the numerator of which shall be the Exercise Price in effect
immediately before such Special Dividend and the denominator of which shall be
the Exercise Price in effect immediately after such Special Dividend. No
adjustment pursuant to this Section 4.4 shall be made with respect to the
declaration or payment of any Restricted Payment (as defined in the Credit
Agreement) by the Company in accordance with Section 8.04(a) of the Credit
Agreement. A reclassification of Common Stock (other than a change in par value,
or from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of such Common Stock of such shares
of such other class of stock and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as
part of such reclassification, a Common Stock Reorganization.
4.5. Capital Reorganizations. If there shall be any consolidation or
-----------------------
merger to which the Company is a party, other than a consolidation or a merger
of which the Company is the continuing corporation and which does not result in
any reclassification of, or change (other than a Common Stock Reorganization)
in, outstanding shares of Common Stock, or any sale or conveyance of the
property of the Company as an entirety or substantially as an entirety, or any
recapitalization of the Company (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Holder shall no longer have the right to purchase Non-Voting
Common Stock, but shall have instead the right to purchase, upon exercise of
this Warrant, the kind and amount of shares of stock and other securities and
property (including cash) which the Holder would have owned or have been
entitled to receive pursuant to such Capital Reorganization if this Warrant had
been exercised immediately prior to the effective date of such Capital
Reorganization. As a condition to effecting any Capital Reorganization, the
Company or the successor or surviving corporation, as the case may be, shall (a)
execute and deliver to each Warrantholder and to the Warrant Agency an agreement
as to
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the Warrantholders' rights in accordance with this Section 4.5, providing, to
the extent of any right to purchase equity securities hereunder, for subsequent
adjustments as nearly equivalent as may be practicable to the adjustments
provided for in this Article IV and (b) provide each Regulation Y Holder with an
opinion of counsel reasonably satisfactory to such Regulation Y Holder and such
other assurances as any Regulation Y Holder may reasonably request to the effect
that the ownership and exercise by any Regulation Y Holder of this Warrant after
giving effect to such Capital Reorganization shall not be prohibited by the BHC
Act or the regulations thereunder. The provisions of this Section 4.5 shall
similarly apply to successive Capital Reorganizations.
4.6. Adjustment Rules. Any adjustments pursuant to this Article IV
----------------
shall be made successively whenever an event referred to herein shall occur,
except that, notwithstanding any other provision of this Article IV, no
adjustment shall be made to the number of shares of Non-Voting Common Stock to
be delivered to each Holder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares previously required to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered. No adjustment shall be made pursuant to this Article
IV in respect of the issuance from time to time of shares of Common Stock upon
the exercise of any of the Warrants. If the Company shall take a record of the
holders of its Common Stock for any purpose referred to in this Article IV, then
(i) such record date shall be deemed to be the date of the issuance, sale,
distribution or grant in question and (ii) if the Company shall legally abandon
such action prior to effecting such action, no adjustment shall be made pursuant
to this Article IV in respect of such action.
4.7. Proceedings Prior to Any Action Requiring Adjustment. As a
----------------------------------------------------
condition precedent to the taking of any action which would require an
adjustment pursuant to this Article IV, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that (a) the Company may thereafter validly and legally issue as fully
paid and nonassessable all shares of Non-Voting Common Stock which the holders
of Warrants are entitled to receive upon exercise thereof and (b) the ownership
and exercise of any Warrant by any Regulation Y Holder shall not be prohibited
by the BHC Act or the regulations thereunder.
16
<PAGE>
4.8. Notice of Adjustment. Not less than 10 nor more than 30 days
--------------------
prior to the record date or effective date, as the case may be, of any action
which requires or could reasonably be expected to require an adjustment or
readjustment pursuant to this Article IV, the Company shall give notice to each
Warrantholder of such event, describing such event in reasonable detail and
specifying the record date or effective date, as the case may be, and, if
determinable, the required adjustment and the computation thereof. If the
required adjustment is not determinable at the time of such notice, the Company
shall give notice to each Warrantholder of such adjustment and computation
promptly after such adjustment becomes determinable.
ARTICLE V
PURCHASE, REDEMPTION AND CANCELLATION OF WARRANTS
5.1. Purchase of Warrants by the Company. The Company shall have the
-----------------------------------
right or obligation to purchase or otherwise acquire Warrants at such times, in
such manner and for such consideration as set forth below.
5.2. Mandatory Redemption of Warrants (a) The Holder may (x) at any
--------------------------------
time and from time to time on or after the earlier of (i) the fifth anniversary
of the Closing Date (as defined in the Credit Agreement) and (ii) repayment in
full of all principal of and premium and interest on the Notes (as defined in
the Credit Agreement) and the termination of the Commitments under the Credit
Agreement and (y) on or within 30 days after the date on which the Company shall
have delivered a Refinancing Notice (any such redemption pursuant to this clause
(y), a "Refinancing Redemption"), demand a determination of the Redemption Price
(a "Determination Notice") for purposes of this Section 5.2. Within 30 days
(or, in the case of a Refinancing Redemption, 5 days) after the receipt of any
Determination Notice from the Holder, the Company shall give to the Holder
notice of the Redemption Price, including a reasonably detailed description of
the method of calculation thereof, determined as of the day of the Determination
Notice. At any time within 30 days (or, in the case of a Refinancing
Redemption, 15 days) after receipt of notice of the Redemption Price the Holder
may demand redemption of this Warrant, in whole or in part, at the Redemption
Price by notice to the Company, payable on the thirtieth Business Day after
receipt of notice of such demand (or, in the case of a Refinancing Redemption,
on the closing date of such refinancing) (any such date, the "Redemption Due
Date") in immediately
17
<PAGE>
available funds to the Holder upon surrender of this Warrant at the Warrant
Agency or, if requested by the Holder, by wire transfer to any account in New
York City specified by notice to the Company. Thereupon, the right to purchase
shares of Non-Voting Common Stock theretofore represented by this Warrant as to
which the Holder has demanded (and the Company may effect) redemption shall
terminate, and this Warrant shall represent the right of the Holder to receive
the full Redemption Price from the Company in accordance with this Section
5.2(a). The Holder's right to demand redemption of this Warrant pursuant to
this Section 5.2(a) shall be referred to hereinafter as the Holder's "Mandatory
Redemption Right".
(b) In addition, on or within 30 days after the date on which the
Company shall have delivered a Trigger Notice with respect to a Holdings Trigger
Event described in clauses (i), (ii) or (iii) of the definition thereof, by
notice to the Company the Holder may demand redemption of this Warrant, in whole
or in part, at the Trigger Redemption Price, payable on the day of the
consummation of the Holdings Trigger Event with respect to which the Trigger
Notice has been delivered in immediately available funds to the Holder upon
surrender of this Warrant at the Warrant Agency or, if requested by the Holder,
by wire transfer to any account in New York City specified by notice to the
Company. Thereupon, the right to purchase shares of Non-Voting Common Stock
theretofore represented by this Warrant as to which the Holder has demanded (and
the Company may effect) redemption shall terminate, and this Warrant shall
represent the right of the Holder to receive the Trigger Redemption Price from
the Company in accordance with this Section 5.2(b). The occurrence of a Holdings
Trigger Event described in clause (iv) of the definition thereof shall not give
the Holder any rights under this Section 5.2(b).
5.3. Optional Redemption. (a) At any time and from time to time prior
-------------------
to the completion of a Qualified IPO but after the sixth anniversary of the
Closing Date (as defined in the Credit Agreement), the Company shall have the
right to redeem all, but not less than all, of the outstanding Warrants at the
Optional Redemption Price, determined as of the day preceding the notice of
redemption. Irrevocable notice of such right of redemption shall be given by
the Company to all Warrantholders not more than 30 days nor less than 15 days
prior to the date scheduled for redemption, stating the date and price,
including a reasonably detailed description of the method of calculation
thereof, of redemption. Warrantholders may exercise Warrants until 5:00 p.m.,
New York City time, on the Business Day preceding the date of redemption set
forth in a
18
<PAGE>
valid notice of redemption, at which time the right to purchase shares of Non-
Voting Common Stock theretofore represented by this Warrant shall terminate, and
this Warrant shall represent the right of the Holder to receive the Optional
Redemption Price from the Company in immediately available funds upon surrender
of this Warrant at the Warrant Agency. If the Optional Redemption Price shall
be disputed pursuant to Section 3.3, the Company shall pay to the affected
Warrantholders on the redemption date the Optional Redemption Price initially
determined by it and shall thereafter make supplemental payment of any increase
(and the affected Warrantholder shall remit to the Company any decrease) in the
Optional Redemption Price upon resolution of such dispute.
(b) In addition, on or within 30 days after the date on which the
Company shall have delivered a Trigger Notice with respect to a Redemption
Transfer, the Company shall have the right to redeem all, but not less than all,
of the outstanding Warrants at the Trigger Redemption Price with respect to such
Holdings Trigger Event. Irrevocable notice of such right of redemption shall be
given by the Company to all Warrantholders not more than 30 days nor less than
15 days prior to the date scheduled for redemption, stating the date of such
redemption, which shall be the date of consummation of the Redemption Transfer;
provided that such notice of redemption may provide that the obligations of the
- --------
Company to redeem the Warrants shall be conditioned upon the consummation of the
Redemption Transfer. Warrantholders may exercise Warrants until 5:00 p.m., New
York City time, on the Business Day preceding the date of redemption set forth
in a valid notice of redemption, at which time the right to purchase shares of
Non-Voting Common Stock theretofore represented by this Warrant shall terminate,
and this Warrant shall represent the right of the Holder to receive the Trigger
Redemption Price from the Company in immediately available funds upon surrender
of this Warrant at the Warrant Agency.
5.4. Cancellation of Warrants. All Warrants purchased, redeemed or
------------------------
otherwise acquired by the Company shall thereupon be canceled and retired. The
Warrant Agency shall cancel any Warrant surrendered for exercise or registration
of transfer or exchange and deliver such canceled Warrants to the Company.
5.5. Notice of Refinancing and Holdings Trigger Events. The Company
-------------------------------------------------
shall give notice to each of the Warrantholders of (i) any intent by the Company
or the Company to refinance in their entirety the Notes (as defined in the
Credit Agreement) not less than 60 days prior to the
19
<PAGE>
proposed closing date of such refinancing, setting forth such proposed closing
date and notifying each Warrantholder of its rights under Section 5.2(a) (such
notice, the "Refinancing Notice") and (ii) the proposed occurrence of any
Holdings Trigger Event not less than 60 days prior to the proposed date of
occurrence of such Holdings Trigger Event, setting forth the date of such
proposed event and, if such Holdings Trigger event is an event described in
clauses (i), (ii) or (iii) of the definition thereof, notifying each
Warrantholder of its rights under Section 5.2(b) (such notice, the "Trigger
Notice").
ARTICLE VI
DEFINITIONS
The following terms, as used in this Warrant, have the following
meanings:
"Adjusted EBITDA" means, for any period, EBITDA for such period plus, to
----
the extent deducted in determining such EBITDA, any fees paid pursuant to the
Management Agreement with respect to such period.
"Appraisal Notice" has the meaning set forth in Section 3.3(a).
"Appraiser" has the meaning set forth in Section 3.3(b).
"Appraiser Determination" has the meaning set forth in Section 3.3(b).
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in New York are authorized by law or other
governmental action to be closed, unless there shall have been an offering of
Common Stock registered under the Securities Act, in which case "Business Day"
means (a) if Common Stock is listed or admitted to trading on a national
securities exchange, a day on which the principal national securities exchange
on which the Common Stock is listed or admitted to trading is open for business
or (b) if Common Stock is not so listed or admitted to trading, a day on which
the New York Stock Exchange is open for business.
20
<PAGE>
"Capital Reorganization" has the meaning set forth in Section 4.5.
"Closing Price" on any day with respect to shares of common stock of any
Person means (a) if such common stock is listed or admitted for trading on a
national securities exchange, the reported last sales price regular way or, if
no such reported sale occurs on such day, the average of the closing bid and
asked prices regular way on such day, in each case as officially quoted or
reported on the principal national securities exchange on which such common
stock is listed or admitted to trading, or (b) if such common stock is not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices in the over-the-counter market on such day
as reported by NASDAQ, the National Quotation Bureau, Inc. or any nationally
recognized comparable system or, if not so reported, as reported by any New York
Stock Exchange member firm selected by such Person for such purpose.
"Common Stock" means the Voting Common Stock or the Non-Voting Common
Stock, or both, as the context may require.
"Common Stock Distribution" has the meaning set forth in Section 4.3(a).
"Common Stock Reorganization" has the meaning set forth in Section 4.2.
"Company" has the meaning set forth in the first paragraph of this
Warrant.
"Company Determination" has the meaning set forth in Section 3.2.
"Consolidated Total Debt" has the meaning specified in the Credit
Agreement.
"Convertible Securities" has the meaning set forth in Section 4.3(b).
"Credit Agreement" has the meaning set forth in the second paragraph of
this Warrant.
"Determination Notice" has the meaning set forth in Section 5.2(a).
"EBITDA" has the meaning specified in the Credit Agreement.
21
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Exercise Price" means $.01 per share of the Non-Voting Common Stock,
subject to adjustment pursuant to Article IV.
"Fair Market Value" of any Person as at any date of determination shall
be the greatest of (i) the Fair Market Value at such date of such Person and its
Subsidiaries as a going concern, (ii) the liquidation value at such date of such
Person and its Subsidiaries, (iii) the consolidated net worth (or stockholders
equity) of such Person and its Subsidiaries as shown on its latest available
consolidated balance sheet of such Person and (iv) the result of (A) Adjusted
EBITDA for the twelve consecutive months most recently ended prior to such date
multiplied by 5 plus (B) cash and cash equivalents at such date minus (C)
---- -----
Consolidated Total Debt at such date; provided that, for purposes of determining
--------
"Fair Market Value" of the Company at any date, "Consolidated Total Debt" at
such date shall include the average of the aggregate principal amount of the
Working Capital Loans outstanding on the last day of each month during the
twelve consecutive month period ended on or most recently prior to such date.
Notwithstanding the foregoing, if, at any date of determination of the Fair
Market Value of any Person, the common stock of such Person shall then be
publicly traded, the Fair Market Value of such Person on such date for purposes
of the foregoing clause (i) shall be the Market Price on such date multiplied by
the number of shares of common stock of such Person outstanding at such date.
Determination of the Fair Market Value of any Person per share of common stock
of such Person shall be made without giving effect to any discount for (i)
minority interest, (ii) any lack of liquidity of such common stock due to the
fact that there may be no public market for such common stock, or (iii) the
voting status of any class of such common stock and, without limiting the
generality of the foregoing, the Fair Market Value per share of Common Stock
shall be made without giving effect for any lack of liquidity of such Common
Stock or for the fact that, other than Holdings, there are no holders of Common
Stock.
"Fiscal Year" has the meaning set forth in the Credit Agreement.
"Fully Diluted Basis" means, with respect to any determination or
calculation, that such determination or
22
<PAGE>
calculation is performed on a fully diluted basis determined in accordance with
generally accepted accounting principles as in effect from time to time.
"Holder" has the meaning set forth in the first paragraph of this
Warrant.
"Holdings" has the meaning set forth in the second paragraph of this
Warrant.
"Holdings Common Stock" means the common stock, par value $0.01 per
share, of Holdings.
"Holdings Qualified IPO" means any sale of shares of Holdings Common
Stock by and for the account of Holdings pursuant to an underwritten initial
public offering registered under the Securities Act; provided that the proceeds
--------
to Holdings (net of underwriters' discount, fees and other expenses incurred by
Holdings in connection therewith) from such sale of shares exceeds $10,000,000.
"Holdings Trigger Event" means (i) a Holdings Qualified IPO at any time
prior to a Qualified IPO, (ii) any proposed transfer by Security Capital (as
defined in the Warrantholders Rights Agreement) or any Management Stockholder
(as defined in the Warrantholders Rights Agreement) or any of their respective
Affiliates (as defined in the Warrantholders Rights Agreement) of its shares of
Holdings Common Stock or any portion thereof to any Person which requires
delivery of a Transfer Notice (as defined in Section 2.4 of the Warrantholders
Rights Agreement), (iii) any transfer of Holdings Common Stock pursuant to
Section 10.1 of the Common Stockholders' Agreement (as defined in the Credit
Agreement) or (iv) a Redemption Transfer (as defined in Section 2.5(b)(i) of the
Warrantholders Rights Agreement).
"Mandatory Redemption Right" has the meaning set forth in Section
5.2(a).
"Market Price" as at any date of determination means the average of the
daily Closing Prices of a share of Common Stock for the shorter of (i) the 20
consecutive Business Days ending on the most recent Business Day prior to the
Time of Determination and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution, grant or
exercise in question through such most recent Business Day prior to the Time of
Determination. "Time of Determination" means the time and date of the earliest
of (x) the determination of
23
<PAGE>
the stockholders entitled to receive such issuance, sale, distribution or grant,
(y) the determination of the Holders or the Company to exercise their respective
rights set forth in Sections 5.2(a) or 5.3 hereof and (z) the commencement of
"ex-dividend" trading in respect thereof.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"NationsCredit" has the meaning set forth in the second paragraph of
this Warrant.
"Non-Voting Common Stock" has the meaning set forth in the first
paragraph of this Warrant, subject to change pursuant to Article IV.
"Optional Redemption Price" means, as of any date of determination, a
price for each share of Non-Voting Common Stock issuable upon exercise of the
Warrants equal to 110% of the Redemption Price, determined as of such date.
"Options" has the meaning set forth in Section 4.3(b).
"Person" means any natural person, corporation, limited partnership,
limited liability company, general partnership, joint stock company, joint
venture, association, company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, and any government
agency or political subdivision thereof.
"Qualified IPO" means any sale of shares of Common Stock by and for the
account of the Company pursuant to an underwritten initial public offering
registered under the Securities Act; provided that the proceeds to the Company
--------
(net of underwriters' discount, fees and other expenses incurred by the Company
in connection therewith) from such sale of shares exceeds $10,000,000.
"Redemption Due Date" has the meaning set forth in Section 5.2(a)
hereof.
"Redemption Price" means, as of any date of determination, a price for
each share of Non-Voting Common Stock issuable upon exercise of the Warrants
equal to the excess of (a)(i) the Fair Market Value of the Company plus the
aggregate Exercise Price of all Warrants either being
24
<PAGE>
redeemed or then outstanding and not being redeemed divided by (ii) the number
of shares of Common Stock outstanding on a Fully Diluted Basis over (b) the
Exercise Price then in effect.
"Redemption Transfer" has the meaning set forth in the Warrantholders
Rights Agreement.
"Refinancing Notice" has the meaning set forth in Section 5.5 hereof.
"Regulation Y Holder" means the Holder or a holder of Warrant Shares, if
such Holder or holder of Warrant Shares has identified itself to the Company as
a bank holding company within the meaning of the BHC Act or a subsidiary thereof
subject to Regulation Y under the BHC Act. The Company acknowledges that
NationsCredit has identified itself to the Company as a "Regulation Y Holder".
"Required Interest" has the meaning set forth in Section 3.3(a).
"Securities Act" means the Securities Act of 1933, as amended, and rules
and regulations of the Securities and Exchange Commission thereunder.
"Special Dividend" has the meaning set forth in Section 4.4.
"Subsidiary" of any Person means any corporation, partnership, limited
liability company, joint venture, association or other business entity of which
more than 50% of the total voting power of shares of stock or other interests
therein entitled to vote in the election of members of the board of directors,
partnership committee, board of managers or trustees or other managerial body
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof. Unless otherwise specified, "Subsidiary" means a Subsidiary of the
Company and "Subsidiaries" means all Subsidiaries of the Company.
"Trigger Redemption Price" means, as of any date of determination, an
amount equal to (i) the Trigger Fair Market Value Per Share times (ii) the
-----
product of (A) a fraction, the numerator of which shall be the number of shares
of Common Stock for which this Warrant is exercisable at such date (after giving
effect to any adjustments pursuant to Article IV) or, if such determination is
being made with respect to any redemption of the Warrants in part,
25
<PAGE>
the number of shares with respect to which this Warrant is being redeemed and
the denominator of which shall be the number of shares of Common Stock
outstanding at such time (calculated on a Fully Diluted Basis) times (B) the
number of shares of Holdings Common Stock outstanding at such date (calculated
on a Fully Diluted Basis).
"Trigger Fair Market Value Per Share" means (i) in the case of any
Holdings Trigger Event described in clause (i) or (ii) or (iv) of the definition
thereof, the highest consideration per share (if any) received by Holdings or
any stockholder of Holdings from the sale, exchange, transfer or other
disposition by it of Holdings Common Stock in connection with such Holdings
Trigger Event and (ii) in the case of any Holdings Trigger Event described in
clause (iii) of the definition thereof, the highest consideration per share of
Holdings Common Stock that would be received by any stockholder of Holdings upon
the disposition of all or substantially all of the Holdings Common Stock or the
assets of Holdings (determined by reference to all of the consideration received
by the stockholders of Holdings (as stockholders) for that portion actually
disposed of in connection with such Holdings Trigger Event, or which would be
received if all of the consideration received by Holdings in connection with
such Holdings Trigger Event were distributed to the stockholders of Holdings),
in each case net of underwriting commissions and other costs and expenses
incurred in connection with any such Holdings Trigger Event and, if such
Holdings Trigger Event constitutes a sale or other transfer of assets, any taxes
payable with respect to such sale.
"Trigger Notice" has the meaning set forth in Section 5.5.
"Voting Common Stock" means the Class A common stock, par value $0.01
per share, of the Company.
"Warrant Agency" has the meaning set forth in Section 2.1.
"Warrant Shares" means the shares of Non-Voting Common Stock issuable
upon the exercise of the Warrants.
"Warrantholder" means a holder of a Warrant.
"Warrantholders Rights Agreement" has the meaning set forth in Section
3.1.
"Warrants" has the meaning set forth in the second paragraph of this
Warrant.
26
<PAGE>
All references herein to "days" shall mean calendar days unless
otherwise specified.
ARTICLE VII
MISCELLANEOUS
7.1. Notices. Notices and other communications provided for herein
-------
shall be in writing and may be given by mail, courier, confirmed telex or
facsimile transmission and shall, unless otherwise expressly required, be deemed
given when received or, if mailed, four Business Days after being deposited in
the United States mail with postage prepaid and properly addressed. In the case
of the Holder, such notices and communications shall be addressed to its address
as shown on the books maintained by the Warrant Agency, unless the Holder shall
notify the Warrant Agency that notices and communications should be sent to a
different address (or telex or facsimile number), in which case such notices and
communications shall be sent to the address (or telex or facsimile number)
specified by the Holder.
7.2. Waivers; Amendments. No failure or delay of the Holder in
-------------------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on the Company in any case shall entitle
the Company to any other or future notice or demand in similar or other
circumstances. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Company and the holders of Warrants entitling
such holders to purchase a majority of the Non-Voting Common Stock subject to
purchase upon exercise of such Warrants at the time outstanding (exclusive of
Warrants then owned by the Company or any Subsidiary or Affiliate (as defined in
the Credit Agreement) thereof); provided, however, that no such amendment,
-------- -------
modification or waiver shall, without the written consent of the holders of all
Warrants at the time outstanding, (a) change the number of shares of Non-Voting
Common Stock subject to purchase upon exercise of this Warrant, the Exercise
Price or provisions for payment thereof or (b) amend, modify or waive the
provisions of this Section or Article III or IV or Section 1.5, 5.2, 5.3 or 5.5.
The provisions of the Credit Agreement
27
<PAGE>
and the Warrantholders Rights Agreement may be amended, modified or waived only
in accordance with the respective provisions thereof.
Any such amendment, modification or waiver effected pursuant to and in
accordance with the provisions of this Section or the applicable provisions of
the Credit Agreement or the Warrantholders Rights Agreement shall be binding
upon the holders of all Warrants and Warrant Shares, upon each future holder
thereof and upon the Company. In the event of any such amendment, modification
or waiver the Company shall give prompt notice thereof to all holders of
Warrants and Warrant Shares and, if appropriate, notation thereof shall be made
on all Warrants thereafter surrendered for registration of transfer or exchange.
7.3. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH
-------------
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW).
7.4. Transfer; Covenants to Bind Successor and Assigns. All covenants,
-------------------------------------------------
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company or the Holder shall bind its successors and assigns, whether so
expressed or not. This Warrant shall be transferable and assignable by the
Holder hereof in whole or from time to time in part to any other Person in
accordance with Section 2.3 hereof and the provisions of this Warrant shall be
binding upon and inure to the benefit of the Holder hereof and its successors
and assigns.
7.5. Severability. In case any one or more of the provisions contained
------------
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
7.6. Section Headings. The section headings used herein are for
----------------
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
7.7. Tax Basis. The Company and the Holder agree pursuant to Proposed
---------
Treasury Regulation Section 1.1273-2 that, for Federal income tax purposes, the
aggregate issue
28
<PAGE>
price of the Tranche B Loans (as defined in the Credit Agreement) and the
aggregate purchase price for the Warrants are those set forth in Section 3.05 of
the Credit Agreement. Neither the Company nor the Holder hereof shall
voluntarily take any action inconsistent with the agreement set forth in this
Section 7.7.
29
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
in its corporate name by one of its officers thereunto duly authorized, and its
corporate seal to be hereunto affixed, attested by its Secretary or an Assistant
Secretary, all as of the day and year first above written.
POSSIBLE DREAMS, LTD.
By: /s/ Philip L. Fitting
_______________________
Name: Philip L. Fitting
Title: Chairman
[Corporate Seal]
Attest:
/s/ Douglas G. Gray
_______________________
Name: Douglas G. Gray
Title:
30
EXHIBIT 6
WARRANTHOLDERS RIGHTS AGREEMENT
WARRANTHOLDERS RIGHTS AGREEMENT dated as of May 17, 1996 among
Possible Dreams, Ltd., a Delaware corporation (together with its successors,
"the Company"), P.D. Holdings, Inc., a Delaware corporation (together with
its successors, "Holdings"), Security Capital Corporation (together with its
successors, "Security Capital"), Warren Stanley and Arnold Lee (each, a
"Management Stockholder") and NationsCredit Commercial Corporation
("NationsCredit") (Holdings together with any holder of Conversion Shares (as
defined herein) and such other stockholders of the Company as may, from time
to time, become parties to this Agreement in accordance with the provisions
hereof, the "Company Stockholders"; NationsCredit and such other
warrantholders as may, from time to time, become parties to this Agreement in
accordance with the provisions hereof, the "Warrantholders"; and Security
Capital together with such other stockholders of Holdings as may, from time
to time, become parties to this Agreement in accordance with the provisions
hereof, the "Holdings Stockholders").
WHEREAS on the date hereof, Holdings purchased from the Company and
is the beneficial owner of 1750 shares of Company Common Stock (as defined
herein), and NationsCredit purchased and is the beneficial owner of the
Warrants (as defined herein) to purchase 250 shares of Company Non-Voting
Common Stock (as defined herein); and
WHEREAS the Company and each Company Stockholder (other than the
holders of the Conversion Shares) wish to provide to the Warrantholders and
the holders of the Conversion Shares the rights described herein;
NOW THEREFORE the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. Unless otherwise defined herein, the
-----------
following terms used in this Agreement shall have the meanings specified
below.
<PAGE>
"Affiliate" means, with respect to any Person, any of (i) a
director or executive officer of such Person, (ii) a spouse, parent, sibling
or descendant of such Person (or a spouse, parent, sibling or descendant of
any director or executive officer of such Person) and (iii) any other Person
that, directly or indirectly, controls, or is controlled by or is under
common control with such Person. For the purpose of this definition,
"control" (including the terms "controlling", "controlled by" and "under
common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities or by contract or agency or otherwise.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stockholder Agreement" means the Stockholder Agreement
dated as of May 17, 1996 among Security Capital, the Management Stockholders
and Holdings, as amended from time to time.
"Company Common Stock" means the Company Voting Common Stock or the
Company Non-Voting Common Stock, or both, as the context may require.
"Company Initial Public Offering" means the registration of an
underwritten offering of shares of Company Common Stock under the Securities
Act which becomes effective (other than by a registration on Form S-4, S-8,
S-14 or S-15 or any successor or similar forms).
"Company Non-Voting Common Stock" means the Class B common stock,
par value $0.01 per share, of the Company.
"Company Stockholders" has the meaning set forth in the
introductory paragraph.
"Company Voting Common Stock" means the Class A common stock, par
value $0.01 per share, of the Company.
"Conversion Shares" means (i) any shares of Company Non-Voting
Common Stock or other securities of the Company issued upon the exercise of
any Warrants and (ii) any securities issued with respect to any of such
shares or other securities referred to in clause (i) upon the conversion
thereof into other securities (including Company Voting Common Stock) or by
way of stock dividend
2
<PAGE>
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided that any of such securities shall cease to be Conversion Shares when
--------
such securities shall have (x) been disposed of pursuant to a Public Sale or
(y) ceased to be outstanding.
"Credit Agreement" means the Credit Agreement dated as of May 17,
1996 among the Company, Holdings, the lenders named therein and
NationsCredit, as Agent, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such successor Federal
statute.
"NationsCredit" has the meaning set forth in the introductory
paragraph.
"Holdings Common Stock" means the common stock, par value $0.01 per
share, of Holdings.
"Holdings Initial Public Offering" means the registration of an
underwritten offering of shares of Holdings Common Stock under the Securities
Act which becomes effective (other than by a registration on Form S-4, S-8,
S-14 or S-15 or any successor or similar forms).
"Holdings Stockholder" has the meaning set forth in the
introductory paragraph.
"Initiating Holders" has the meaning set forth in Section 3.1
hereof.
"Management Stockholders" has the meaning set forth in the
introductory paragraph.
"Other Shares" has the meaning set forth in Section 3.1.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or a subdivision thereof or a governmental agency.
"Public Sale" means any sale of securities of the Company or
Holdings (as applicable) to the public pursuant to an offering registered
under the Securities Act or to the public through a broker, dealer or market
maker pursuant to the provisions of Rule 144 (or any successor provision then
in effect) adopted under the
3
<PAGE>
Securities Act.
"Registrable Securities" means any Conversion Shares until the date
(if any) on which such Conversion Shares shall have been transferred or
exchanged and new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification of them
under the Securities Act or any similar state law then in force.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Sections 3.1 through 3.5 hereof,
including (i) all registration, filing and NASD fees, (ii) all fees and
expenses of complying with securities or blue sky laws, (iii) all word
processing, duplicating and printing expenses, (iv) all messenger and
delivery expenses, (v) the fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, (vi) the fees and disbursements of any one
counsel and any one accountant retained by the holder or holders of more than
50% of the Registrable Securities being registered (or, in the case of any
registration effected pursuant to Section 3.1, as the Initiating Holders
shall have selected to represent all holders of the Registrable Securities
being registered), (vii) premiums and other costs of policies of insurance
(if any) against liabilities arising out of the public offering of the
Registrable Securities being registered if the Company desires such insurance
and (viii) any fees and disbursements of underwriters customarily paid by
issuers of securities, but not including underwriting discounts and
commissions and transfer taxes, if any, provided that, in any case where
--------
Registration Expenses are not to be borne by the Company, such expenses shall
not include (i) salaries of the Company's personnel or general overhead
expenses of the Company,(ii) auditing fees, (iii) premiums or other expenses
relating to liability insurance required by underwriters of the Company or
(iv) other expenses for the preparation of financial statements or other
data, to the extent that any of the foregoing either is normally prepared by
the Company in the ordinary course of its business or would have been
incurred by the Company had no public offering taken place.
"Regulation Y Holder" means any Warrant Securityholder that has
identified itself to the Company as a bank holding company within the meaning
of the BHC Act, or a subsidiary thereof subject to Regulation Y under the BHC
Act. The Company acknowledges that NationsCredit has identified itself to the
Company as a "Regulation Y Holder".
"Regulatory Change" means, with respect to any Regulation Y Holder,
(i) any change on or after the date hereof in United
4
<PAGE>
States federal or state or foreign laws or regulations (including the BHC Act
and Regulation Y thereunder); (ii) the adoption on or after the date hereof
of any interpretation or ruling applying to a class of Persons including such
Regulation Y Holder under any United States federal or state or foreign laws
or regulations by any court or governmental or regulatory authority charged
with the interpretation or administration thereof; or (iii) the modification
on or after the date hereof of any agreement or commitment known to the
Company of any such governmental or regulatory authority that is applicable
to or binding upon such Regulation Y Holder.
"Restricted Securities" means the Warrants, the Conversion Shares
and any securities obtained upon exchange for or upon conversion or transfer
of or as a distribution on Warrants, the Conversion Shares or any such
securities; provided that particular securities shall cease to be Restricted
--------
Securities when such securities shall have (x) been disposed of pursuant to a
Public Sale, (y) been otherwise transferred or exchanged and new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company, and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force or (z) ceased to be outstanding. Whenever
any particular securities cease to be Restricted Securities, the holder
thereof shall be entitled to receive from the issuer thereof or its transfer
agent, without expense (other than transfer taxes, if any), new securities of
like tenor not bearing a legend of the character set forth in Section 2.2.
"Securities Act" means the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"Security Capital" has the meaning set forth in the introductory
paragraph.
"Warrant Securityholder" means at any time any Warrantholder or any
holder of Conversion Shares.
"Warrantholders" has the meaning set forth in the introductory
paragraph (and for purposes of Section 2.8 shall include any Person that held
Warrants that were redeemed pursuant to Section 5.3 of the Warrants).
"Warrants" means the Warrant or Warrants originally issued to
NationsCredit, as such Warrants may be transferred or otherwise assigned, but
only to the extent not theretofore
5
<PAGE>
exercised, redeemed or expired in accordance with their respective terms.
All references herein to "days" shall mean calendar days unless
otherwise specified.
ARTICLE II
TRANSFER OF SHARES;
PAYMENTS TO WARRANT SECURITYHOLDERS
SECTION 2.1 General. (a) Except as otherwise provided in this
-------
Agreement, any other applicable agreement or by law, each Company Stockholder
may transfer its shares of Company Common Stock at any time to any Person.
(b) Except as otherwise provided in this Agreement, any other
applicable agreement or by law, each Holdings Stockholder may transfer its
shares of Holdings Common Stock at any time to any Person.
SECTION 2.2 Restrictions on Transfer; Legend on Certificates. (a)
------------------------------------------------
Except as otherwise provided in this Agreement, Restricted Securities shall
not be transferable except (i) pursuant to an effective registration
statement under the Securities Act, (ii) pursuant to Rule 144 or 144A (or any
successor provisions) under the Securities Act or (iii) pursuant to a
transaction that is otherwise exempt from the registration requirements of
the Securities Act.
(b) Unless otherwise expressly provided herein, each certificate
for Restricted Securities and each certificate issued in exchange for or upon
transfer of any thereof shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THEREOF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO AND HAVE THE BENEFIT OF A
WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF MAY 17, 1996 AMONG
POSSIBLE DREAMS, LTD., P.D. HOLDINGS, INC. AND THE STOCKHOLDERS AND
WARRANTHOLDERS PARTIES THERETO, COPIES OF WHICH ARE ON FILE WITH
POSSIBLE DREAMS, LTD."
6
<PAGE>
(c) Any other provision of this Agreement to the contrary
notwithstanding, no transfer of any Restricted Securities other than pursuant
to a Public Sale may be made to any Person unless such Person shall have
agreed in writing that such Person, as a holder of Restricted Securities, and
the Restricted Securities it acquires shall be bound by and be entitled to
the benefits of all the provisions of this Agreement applicable to such
Restricted Securities (and upon such agreement such Person shall be bound by
this Agreement and shall be entitled to such benefits). Any purported
transfer of Restricted Securities without compliance with the applicable
provisions of this Agreement shall be void and of no effect, and the
purported transferee shall have no rights as a Warrantholder or Company
Stockholder or under this Agreement. In the event of such non-complying
transfer, the Company shall not transfer any such Restricted Securities on
its books or recognize the purported transferee as a shareholder or
warrantholder, as the case may be, for any purpose, unless and until all
applicable provisions of this Agreement have been complied with.
SECTION 2.3 Permitted Transfers. The restrictions on transfer
-------------------
provided in Section 2.2(a) shall not be applicable to (i) any transfer in
compliance with federal and all applicable state securities laws to an
Affiliate of the holder of Restricted Securities, from an Affiliate of such
holder to such holder or between Affiliates of such holder (provided that if
--------
any such Affiliate to whom shares of Restricted Securities have been
transferred by a holder thereof ceases to be an Affiliate of such holder of
Restricted Securities, such Restricted Securities shall immediately be
transferred back to the transferor thereof), (ii) any transfer upon the death
of any holder of Restricted Securities to such holder's executors,
administrators or testamentary trustees, (iii) any transfer to a trust the
beneficiaries of which include only the holder of such Restricted Securities
or such holder's spouse, parents, siblings or descendants or (iv) solely with
respect to any transfer made by Arnold Lee, any transfer to Warren Stanley as
transferee (any transferee referred to in (i), (ii), (iii) or (iv) above
being referred to herein as a "Permitted Transferee"); provided that no such
--------
transfer shall be made to any Permitted Transferee unless such Permitted
Transferee shall have agreed in writing that such Permitted Transferee, as a
Company Stockholder or Warrantholder (as the case may be), and the shares of
Company Common Stock or Warrants it acquires shall be bound by and be
entitled to the benefits of all the provisions of this Agreement applicable
to Company Common Stock or Warrants (as the case may be), and upon such
agreement such Permitted Transferee shall be entitled to such benefits.
SECTION 2.4 Tag-Along Rights. (a) If Holdings or any of its
----------------
Permitted Transferees (any such Person for purposes of this Section 2.4(a),
the "Transferor") wishes to transfer its shares of
7
<PAGE>
Company Common Stock or any portion thereof to any Person (other than a
Permitted Transferee) (the "Transferee"), the Transferor shall first give to
the Company and each Warrant Securityholder (pursuant to a list provided by
the Company) a written notice (a "Transfer Notice"), executed by it and the
Transferee and containing (i) the number of shares of Company Common Stock
that the Transferee proposes to acquire from the Transferor, (ii) the name
and address of the Transferee, (iii) the proposed purchase price, terms of
payment and other material terms and conditions of such proposed transfer,
(iv) an estimate, in the Transferor's reasonable judgment, of the fair market
value of any non-cash consideration offered by the Transferee and (v) an
offer by the Transferee or Transferor to purchase, upon the purchase by the
Transferee of any shares of Company Common Stock owned by the Transferor and
for the same per share consideration, that number of Conversion Shares (or if
such number is not an integral number, the next integral number which is
greater than such number) of each Warrant Securityholder which shall be the
product of (x) the aggregate number of Conversion Shares either then owned,
or issuable upon exercise of Warrants then owned, by such Warrant
Securityholder and (y) a fraction, the numerator of which shall be the number
of shares of Company Common Stock indicated in the Transfer Notice as subject
to purchase by the Transferee from the Transferor and the denominator of
which shall be the sum of (A) the total number of shares of Company Common
Stock then owned by the Transferor and its Permitted Transferees plus (B) the
total number of Conversion Shares either then owned, or issuable upon
exercise of Warrants then owned, by each Warrant Securityholder. Each
Warrant Securityholder shall have the right, for a period of 20 days after
the Transfer Notice is given, to accept such offer in whole or in part,
exercisable by delivering a written notice to the Transferor and the Company
within such 20-day period, stating therein the number of shares of Company
Common Stock (which may be the number of shares set forth in the offer by the
Transferor or Transferee, as the case may be, or a portion thereof) to be
sold by such Warrant Securityholder to the Transferor or Transferee, as the
case may be. Prior to the earlier of (x) the end of such 20-day period or (y)
the acceptance or rejection by each Warrant Securityholder of the
Transferee's or Transferor's offer, as the case may be, the Transferor will
not complete any sale of shares of Company Common Stock to the Transferee.
Thereafter, for a period of 60 days after the prohibition under the preceding
sentence shall have terminated, the Transferor may sell to the Transferee for
the consideration stated and on the terms set forth in the Transfer Notice up
to the number of shares of Company Common Stock stated in the Transfer Notice
as subject to purchase by the Transferee, provided that the Transferor or
--------
Transferee, as the case may be, shall simultaneously purchase the number of
shares of Company Common Stock as calculated above from those Warrant
Securityholders who have accepted the Transferor's or Transferee's offer, as
the
8
<PAGE>
case may be. The provisions of this Section 2.4(a) shall not apply to
transfers between the Transferor and any of its Affiliates or between
Affiliates of the Transferor.
(b) If Security Capital or any Management Stockholder or any of
their respective Permitted Transferees (any such Person for purposes of this
Section 2.4(b), the "Transferor") wishes to transfer its shares of Holdings
Common Stock or any portion thereof to any Person (other than a Permitted
Transferee or pursuant to a transfer to be made under Section 6 or 7 of the
Common Stockholders Agreement) (the "Transferee"), the Transferor shall first
give to Holdings and each Warrant Securityholder (pursuant to a list provided
by the Company) a written notice (a "Transfer Notice"), executed by it and
containing (i) the number of shares of Holdings Common Stock that the
Transferee proposes to acquire from the Transferor, (ii) the name and address
of the Transferee, (iii) the proposed purchase price, terms of payment and
other material terms and conditions of such proposed transfer and (iv) an
estimate, in the Transferor's reasonable judgment, of the fair market value
of any non-cash consideration offered by the Transferee. Each Warrant
Securityholder shall have the right, in accordance with the terms of the
Warrants, to require the Company to redeem the Warrants held by such Warrant
Securityholder and the Transferor shall not consummate the transfer set forth
in the Transfer Notice unless, contemporaneously with the consummation of
such transfer, the Company shall effect such redemption. The provisions of
this Section 2.4(b) shall not apply to transfers between the Transferor and
any of its Affiliates or between Affiliates of the Transferor.
SECTION 2.5 Drag-Along Rights. (a) If at any time prior to a
-----------------
Company Initial Public Offering, Holdings or any of its Permitted Transferees
(any such Person for purposes of this Section 2.5(a), the "Transferor")
wishes to transfer all of the shares of Company Common Stock owned by it and
its Permitted Transferees (provided that such shares of Company Common Stock
--------
constitute more than 50% of all shares of Company Common Stock on a Fully
Diluted Basis (as defined in the Warrants) at such time) in a bona fide sale
to any Person (other than a Permitted Transferee) (the "Proposed Transferee")
pursuant to which the consideration to be paid by the Proposed Transferee
consists solely of cash and freely tradeable securities with an active public
market and the Transferor will not receive, in connection with the
transactions contemplated at the time of such transfer, any other securities
or options to acquire securities of the Company, then the Transferor shall
have the right (the "Drag-Along Right") to require each Warrant
Securityholder to sell to the Proposed Transferee for the same per share
consideration received by the Transferor all of the Conversion Shares and
Warrants (calculated, in the case of any Warrants, on the number of
Conversion Shares for which such Warrant is exercisable at such time) held by
such Warrant Securityholder.
9
<PAGE>
To exercise the Drag-Along Right, the Transferor shall first give to the
Company and each Warrant Securityholder (pursuant to a list provided by the
Company) a written notice (a "Drag-Along Notice") executed by the Transferor
and the Proposed Transferee and containing (a) the number of shares of
Company Common Stock that the Proposed Transferee proposes to acquire from
the Transferor and its Permitted Transferee, and certifying that such shares
constitute all of the shares of Company Common Stock owned by the Transferor
and its Permitted Transferees and more than 50% of the shares of Company
Common Stock on a Fully Diluted Basis at such time, (b) the name and address
of the Proposed Transferee and (c) the proposed purchase price, terms of
payment and other material terms and conditions of the Proposed Transferee's
offer, (d) a statement by the Proposed Transferee that the Proposed
Transferee (i) has been informed of the Drag-Along Right provided for in this
Section 2.5(a) and (ii) has agreed to purchase the Conversion Shares and
Warrants in accordance with the terms of this Section 2.5(a) and (e) the
aggregate number of Conversion Shares or Warrants owned by each Warrant
Securityholder with respect to which the Transferor wishes to exercise its
Drag-Along Right pursuant to this Section 2.5(a). Each Warrant
Securityholder shall thereafter be obligated to sell to the Proposed
Transferee the Warrants and Conversion Shares subject to such Drag-Along
Notice, provided that the sale to the Proposed Transferee is consummated
--------
within 60 days of delivery of the Drag-Along Notice. If the sale is not
consummated within such 60-day period, then each affected Warrant
Securityholder may sell, but shall no longer be obligated to sell, such
Warrant Securityholder's Warrants or Conversion Shares pursuant to such
Drag-Along Notice. The provisions of this Section 2.5(a) shall not apply to
transfers between the Transferor and any of its Affiliates or between any of
its Affiliates.
(b) (i) If at any time prior to a Holdings Initial Public Offering,
Security Capital or any Management Stockholder or any of their respective
Permitted Transferees (any such Person for purposes of this Section 2.5(b),
the "Transferor") wishes to transfer all of the shares of Holdings Common
Stock owned by it and its Permitted Transferee (provided that such shares of
--------
Holdings Common Stock constitute more than 50% of all shares of Holdings
Common Stock on a Fully Diluted Basis (as defined in the Warrants) at such
time) in a bona fide sale to any Person (other than a Permitted Transferee or
pursuant to a transfer to be made under Section 6 or 7 of the Common
Stockholders Agreement) (the "Proposed Transferee") pursuant to which the
consideration to be paid by the Proposed Transferee consists solely of cash
and freely tradeable securities with an active public market and the
Transferor will not receive, in connection with the transactions contemplated
at the time of such transfer, any other securities or options to acquire
securities of Holdings (any such proposed transfer, a "Redemption Transfer"),
then the Transferor shall have the right to require the
10
<PAGE>
Company to redeem all, but not less than all, of the Warrants outstanding at
such time in accordance with the terms thereof and all Conversion Shares
outstanding on such date. The provisions of this Section 2.5(b) shall not
apply to transfers between the Transferor and any of its Affiliates or
between any of its Affiliates.
(ii) In addition, on or within 30 days after the date on which the
Company shall have delivered a Trigger Notice (as defined in the Warrants)
with respect to a Redemption Transfer, the Company shall have the right to
redeem all, but not less than all, of the outstanding Conversion Shares at
the Trigger Redemption Price (as defined in the Warrants; provided that, for
--------
purposes of this clause (ii), the numerator in the number set forth in clause
(A) of such definition shall be the number of Conversion Shares) with respect
to such Redemption Transfer. Irrevocable notice of such right of redemption
shall be given by the Company to all Warrant Securityholders not more than 30
days nor less than 15 days prior to the date scheduled for redemption,
stating the date of such redemption, which shall be the date of consummation
of the Redemption Transfer with respect to which a Trigger Notice has been
delivered; provided that such notice of redemption may provide that the
--------
obligations of the Company to redeem all outstanding Conversion Shares shall
be conditioned upon the consummation of the Redemption Transfer. On the date
scheduled for redemption, the Company shall pay to each Warrant
Securityholder the Trigger Redemption Price in immediately available funds
upon surrender of the certificates representing all outstanding Conversion
Shares held by such Warrant Securityholder on such date.
SECTION 2.6 Common Stockholder's Agreement. In addition to any
------------------------------
other restrictions on transfer provided for herein, the transfer of shares of
Holdings Common Stock owned by the Management Stockholders and Security
Capital shall be subject to the terms and provisions of the Common
Stockholders Agreement.
SECTION 2.7. Restrictions on Transfer by Regulation Y Holders.
------------------------------------------------
(a) No Regulation Y Holder may transfer any Warrant or any Conversion Shares;
provided that such Regulation Y Holder may transfer such Warrant or
--------
Conversion Shares: (i) to the public in an offering registered under the
Securities Act or (ii) in a transaction pursuant to Rule 144 or Rule 144A (or
any successor provisions) under the Securities Act or similarly exempt from
the registration requirements of the Securities Act in which no single
purchaser receives an interest (treating any such Warrant as exercised and
any Company Non-Voting Common Stock as converted to Company Voting Common
Stock) equivalent to more than two percent of the outstanding Company Voting
Common Stock or (iii) in a single transaction to a third party who acquires
at least a majority of the Company Voting Common Stock without regard to the
transfer of
11
<PAGE>
such Warrant or Conversion Shares. In the event of a Regulatory Change, the
effect of which is to permit such Regulation Y Holder to transfer such
Warrant or Conversion Shares in any other manner, the foregoing proviso shall
-------
be deemed modified to permit a transfer of such Warrant or Conversion Shares
in such other manner.
(b) Nothing in Sections 2.4, 2.5 or 2.6 of this Agreement shall
require any Regulation Y Holder to make a transfer of Warrants or Conversion
Shares in a manner not permitted by Section 2.7(a) (an "Impermissible
Transfer"). If Sections 2.4, 2.5 or 2.6 of this Agreement would otherwise
require any Regulation Y Holder to make an Impermissible Transfer as a
condition precedent to making a transfer of Warrants or Conversion Shares in
a manner permitted by Section 2.7(a) (a "Permissible Transfer"), then such
Regulation Y Holder shall not be required to make such Impermissible Transfer
as a condition precedent to making such Permissible Transfer.
SECTION 2.8 Adjustment Event Fee. If (a) any Adjustment Event
--------------------
shall occur within 365 days after the Optional Redemption Date and (b) the
Consideration Per Share for such Adjustment Event is greater than the
Redemption Price Per Share then, immediately upon the occurrence of such
Adjustment Event, the Company shall pay to each Warrant Securityholder an
amount equal to (1) if the Consideration Per Share with respect to such
Adjustment Event has been determined with reference to Company Common Stock,
the product of (x) the number of shares of Company Common Stock represented
by the Warrants of such Warrant Securityholder that were redeemed and (y) the
difference between the Consideration Per Share for such Adjustment Event and
the Redemption Price Per Share paid to such Warrant Securityholder and (2) if
the Consideration Per Share with respect to such Adjustment Event has been
determined with reference to Holdings Common Stock, (x) the product of (A) a
fraction, the numerator of which shall be the number of shares of Company
Common Stock represented by the Warrants of such Warrant Securityholder that
were redeemed and the denominator of which shall be the number of shares of
Company Common Stock outstanding at such time (calculated on a Fully Diluted
Basis) times (B) the number of shares of Holdings Common Stock outstanding at
such date (calculated on a Fully Diluted Basis) times (y) the difference
-----
between the Consideration Per Share for such Adjustment Event and the
Redemption Price Per Share paid to such Warrant Securityholder.
"Adjustment Event" means:
(a) the completion of a Company Initial Public Offering or a
Holdings Initial Public Offering; or
(b) 25% or more of the:
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(i) (x) Holdings Common Stock on a Fully Diluted Basis (as defined
in the Warrants) on an aggregate basis is sold, exchanged, transferred or
otherwise disposed of by Holdings or any stockholder of Holdings (as part of
a single sale or a series of related sales) or (y) Company Common Stock on a
Fully Diluted Basis (as defined in the Warrants) on an aggregate basis is
sold, exchanged, transferred or otherwise disposed of by the Company or any
stockholder of the Company (as part of a single sale or a series of related
sales); or
(ii) (x) Company Common Stock issued and outstanding on the
Optional Redemption Date is sold, exchanged, transferred or otherwise
disposed of by Holdings (as part of a single sale or a series of sales) or
(y) Holdings Common Stock issued and outstanding on the Optional Redemption
Date is sold, exchanged, transferred or otherwise disposed of by stockholders
of Holdings (as part of a single sale or a series of sales; or
(c) all or substantially all of the assets of the Company and its
Subsidiaries or Holdings and its Subsidiaries are, directly or indirectly,
sold, exchanged, leased, transferred or otherwise disposed of as an entirety
or substantially as an entirety (in one transaction or a series of
transactions) to any Person or related group of Persons; or
(d) the stockholders or directors of Holdings or the Company
consummate a definitive agreement or plan for any merger, consolidation,
recapitalization, reorganization, restructuring or other business combination
of Holdings or the Company and, after giving effect to such transaction, the
stockholders of Holdings on the Optional Redemption Date (after giving effect
to the redemption of the Warrants which has occurred on such Date) will no
longer hold, directly or indirectly, securities representing in the
aggregate:
(i) a percentage of the total voting power entitled to vote in the
election of directors, managers or trustees of the corporation surviving
or resulting from such transaction greater than 75% of the percentage of
such total voting power with respect to Holdings represented by the
Holdings Common Stock held by such stockholders on the Optional
Redemption Date (after giving effect to the redemption of the Warrants
which has occurred on such Date); and
(ii) the securities entitled to receive a percentage of the
dividends paid by such surviving or resulting corporation greater than 75% of
the percentage of the dividends paid by Holdings that the Holdings Common
Stock held by such stockholders on the Optional Redemption Date was entitled
to receive (after giving effect to the redemption of the Warrants which has
occurred
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<PAGE>
on such Date); and
(iii) a percentage of the stockholders' equity of such surviving or
resulting corporation greater than 75% of the percentage of the
stockholder's equity of Holdings represented by the Holdings Common
Stock held by such stockholders on the Optional Redemption Date (after
giving effect to the redemption of the Warrants which has occurred on
such Date); or
(e) the stockholders or directors of Holdings or the Company
consummate a definitive agreement or plan for the liquidation or dissolution
of Holdings or the Company.
"Consideration Per Share" means:
(i) in the case of any Adjustment Event described in clause (a) or
(b)(i) of the definition of Adjustment Event, the highest consideration per
share (if any) received by Holdings or any stockholder of Holdings or the
Company or any stockholder of the Company, as the case may be, from the sale,
exchange, transfer or other disposition by it of Holdings Common Stock or
Company Common Stock, as the case may be, in connection with such Adjustment
Event; and
(ii) in the case of any other Adjustment Event, the highest
consideration per share of Company Common Stock or Holdings Common Stock, as
the case may be, that would be received by any stockholder of Holdings upon
the disposition of all or substantially all of the Company Common Stock or
Holdings Common Stock, as the case may be, or of the assets of Holdings or
the Company (determined by reference to all of the consideration received by
the stockholders of Holdings or the Company, as the case may be, (as
stockholders) for that portion actually disposed of in connection with such
Adjustment Event, or which would be received if all of the consideration
received by Holdings and the Company in connection with such Adjustment Event
were distributed to the stockholders of Holdings or the Company, as the case
may be),
in each case net of underwriting commissions and other costs and expenses
incurred in connection with any such Adjustment Event.
"Optional Redemption Date" means the date of any redemption of the
Warrants pursuant to Section 5.3 of the Warrants.
"Redemption Price Per Share" means the Optional Redemption Price
(as defined in the Warrants) which was paid to the Warrant Securityholders
pursuant to Section 5.3 of the Warrants
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<PAGE>
(determined on a per share basis by reference to the number of shares of
Company Common Stock represented by the Warrants that were redeemed) plus
interest thereon from the Optional Redemption Date to the date of the
relevant Adjustment Event referred to in clause (a) of Section 2.8 at a rate
per annum announced by NationsBank of North Carolina, N.A. from time to time
as its prime rate (calculated on the basis of a 360-day year for the actual
number of days elapsed).
SECTION 2.9 No Inconsistent Agreements. Neither the Company nor
--------------------------
Holdings has entered into or will enter into any registration rights
agreement or similar arrangements the performance by the Company or Holdings,
as the case may be, of the terms of which would in any manner conflict with,
restrict or be inconsistent with the performance by the Company or Holdings,
as the case may be, of its obligations under this Agreement.
SECTION 2.10 Holdings Guaranty.
-----------------
(a) Holdings hereby unconditionally guarantees the full and
punctual payments of all amounts payable by the Company to any Warrant
Securityholder pursuant to Section 5.2(b) of the Warrants. Upon failure by
the Company to pay punctually any such amount, Holdings shall forthwith on
demand pay the amount not so paid at the place and in the manner specified in
the Warrants.
(B) The obligations of Holdings hereunder are unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company or Holdings under
any Operative Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any
Operative Document;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of the Company or Holdings
under any Operative Document;
(iv) any change in the corporate existence, structure or
ownership of the Company or Holdings or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company or
Holdings or any of their respective assets or any resulting release
or discharge of any obligation of the Company or Holdings contained
in any Operative Document;
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<PAGE>
(v) the existence of any claim, set-off or other rights which
holdings may have at any time against the Company, the Agent, any
Lender or any other Person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent
--------
the assertion of any such claim by separate suit or compulsory
counterclaim;
(vi) any invalidity or unenforceability relating to or against
the Company or Holdings for any reason of any Operative Document,
or any provision of applicable law or regulation purporting to
prohibit the payment by the Company or Holdings of the principal of
or interest on any Note or any reimbursement obligation or any
other amount payable by the Company under any Operative Document;
or
(vii) any other act or omission to act or delay of any kind by the
Company, Holdings, the Agent, any Lender or any other Person or any
other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of Holdings'
obligations hereunder.
(C) Holdings irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein or in the Warrants, as
well as any requirement that at any time any action be taken by any Person
against the Company or any other Person.
(D) Holdings's obligations under this Section 2.10 shall remain in
full force and effect until all Warrants have expired, been exercised in full
or redeemed in accordance with their terms. If at any time any payment of
any amount payable by the Company under Section 5.2 of any Warrant is
rescinded or must be otherwise restored or returned upon the insolvency or
receivership of the Company or otherwise, Holding's obligations hereunder
with respect to such payment shall be reinstated as though such payment had
been due but not made at such time.
(E) Upon making any payment with respect to the Company hereunder,
Holdings shall be subrogated to the rights of the payee against the Company
with respect to such payment; provided that Holdings shall not enforce any
--------
payment by way of subrogation until all amounts of principal of and interest
on the Loans and all other amounts payable by the Company under the Credit
Agreement and any other Financing Documents have been paid in full and the
Commitments of each Lender have been terminated and all Letters of Credit
shall have expired or shall have been canceled.
16
<PAGE>
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 Registration on Request. (a) At any time or from
-----------------------
time to time after the date of consummation of a Company Initial Public
Offering, upon the written request of the holder or holders of a majority of
all outstanding Conversion Shares and Warrants (such majority determined, for
purposes of this Section 3.1, by calculating the number of Conversion Shares
for which such Warrants are then exercisable) (the "Initiating Holders"),
requesting that the Company effect the registration under the Securities Act
of all or part of such Initiating Holders' Registrable Securities and
specifying the intended method of disposition thereof, the Company will
promptly give written notice of such requested registration to all holders of
Warrants and Registrable Securities, and thereupon the Company will use its
best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders for disposition in
accordance with the intended method of disposition stated in such
request;
(ii) all other Registrable Securities the holders of which shall
have made a written request to the Company for registration thereof
within 30 days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition of such
Registrable Securities); and
(iii) all shares of Company Common Stock which the Company may elect
to register in connection with the offering of Registrable Securities
pursuant to this Section 3.1, whether for its own account or for the
account of a holder of Company Common Stock,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Company Common Stock, if any, to be so registered,
provided that the Warrant Securityholders as a class shall be entitled to not
--------
more than two registrations upon request pursuant to this Section 3.1.
(b) Registrations under this Section 3.1 shall be on such
appropriate registration form of the Commission (i) as shall be selected by
the Company and (ii) as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in their request for
17
<PAGE>
such registration. The Company agrees to include in any such registration
statement all information which is required under the Securities Act to
effect any such registration.
(c) The Company will pay all Registration Expenses in connection
with the one registration which may be requested pursuant to this Section
3.1, provided that, in addition, the Company shall pay all Registration
--------
Expenses in connection with any registration upon request pursuant to which
less than 50% of the Registrable Shares requested to be registered by such
Initiating Holders are registered, but no such registration shall be counted
as a requested registration for purposes of this Section 3.1. The
underwriting discounts and commissions and transfer taxes, if any, allocable
to the Registrable Securities requested to be registered by the Initiating
Holders in connection with each registration requested under this Section 3.1
shall be paid for by the Initiating Holders requesting such registration.
(d) A registration requested pursuant to this Section 3.1 shall
not be deemed to have been effected (i) unless a registration statement with
respect thereto has become effective; provided that a registration which does
--------
not become effective after the Company has filed a registration statement
with respect thereto solely by reason of the refusal to proceed by the
Initiating Holders (other than a refusal to proceed based upon the advice of
counsel relating to a matter with respect to the Company) shall be deemed to
have been effected by the Company at the request of the Initiating Holders
and shall be counted as a requested registration for purposes of this section
3.1 unless the Initiating Holders shall have elected to pay all Registration
Expenses in connection with such registration, (ii) if, after it has become
effective, such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency
or court for any reason, other than by reason of some act or omission by any
Warrantholder or Warrant Securityholder, or (iii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of
some act or omission by any Warrantholder or Warrant Securityholder.
(e) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, the underwriter or underwriters thereof
shall be selected by the Company subject to the reasonable consent of the
holders of at least a majority (by a number of shares) of the Registrable
Securities as to which registration has been requested.
(f) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, and the managing underwriter
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<PAGE>
shall advise the Company (with a copy of any such notice to each holder of
Registrable Securities requesting registration) that, in its opinion, the
number of securities requested to be included in such registration (including
securities proposed to be sold for the account of the Company) exceeds the
number which can be sold in such offering within a price range acceptable to
the Initiating Holders, the Company will include in such registration, to the
extent of the number which the Company is so advised can be sold in such
offering, (i) first, Registrable Securities requested to be included in such
registration by the holder or holders of Registrable Securities, pro rata
--- ----
among such holders requesting such registration on the basis of the number of
such securities requested to be included by such holders, (ii) second, all
shares proposed to be included by the Company in such registration and (iii)
third, all shares other than Registrable Shares (any such shares with respect
to any registration, "Other Shares") requested to be included in such
registration by the holder or holders thereof.
SECTION 3.2 Incidental Registration. (a) If the Company at any
-----------------------
time proposes to register any of its securities under the Securities Act
(other than (x) by a registration on Form S-4 or S-8 or S-14 or S-15 or any
successor or similar forms or (y) pursuant to Section 3.1) whether for its
own account or for the account of the holder or holders of any Other Shares,
it will each such time give prompt written notice to all Warrant
Securityholders of its intention to do so and of such holders' rights under
this Section 3.2. Upon the written request of any such holder made within 10
days after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities
in the registration statement which covers the securities which the Company
proposes to register; provided that if, at any time after giving written
--------
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not
to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation
to pay the Registration Expenses in connection therewith), without prejudice,
19
<PAGE>
however, to the then existing rights (if any) of any Warrant Securityholder
or Warrant Securityholders entitled to do so to request that such
registration be effected as a registration under Section 3.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this
Section 3.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 3.1, nor shall any such registration
hereunder be deemed to have been effected pursuant to Section 3.1. The
Company will pay all Registration Expenses in connection with each
registration of Registrable Securities pursuant to this Section 3.2.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act as contemplated by Section 3.2 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by any holder of Registrable Securities as
provided in this Section 3.2, use its best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold
by such holder among the securities to be distributed by such underwriters,
provided that if the managing underwriter of such underwritten offering shall
--------
inform the Company and holders of the Registrable Securities requesting such
registration and all other holders of any other shares of Company Common
Stock which shall have exercised, in respect of such underwritten offering,
registration rights comparable to the rights under this Section 3.2 by letter
of its belief that inclusion in such distribution of all or a specified
number of such securities proposed to be distributed by such underwriters
would interfere with the successful marketing of the securities being
distributed by such underwriters (such letter to state the approximate number
of such Registrable Securities and such Other Shares proposed so to be
registered which may be distributed without such effect), then the Company
may, upon written notice to all holders of such Registrable Securities and
holders of such Other Shares, reduce pro rata (if and to be extent stated by
--- ----
such managing underwriter to be necessary to eliminate such effect) the
number of such Registrable Securities and Other Shares the registration of
which shall have been requested by each holder thereof so that the resultant
aggregate number of such Registrable Securities and Other Shares (if any) so
included in such registration, together with the number of securities to be
included in such registration for the account of the Company, shall be equal
to the number of shares stated in such managing underwriter's letter.
SECTION 3.3 Registration Procedures. (a) If and whenever the
-----------------------
Company is required to effect the registration of any Registrable Securities
under the Securities Act as provided in
20
<PAGE>
Sections 3.1 and 3.2, the Company shall, as expeditiously as possible under
the then existing facts and circumstances:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration (including such
audited financial statements as may be required by the Securities Act)
and thereafter use its best efforts to cause such registration statement
to become and remain effective for the periods contemplated in Section
3.3(ii); provided further that the Company may discontinue any
-------- -------
registration of its securities which are not Registrable Securities
being registered pursuant to Section 3.1 at any time prior to the
effective date of the registration statement relating thereto; provided
--------
further that before filing such registration statement or any amendments
-------
thereto, the Company will furnish to the counsel selected by the holders
of Registrable Securities which are to be included in such registration
copies of all such documents proposed to be filed;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until the earlier of (x) in the case of a
registration pursuant to Section 3.1, the expiration of 120 days after
such registration statement becomes effective, or (y) in the case of a
registration pursuant to Section 3.2, the expiration of 90 days after
such registration statement becomes effective.
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and each underwriter, if any, of the
securities being sold by such seller such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller and underwriter, if any, may reasonably request in order
to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under blue sky or similar laws of such
21
<PAGE>
jurisdictions as any seller thereof and any underwriter of the
securities being sold by such seller shall reasonably request, to keep
such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller and
underwriter to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified,
to subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller and the underwriters, if any, of
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the
closing under the underwriting agreement), signed by the
independent public accountants who have certified the Company's
financial statements included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities;
(vii) notify the holders of Registrable Securities and
22
<PAGE>
the managing underwriter or underwriters, if any, promptly and confirm
such advice in writing promptly thereafter:
(A) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment
to the registration statement has been filed, and, with respect to
the registration statement or any post-effective amendment thereto,
when the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration or the initiation
of any proceedings by any Person for that purpose; and
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(viii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon the Company's
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall 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 not misleading in the light of the circumstances then existing;
(ix) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible moment;
23
<PAGE>
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(xi) make available for inspection by a representative of the
holders of Registrable Securities participating in the offering, any
underwriter participating in any disposition pursuant to the
registration and any attorney or accountant retained by such selling
holders or underwriter (each, an "Inspector"), all financial and other
records, pertinent corporate documents and properties of the Company
(the "Records"), and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such registration; provided that the
--------
Company shall not be required to comply with this subdivision (xi) if
there is a reasonable likelihood, in the judgment of the Company, that
such delivery could result in the loss of any attorney-client privilege
related thereto; and provided further that Records which the Company
-------- -------
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
(other than to any holder of Registrable Securities participating in the
offering) unless (x) such Records have become generally available to the
public or (y) the disclosure of such Records may be necessary or
appropriate (A) to comply with any law, rule, regulation or order
applicable to any such Inspectors or holder of Registrable Securities,
(B) in response to any subpoena or other legal process or (C) in
connection with any litigation to which such Inspectors or any holder of
Registrable Securities is a party (provided that the Company is provided
--------
with reasonable notice of such proposed disclosure and a reasonable
opportunity to seek a protective order or other appropriate remedy with
respect to such Records);
(xii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such Registration Statement;
(xiii) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any
of the Company Common Stock is then listed; and
24
<PAGE>
(xiv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration.
The Company may require that each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request in writing for purposes
of preparing the relevant registration statement and amendments and
supplements thereto.
(b) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in subdivision (viii) of
Section 3.3(a), such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(viii) of Section 3.3(a). In the event the Company shall give any such
notice, the periods specified in subdivision (ii) of Section 3.3(a) shall be
extended by the length of the period from and including the date when each
seller of any Registrable Securities covered by such registration statement
shall have received such notice to the date on which each such seller has
received the copies of the supplemented or amended prospectus contemplated by
subdivision (viii) of Section 3.3(a).
(c) If any such registration or comparable statement refers to any
holder of Registrable Securities by name or otherwise as the holder of any
securities of the Company, then such holder shall have the right to require,
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force,
the deletion of the reference to such holder.
SECTION 3.4 Underwritten Offerings. (a) If requested by the
----------------------
underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 3.1, the
Company and each such holder will enter into an underwriting agreement with
such underwriters for such offering, such agreement to be customary and
otherwise satisfactory in substance and form to the Company, each such holder
and the underwriters, and to contain such representations and warranties by
the Company and such holder and such other terms as are generally prevailing
in agreements of such type, including, without limitation, indemnities to the
effect and to the extent provided in Section 3.5. The holders of the
Registrable Securities will cooperate with the Company in the negotiation of
the underwriting
25
<PAGE>
agreement.
(b) Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities not to sell, make any short sale of, loan, grant
any option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any equity securities of the Company, during the ten
days prior to and the 120 days after any underwritten registration pursuant
to Section 3.1 or 3.2 has become effective, except as part of such
underwritten registration, whether or not such holder participates in such
registration, and except as otherwise permitted by the managing underwriter
of such underwriting (if any). Each holder of Registrable Securities agrees
that the Company may instruct its transfer agent to place stop transfer
notations in its records to enforce this Section 3.4(b).
(c) The Company agrees (x) not to sell, make any short sale of,
loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the ten days prior to and the 120 days after any registration pursuant
to Section 3.1 or 3.2 has become effective, except (i) as part of such
registration, (ii) pursuant to registrations on Form S-4, S-8, S-14 or S-15
or any successor or similar forms thereto or (iii) as otherwise permitted by
the managing underwriter of such offering (if any), and (y) to use all
commercially reasonable efforts to cause each holder of its equity securities
or any securities convertible into or exchangeable or exercisable for any of
such securities, in each case purchased from the Company at any time after
the date of this Agreement (other than in a public offering) to agree not to
sell, make any short sale of, loan, grant any option for the purchase of,
effect any public sale or distribution of or otherwise dispose of such
securities during such period except as part of such underwritten
registration.
(d) No Person may participate in any underwritten offering
hereunder unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved, subject to the
terms and conditions hereof, by the Person or a majority of the Persons
entitled to approve such arrangements and (ii) completes and executes all
agreements, questionnaires, indemnities and other documents (other than
powers of attorney) required under the terms of such underwriting
arrangements.
SECTION 3.5 Indemnification. (a) The Company agrees to indemnify
---------------
and hold harmless each holder of Registrable Securities whose Registrable
Securities are covered by any registration statement, its directors and
officers and each other Person, if
26
<PAGE>
any, who controls such holder within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to
which any such indemnified party may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse each such indemnified party for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of (x) such
holder or (y) any underwriter specifically for use in the preparation
thereof. In addition, the Company shall indemnify any underwriter of such
offering and each other Person, if any, who controls any such underwriter
within the meaning of the Securities Act in substantially the same manner and
to substantially the same extent as the indemnity herein provided to each
Indemnified Party. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any
such director, officer, underwriter or controlling person and shall survive
the transfer of such securities by such holder.
(b) Each prospective seller of Registrable Securities hereunder
shall indemnify and hold harmless (in the same manner and to the same extent
as set forth in subdivision (a) of this Section 3.5) the Company, each
director of the Company, each officer of the Company and each other person,
if any, who controls the Company within the meaning of the Securities Act,
with respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereof, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such seller
specifically for use in the preparation of such registration statement,
preliminary prospectus,
27
<PAGE>
final prospectus, summary prospectus, amendment or supplement. Any such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such
securities by such seller. The amount payable by any prospective seller of
Registrable Securities with respect to the indemnification set forth in this
subsection (b) in connection with any offering of securities shall not exceed
the amount of net proceeds received by such prospective seller pursuant to
such offering.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 3.5, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
--------
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 3.5, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless counsel
to such indemnified party has advised it that in such counsel's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof. No indemnifying party shall, without the consent
of the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release from all liability in respect to such claim or litigation. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
(d) If the indemnification provided for in the preceding
subdivisions of this Section 3.5 is unavailable to an indemnified party in
respect of any expense, loss, claim, damage or liability referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount
28
<PAGE>
paid or payable by such indemnified party as a result of such expense, loss,
claim, damage or liability (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
holder or underwriter, as the case may be, on the other from the distribution
of the Registrable Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of
the holder or underwriter, as the case may be, on the other in connection
with the statements or omissions which resulted in such expense, loss, damage
or liability, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other in connection with the
distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by the Company from the initial
sale of the Registrable Securities by the Company to the purchaser bear to
the gain realized by the selling holder or the underwriting discounts and
commissions received by the underwriter, as the case may be. The relative
fault of the Company on the one hand and of the holder or underwriter, as the
case may be, on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
Company, by the holder or by the underwriter and parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided that the foregoing contribution agreement
--------
shall not inure to the benefit of any indemnified party if indemnification
would be unavailable to such indemnified party by reason of the proviso
contained in the first sentence of subdivision (a) of this Section 3.5, and
in no event shall the obligation of any indemnifying party to contribute
under this subdivision (d) exceed the amount that such indemnifying party
would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (a) or (b) of this Section
3.5 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision
(d) were determined by pro rata allocation (even if the holders and any
--- ----
underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph and
subdivision (c) of this Section 3.5. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations
29
<PAGE>
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim.
Notwithstanding the provisions of this subdivision (d), no holder
of Registrable Securities or underwriter shall be required to contribute any
amount in excess of the amount by which (i) in the case of any such holder,
the net proceeds received by such holder from the sale of Registrable
Securities or (ii) in the case of an underwriter, the total price at which
the Registrable Securities purchased by it and distributed to the public were
offered to the public exceeds, in any such case, the amount of any damages
that such holder or underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 3.6 Rule 144; Rule 144A. (a) If the Company shall have
-------------------
filed a registration statement pursuant to Section 12 of the Exchange Act or
a registration statement pursuant to the Securities Act, the Company will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission
thereunder and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to
time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
(b) The Company represents and warrants that as of the date hereof,
the Company Common Stock is not, and is not part of a class of securities
that is, listed on a national securities exchange registered under Section 6
of the Exchange Act or quoted in an automated inter-dealer quotation system.
For so long as any shares of Registrable Securities are restricted securities
within the meaning of Rule 144(a)(3) under the Securities Act, the Company
covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) of the Exchange Act, make available to any
holder of Registrable Securities in connection with the sale of such holder's
Registrable Securities and any prospective purchaser of Registrable
Securities from such, in each case upon request, the information specified
in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act
relating
30
<PAGE>
to the Company, respectively.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 Notices. All notices and other communications
-------
provided for hereunder shall be dated and in writing and shall be deemed to
have been given (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section and telephonic confirmation
of receipt thereof is obtained or (ii) if given by mail, prepaid overnight
courier or any other means, when received at the address specified in this
Section or when delivery at such address is refused. Such notices shall be
addressed to the appropriate party to the attention of the person who
executed this Agreement at the address or telecopy number set forth under
such party's signature below (or to the attention of such other person or to
such other address or telecopy number as such party shall have furnished to
each other party in accordance with this Section 4.1).
SECTION 4.2 Binding Nature of Agreement. This Agreement shall be
---------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto or their successors in interest, except as expressly otherwise
provided herein.
SECTION 4.3 Descriptive Headings. The descriptive headings of the
--------------------
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 4.4 Specific Performance. Without limiting the rights of
--------------------
each party hereto to pursue all other legal and equitable rights available to
such party for the other parties' failure to perform their obligations under
this Agreement, the parties hereto acknowledge and agree that the remedy at
law for any failure to perform their obligations hereunder would be
inadequate and that each of them, respectively, shall be entitled to specific
performance, injunctive relief or other equitable remedies in the event of
any such failure.
SECTION 4.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR
31
<PAGE>
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 4.1. NOTHING IN THIS AGREEMENT
WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
SECTION 4.6 Counterparts. This Agreement may be executed
------------
simultaneously in any number of counterparts, each of which shall be deemed
an original, but all such counterparts shall together constitute one and the
same instrument.
SECTION 4.7 Severability. In the event that any one or more of
------------
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be in any way impaired thereby, it being intended that all of the rights
and privileges of the parties hereto shall be enforceable to the fullest
extent permitted by law.
SECTION 4.8 Entire Agreement. This Agreement is intended by the
----------------
parties hereto as a final and complete expression of their agreement and
understanding in respect to the subject matter contained herein. This
Agreement supersedes all prior agreement and understandings, written or oral,
between the parties with respect to such subject matter.
SECTION 4.9 Amendment and Waiver. Any provision of this Agreement
--------------------
may be amended if, but only if, such amendment is in writing and is signed by
Holdings, the Holdings Stockholders, the Company, the Company Stockholders
and Warrantholders owning, or having Warrants exercisable for, at least a
majority of shares of Common Stock either then outstanding or issuable upon
the exercise of all outstanding Warrants, provided that no such amendment may
--------
adversely affect the rights of any Warrant Securityholder unless signed by
such Warrant Securityholder. Any provision may be waived if, but only if,
such waiver is in writing and is signed by the party or parties waiving such
provision and for whose benefit such provision is intended.
SECTION 4.10 No Third Party Beneficiaries. Nothing in this
----------------------------
Agreement shall convey any rights upon any person or entity which is not a
party or an assignee of a party to this Agreement.
32
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
POSSIBLE DREAMS, LTD.
By /s/ Philip L. Fitting
__________________________
Name: Philip L. Fitting
Title: Chairman
Address:
Telefax:
P.D. HOLDINGS, INC.
By /s/ Philip L. Fitting
__________________________
Name: Philip L. Fitting
Title: President
Address:
Telefax:
SECURITY CAPITAL CORPORATION
By /s/ Brian D. Fitzgerald
__________________________
Name: Brian D. Fitzgerald
Title: Chairman of Board
Address:
Telefax:
NATIONSCREDIT COMMERCIAL
CORPORATION
By /s/ Rebecca Carey
__________________________
Name: Rebecca Carey
Title: Authorized Signatory
One Canterbury Green
Stamford, CT 06912-0013
Telefax: 203-352-4171
33
<PAGE>
/s/ Warren Stanley
__________________________
Name: WARREN STANLEY
Address:
Telefax:
/s/ Arnold Lee
__________________________
Name: ARNOLD LEE
Address:
Telefax:
34
EXHIBIT 7
[EXECUTION COPY]
SECURITY CAPITAL PLEDGE AND GUARANTY AGREEMENT
AGREEMENT dated as of May 17, 1996 between Security Capital
Corporation, a Delaware corporation ("Security Capital") and NationsCredit
Commercial Corporation, as Agent for the Lenders referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS Possible Dreams, Ltd., a Delaware corporation (the
"Company"), P.D. Holdings, Inc., a Delaware corporation ("Holdings"), certain
lenders and NationsCredit Commercial Corporation, as agent for such lenders,
are parties to a Credit Agreement of even date herewith (as the same may be
amended from time to time, the "Credit Agreement"); and
WHEREAS in order to induce such lenders and NationsCredit
Commercial Corporation, as agent for such lenders to enter into the Credit
Agreement, Security Capital has agreed to enter into a limited guaranty of
the obligations of the Company under the Financing Documents referred to in
the Credit Agreement and to grant a continuing security interest in and to
the Collateral (as hereafter defined) to secure such guaranty;
NOW THEREFORE in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. Definitions
-----------
Terms defined in the Credit Agreement and not otherwise defined
herein have, as used herein, the respective meanings provided for therein.
The following additional terms, as used herein, have the following respective
meanings:
"Cash Collateral Account" has the meaning set forth in Section
5(A).
"Collateral" has the meaning set forth in Section 4.
"Guaranteed Obligations" means all amounts payable by the Company
under the Credit Agreement and any other Financing Document including without
limitation (i) all principal of and interest (including any interest which
accrues after the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of the Company or
Holdings, whether or not allowed or allowable as a claim in any such
proceeding) on any loan under, or any note issued pursuant to, the Credit
Agreement, (ii) all reimbursement obligations of the Company with respect to
any letter of credit issued pursuant to the Credit Agreement and any interest
thereon (including any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company or Holdings, whether or not allowed or
allowable as a claim in any such proceeding), (iii) all other amounts payable
by the Company under any Financing Document and (iv) any amendments,
restatements, renewals, extensions or modifications of any of the foregoing;
provided that notwithstanding anything set forth in this Agreement to the
--------
contrary, for purposes of this Agreement, the term "Guaranteed Obligations"
shall mean, at any time, an amount not to exceed, and Security Capital's
obligations with respect to all or part of the Guaranteed Obligations shall
not exceed at any time, the aggregate amount on deposit in the Cash
Collateral Account at such time (or, if greater, the aggregate amount
required to have been deposited by Holdings and the Company in the
2
<PAGE>
Cash Collateral Account from and including the Closing Date to and including
such date pursuant to Section 8.11(b)(y) of the Credit Agreement).
"Liquid Investments" has the meaning set forth in Section 5(C).
"Secured Obligations" means the Guaranteed Obligations.
"Secured Parties" means the Agent and the Lenders.
"Security Interests" means the security interests in the Collateral
granted hereunder securing the Secured Obligations.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of New York; provided that if by reason of mandatory
--------
provisions of law, the perfection or the effect of perfection or
non-perfection of the Security Interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
SECTION 2. Guaranty
--------
(A) Security Capital hereby unconditionally guarantees the full
and punctual payment (whether at stated maturity, upon acceleration or
otherwise) of the Guaranteed Obligations. Upon failure by the Company to pay
punctually any Guaranteed Obligations, Security Capital shall forthwith on
demand pay the amount not so paid at the place and in the manner specified in
the Credit Agreement.
(B) The obligations of Security Capital hereunder are
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
3
<PAGE>
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company or Holdings under
any Operative Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any
Operative Document;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of the Company or Holdings
under any Operative Document;
(iv) any change in the corporate existence, structure or
ownership of the Company or Holdings or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company or
Holdings or any of their respective assets or any resulting release
or discharge of any obligation of the Company or Holdings contained
in any Operative Document;
(v) the existence of any claim, set-off or other rights which
Security Capital may have at any time against the Company,
Holdings, the Agent, any Lender or any other Person, whether in
connection herewith or any unrelated transactions, provided that
--------
nothing herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against
the Company or Holdings for any reason of any Operative Document,
or any provision of applicable law or regulation purporting to
prohibit the payment by the Company or Holdings of the principal of
or interest on any Note or any reimbursement obligation or any
other amount payable by the Company under any Operative Document;
or
4
<PAGE>
(vii) any other act or omission to act or delay of any kind by the
Company, Holdings, the Agent, any Lender or any other Person or any
other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of Holdings'
obligations hereunder.
(C) Security Capital irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well
as any requirement that at any time any action be taken by any Person against
the Company or any other Person.
(D) If acceleration of the time for payment of any amount payable
by the Company under the Financing Documents or any Note is stayed upon the
insolvency, bankruptcy or reorganization of the Company, the obligations of
Security Capital hereunder with respect to all such amounts otherwise subject
to acceleration will nonetheless be performed forthwith on demand by the
Agent (at the request of the Required Lenders).
(E) Security Capital's obligations under this Section 2 shall
remain in full force and effect until the date on which all Secured
Obligations shall have been repaid in full, all Commitments under the Credit
Agreement shall have been terminated and all outstanding Letters of Credit
shall have been terminated or canceled. If at any time any payment of any
amount payable by the Company under the Credit Agreement or any other
Financing Document is rescinded or must be otherwise restored or returned
upon the insolvency or receivership of the Company or otherwise, Security
Capital's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
(F) Upon making any payment with respect to the Company hereunder,
Security Capital shall be subrogated to the rights of the payee against the
Company with respect to such payment; provided that Security Capital shall
--------
not enforce any payment by way of subrogation until all amounts of principal
of and interest on the Loans and all other
5
<PAGE>
amounts payable by the Company under the Credit Agreement and any other
Financing Documents have been paid in full and the Commitments of each Lender
have been terminated and all Letters of Credit shall have expired or shall
have been canceled.
SECTION 3. Representations and Warranties.
------------------------------
Security Capital represents and warrants as follows:
(A) Security Capital is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and
has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted.
(B) The execution, delivery and performance by Security Capital of
this Agreement are within Security Capital's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable
law or regulation or of the certificate of incorporation or by-laws of
Security Capital or of any material agreement, judgment, injunction, order,
decree or other instrument binding upon Security Capital
(C) This Agreement constitutes a valid and binding agreement of
Security Capital, enforceable in accordance with its terms subject, however,
to general principles of equity and to applicable bankruptcy, fraudulent
transfer, insolvency, reorganization, moratorium and other similar laws from
time to time in effect and affecting the enforcement of creditors' rights
generally (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
6
<PAGE>
(D) Security Capital has not performed any acts which might
prevent the Agent from enforcing any of the terms of this Agreement or which
would limit the Agent in any such enforcement.
(E) The Security Interests constitute valid security interests
under the UCC securing the Secured Obligations, to the extent the UCC is
applicable thereto.
SECTION 4. The Security Interests
----------------------
(A) In order to secure the full and punctual payment and
performance of the Secured Obligations in accordance with the terms thereof,
and to secure the performance of all the obligations of Security Capital
hereunder, Security Capital hereby grants to the Agent for the ratable
benefit of the Secured Parties a continuing security interest in and to all
of the following property of Security Capital, whether now owned or existing
or hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "Collateral"):
(1) The Cash Collateral Account, all cash deposited therein from
time to time and the Liquid Investments made pursuant to Section 5(C);
and
(2) All Proceeds of all or any of the Collateral described in
clause 1 hereof.
(B) The Security Interests are granted as security only and shall
not subject any Secured Party to, or transfer or in any way affect or modify,
any obligation or liability of Security Capital with respect to any of the
Collateral or any transaction in connection therewith.
SECTION 5. Cash Collateral Account
-----------------------
(A) On the Closing Date, the Agent and Security Capital shall
establish a Cash Collateral account (the "Cash Collateral Account") with
[First Chicago National Bank] (the "Cash Collateral Account Bank"), in the
name of "Security
7
<PAGE>
Capital Corporation -- NationsCredit Commercial Corporation, as Agent", and
under the exclusive control of the Agent, into which there shall be deposited
from time to time all cash distributions required to be deposited by Holdings
and the Company therein pursuant to Section 8.11(b)(y) of the Credit
Agreement. Any income received with respect to the balance from time to time
standing to the credit of the Cash Collateral Account, including any interest
or capital gains on Liquid Investments, shall remain, or be deposited, in the
Cash Collateral Account. All right, title and interest in and to the cash
amounts on deposit from time to time in the Cash Collateral Account together
with any Liquid Investments from time to time made pursuant to subsection (C)
of this Section shall vest in the Agent, shall constitute part of the
Collateral hereunder and shall not constitute payment of the Secured
Obligations until applied thereto as hereinafter provided.
(B) Security Capital shall cause Holdings and the Company to
deposit (or remit if paid by wire transfer) into the Cash Collateral Account
all amounts required to be deposited by Holdings and the Company therein
pursuant to Section 8.11(b)(y) of the Credit Agreement. In addition to the
foregoing, Security Capital agrees that if any such amounts shall be received
by it, Security Capital shall as promptly as possible deposit such proceeds
into the Cash Collateral Account. Until so deposited, all such amounts shall
be held in trust by Security Capital for and as the property of the Secured
Parties and shall not be commingled with any other funds or property of
Security Capital. Upon the occurrence and continuation of an Event of
Default, the Agent shall, if so instructed by the Required Lenders, apply or
cause to be applied (subject to collection) any or all of the balance from
time to time standing to the credit of the Cash Collateral Account in the
manner specified in Section 9.
(C) Amounts on deposit in the Cash Collateral Account shall be
invested and re-invested from time to time in such Liquid Investments as
Security Capital shall determine, which Liquid Investments shall be held in
the name and be under the control of the Agent; provided that,
--------
8
<PAGE>
if an Event of Default has occurred and is continuing, the Agent shall, if
instructed by the Required Lenders, cause such Liquid Investments to be
liquidated and apply or cause to be applied the proceeds thereof to the
payment of the Secured Obligations in the manner specified in Section 9. For
this purpose, "Liquid Investments" means Temporary Cash Investments; provided
--------
that (i) each Liquid Investment shall mature within 30 days after it is
acquired by the Agent and (ii) in order to provide the Agent, for the benefit
of the Secured Parties, with a perfected security interest therein, each
Liquid Investment shall be either:
(i) evidenced by negotiable certificates or instruments, or if
non-negotiable then issued in the name of the Agent, which (together
with any appropriate instruments of transfer) are delivered to, and held
by, the Agent or an agent thereof (which shall not be Security Capital
or any of its Affiliates) in the State of [New York]; or
(ii) in book-entry form and issued by the United States and subject
to pledge under applicable state law and Treasury regulations and as to
which (in the opinion of counsel to the Agent) appropriate measures
shall have been taken for perfection of the Security Interests.
SECTION 6. General Authority
-----------------
Security Capital hereby irrevocably appoints the Agent its true and
lawful attorney, with full power of substitution, in the name of Security
Capital, the Secured Parties or otherwise, for the sole use and benefit of
the Secured Parties, but at the Security Capital's expense, to the extent
permitted by law to exercise, at any time and from time to time while an
Event of Default has occurred and is continuing, the power to sell, transfer,
assign or otherwise deal in the Collateral or with the same or the proceeds
or avails thereof, as fully and effectually as if the Agent were the absolute
owner thereof; provided that the Agent shall give Security Capital not less
--------
than ten days'
9
<PAGE>
prior written notice of any intended disposition of any of the Collateral.
Security Capital agrees that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC.
SECTION 7. Remedies upon Event of Default
------------------------------
If any Event of Default has occurred and is continuing, the Agent
may exercise on behalf of the Secured Parties all rights of a secured party
under the UCC (whether or not in effect in the jurisdiction where such rights
are exercised) and, in addition, the Agent may, without being required to
give any notice, except as herein provided or as may be required by mandatory
provisions of law, withdraw all cash and Liquid Investments in the Cash
Collateral Account and apply such cash and Liquid Investments and other cash,
if any, then held by it as Collateral as specified in Section 9.
SECTION 8. Limitation on Duty of Agent
---------------------------
in Respect of Collateral
------------------------
Beyond the exercise of reasonable care in the custody thereof, the
Agent shall have no duty as to any Collateral in its possession or control or
in the possession or control of any agent or bailee or any income thereon or
as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent shall be deemed to have exercised reasonable
care in the custody of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property, and shall not be liable or responsible for any loss or damage to
any of the Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by the Agent in good faith.
10
<PAGE>
SECTION 9. Application of Proceeds
-----------------------
Upon the occurrence and during the continuance of an Event of
Default, any cash held in the Cash Collateral Account and all proceeds
thereon shall be applied by the Agent in the following order of priorities:
first, to payment of reasonable compensation to agents and counsel
-----
for the Agent, and all expenses, liabilities and advances incurred or
made by the Agent in connection with any disposition of the Collateral,
and any other unreimbursed expenses for which the Agent or any other
Secured Party is to be reimbursed pursuant to Section 10.04 of the
Credit Agreement or Section 11 hereof and unpaid fees owing to the Agent
under the Credit Agreement;
second, to the ratable payment of unpaid principal of the Secured
------
Obligations;
third, to the ratable payment of accrued but unpaid interest on the
-----
Secured Obligations in accordance with the provisions of the Credit
Agreement;
fourth, to the ratable payment of all other Secured Obligations,
------
until all Secured Obligations shall have been paid in full; and
finally, to payment to Security Capital or its successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
The Agent may make distributions hereunder in cash or in kind or, on a
ratable basis, in any combination thereof.
SECTION 10. Concerning the Agent
--------------------
The provisions of Article XI of the Credit Agreement shall inure to
the benefit of the Agent in respect of this Agreement and shall be binding
upon the parties to
11
<PAGE>
the Credit Agreement and the parties hereto in such respect. In furtherance
and not in derogation of the rights, privileges and immunities of the Agent
therein set forth:
(A) The Agent is authorized to take all such action as is provided
to be taken by it as Agent hereunder and all other action reasonably
incidental thereto. As to any matters not expressly provided for herein
(including the timing and methods of realization upon the Collateral) the
Agent shall act or refrain from acting in accordance with written
instructions from the Required Lenders or, in the absence of such
instructions, in accordance with its discretion.
(B) The Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity,
perfection, priority or enforceability of the Security Interests in any of
the Collateral, whether impaired by operation of law or by reason of any
action or omission to act on its part hereunder. The Agent shall have no
duty to ascertain or inquire as to the performance or observance of any of
the terms of this Agreement by Security Capital.
SECTION 11. Expenses
--------
In the event that Security Capital fails to comply with the
provisions of this Agreement, such that the value of any Collateral or the
validity, perfection, rank or value of any Security Interest is thereby
diminished or potentially diminished or put at risk, the Agent if requested
by the Required Lenders may, but shall not be required to, effect such
compliance on behalf of Security Capital, and Security Capital shall
reimburse the Agent for the reasonable costs thereof on demand. All
reasonable expenses of protecting and maintaining the Collateral, any and all
income taxes imposed by any state, federal, or local authority on any of the
Collateral, or in respect of the disposition thereof shall be borne and paid
by Security Capital; and if Security Capital fails to promptly pay any
portion thereof when due, the Agent or any other Secured
12
<PAGE>
Party may, at its option, but shall not be required to, pay the same and
charge Security Capital's account therefor, and Security Capital agrees to
reimburse the Agent or such other Secured Party therefor on demand. All sums
so paid or incurred by the Agent or any other Secured Party for any of the
foregoing and any and all other sums for which Security Capital may become
liable hereunder and all costs and expenses (including attorneys' fees, legal
expenses and court costs (including the reasonable allocation of the
compensation, costs and expenses of in-house counsel, based upon time spent))
reasonably incurred by the Agent or any other Secured Party in enforcing or
protecting the Security Interests or any of their rights or remedies under
this Agreement, shall, together with interest thereon until paid at an annual
rate equal to 5% plus the rate announced from time to time by NationsBank,
N.A. as its prime rate, be additional Secured Obligations hereunder.
SECTION 12. Termination of Security
-----------------------
Interests; Release of Collateral
--------------------------------
Upon the repayment in full of all Secured Obligations and the
termination of the Commitments under the Credit Agreement, the Security
Interests shall terminate and all rights to the Collateral shall revert to
Security Capital. At any time and from time to time prior to such
termination of the Security Interests, the Agent may release any of the
Collateral with the prior written consent of the Required Lenders. Upon any
such termination of the Security Interests or release of Collateral, the
Agent will, at the expense of Security Capital, execute and deliver to
Security Capital such documents as Security Capital shall reasonably request
to evidence the termination of the Security Interests or the release of such
Collateral, as the case may be.
13
<PAGE>
SECTION 13. Notices
-------
All notices, communications and distributions hereunder shall be
given in accordance with Section 12.03 of the Credit Agreement and, with
resepct to Security Capital, at its address set forth on the signature pages
hereof.
SECTION 14. Waivers, Non-Exclusive Remedies
-------------------------------
No failure on the part of the Agent to exercise, and no delay in
exercising and no course of dealing with respect to, any right under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by the Agent or any Secured Party of any right under the Credit
Agreement, any of the other Financing Documents or this Agreement preclude
any other or further exercise thereof or the exercise of any other right.
The rights in this Agreement, the Credit Agreement and the other Financing
Documents are cumulative and are not exclusive of any other remedies provided
by law.
SECTION 15. Successors and Assigns
----------------------
This Agreement is for the benefit of the Agent and the Secured
Parties and their successors and assigns, and in the event of an assignment
of all or any of the Secured Obligations, the rights hereunder, to the extent
applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Agreement shall be binding on Security Capital and its
successors and assigns.
SECTION 16. Changes in Writing
------------------
Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only in writing signed by
Security Capital and the Agent with the consent of the Required Lenders.
14
<PAGE>
SECTION 17. NEW YORK LAW
------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO PRINCIPLES OR
CONFLICTS OF LAW), EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF
LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY
JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH
JURISDICTION.
SECTION 18. Severability
------------
If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Agent and the other Secured
Parties in order to carry out the intentions of the parties hereto as nearly
as may be possible; and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 19. Counterparts
------------
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
SECTION 20. Additional Covenants.
--------------------
(A) Security Capital will cause Holdings and each of its
Subsidiaries (including without limitation the Company) to have a separate
board of directors at all times. At no time will the board of directors of
Holdings or any of its Subsidiaries have less than two directors who are not
serving at such time on the board of directors of Security Capital or of any
Subsidiary of Security Capital (other than
15
<PAGE>
Holdings or any of its Subsidiaries). Security Capital will cause Holdings
and each of its Subsidiaries to, (i) hold all regular meetings necessary to
authorize corporate action, (ii) act in its own corporate name and through
its own authorized officers and agents, (iii) manage its own liabilities,
(iv) prepare and maintain its own separate, full and complete books, records
and financial statements and (v) not permit any of its money or other assets
to be commingled with any of the money or other assets of any other Person.
In addition, Security Capital (i) will have separate banking relationships
from those of Holdings or the Company, (ii) will have separate employees from
those of Holdings or the Company and (iii) will take all such other steps as
the Required Lenders may reasonably request to assure the legal recognition
of its corporate separateness from any of Holdings or the Company.
(B) Security Capital will not declare, order, pay, make or set
aside any dividends or distributions to any of its shareholders with respect
to any cash or property received by Security Capital from Holdings or any of
its Subsidiaries.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
SECURITY CAPITAL CORPORATION
By /s/ Brian D. Fitzgerald
----------------------------------
Title: Chairman of the Board
NationsCredit Commercial
Corporation,
as Agent
By /s/ Rebecca Carey
---------------------------------
Title: Authorized Signatory
17
Exhibit 8
[EXECUTION COPY]
HOLDINGS PLEDGE AGREEMENT
AGREEMENT dated as of May 17, 1996 among P.D. HOLDINGS, INC., a
Delaware corporation (with its successors, "Holdings") and NationsCredit
Commercial Corporation, as Agent.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Holdings is the sole stockholder of Possible Dreams, Ltd.,
a Delaware corporation (the "Company"); and
WHEREAS, the Company, Holdings, certain Lenders and NationsCredit
Commercial Corporation, as agent for such Lenders are parties to a Credit
Agreement of even date herewith (as the same may be amended from time to
time, the "Credit Agreement"); and
WHEREAS, in order to induce said Lenders and the Agent to enter
into the Credit Agreement, Holdings has agreed to grant a continuing security
interest in and to the Collateral (as hereafter defined) to secure
obligations of the Company under the Credit Agreement and the Notes issued
pursuant thereto and the other Financing Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. Definitions.
-----------
Terms defined in the Credit Agreement and not otherwise defined
herein have, as used herein, the respective meanings provided for therein.
The following additional terms, as used herein, have the following respective
meanings:
"Collateral" has the meaning assigned to such term in Section 3(A).
"Company Shares" means all of the shares of capital stock of the
Company issued and outstanding on the date hereof consisting of 1,750 shares
of common stock, par value $0.01 per share.
"Pledged Stock" means the Company Shares and any other capital
stock required to be pledged to the Agent pursuant to Section 3(B).
"Secured Obligations" means the obligations secured under this
Agreement including (i) all principal of and interest (including any interest
which accrues after the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of the Company or
Holdings, whether or not allowed or allowable as a claim in any such
proceeding) on any loan under, or any note issued pursuant to, the Credit
Agreement, (ii) all reimbursement obligations of the Company with respect to
any letter of credit issued pursuant to the Credit Agreement and all interest
thereon (including any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company or Holdings, whether or not allowed or
allowable as a claim in any such proceeding), (iii) all other amounts payable
by the Company or Holdings under any Financing Document and (iv) any
amendments, restatements, renewals, extensions or modifications of any of the
foregoing.
"Secured Parties" means the Lenders and the Agent.
2
<PAGE>
"Security Interests" means the security interests in the Collateral
granted hereunder securing the Secured Obligations.
Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the New York Uniform
Commercial Code as in effect on the date hereof shall have the meanings
therein stated.
SECTION 2. Representations and Warranties.
------------------------------
Holdings represents and warrants as follows:
(A) Title to Pledged Stock. Holdings owns all of the Pledged
----------------------
Stock, free and clear of any Liens other than the Security Interests. All of
the Pledged Stock has been duly authorized and validly issued, and is fully
paid and non-assessable, and is subject to no options to purchase or similar
rights of any Person. Holdings is not and will not become a party to or
otherwise bound by any agreement, other than this Agreement, the Common
Stockholders Agreement and the Warrantholders Rights Agreement, which
restricts in any manner the rights of any present or future holder of any of
the Pledged Stock with respect thereto.
(B) Validity, Perfection and Priority of Security Interests. Upon
-------------------------------------------------------
the delivery of the certificates representing the Pledged Stock to the Agent
in accordance with Section 4 hereof, the Agent will have valid and perfected
security interests in the Pledged Stock subject to no prior Lien. No
registration, recordation or filing with any governmental body, agency or
official is required in connection with the execution or delivery of this
Agreement or is necessary for the validity or enforceability hereof or for
the perfection or enforcement of the Security Interests in the Pledged Stock.
Neither Holdings nor the Company has performed or will perform any acts which
might prevent the Agent from enforcing any of the terms and conditions of
this Agreement or which would limit the Agent in any such enforcement.
3
<PAGE>
(C) UCC Filing Locations. The chief executive office of Holdings
--------------------
is located at its address set forth on the signature pages of the Credit
Agreement. Under the Uniform Commercial Code as in effect in the State in
which such office is located, no local filing is required to perfect a
security interest in collateral consisting of general intangibles.
SECTION 3. The Security Interests.
----------------------
In order to secure the full and punctual payment of the Secured
Obligations in accordance with the terms thereof, and to secure the
performance of all the obligations of Holdings hereunder:
(A) Holdings hereby assigns and pledges to and with the Agent for
the benefit of the Secured Parties and grants to the Agent for the benefit of
the Secured Parties a security interest in the Pledged Stock, and all of its
rights and privileges with respect to the Pledged Stock, and all income and
profits thereon, and all interest, dividends (except for any such dividends
paid by the Company to Holdings to the extent necessary to permit Holdings to
make payments to Security Capital pursuant to the terms of the Tax Sharing
Agreement ("Tax Sharing Dividends") (including without limitation any portion
of such Tax Sharing Dividends required to be deposited by Holdings into the
Cash Collateral Account (as defined in the Security Capital Pledge Agreement)
pursuant to Section 8.11(b)(y) of the Credit Agreement))) and other payments
and distributions with respect thereto, and all proceeds of the foregoing
(the "Collateral"). Contemporaneously with the execution and delivery
hereof, Holdings is delivering the certificates representing the Company
Stock in pledge hereunder.
(B) In the event that the Company at any time issues any
additional or substitute shares of capital stock of any class (other than any
such shares issued pursuant to the Warrants or the Warrantholders Rights
Agreement), Holdings will immediately pledge and deposit with the Agent
certificates representing all such shares as additional security for the
Secured Obligations. All such shares
4
<PAGE>
constitute Pledged Stock and are subject to all provisions of this Agreement.
(C) The Security Interests are granted as security only and shall
not subject any Secured Party to, or transfer or in any way affect or modify,
any obligation or liability of Holdings or the Company with respect to any of
the Collateral or any transaction in connection therewith.
SECTION 4. Delivery of Pledged Stock.
-------------------------
All certificates representing Pledged Stock delivered to the Agent
by Holdings pursuant hereto shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, with signatures appropriately guaranteed, and
accompanied by any required transfer tax stamps, all in form and substance
satisfactory to the Agent.
SECTION 5. Filing; Further Assurances.
--------------------------
(A) Holdings agrees that it will, at its expense and in such
manner and form as the Agent may reasonably require, execute, deliver, file
and record any financing statement, specific assignment or other paper and
take any other action that may be necessary or desirable, or that the Agent
may request, in order to create, preserve or perfect any Security Interest or
to enable the Agent to exercise and enforce its rights hereunder with respect
to any of the Collateral. To the extent permitted by applicable law,
Holdings hereby authorizes the Agent to execute and file, in the name of
Holdings or otherwise, Uniform Commercial Code financing statements (which
may be carbon, photographic, photostatic or other reproductions of this
Agreement or of a financing statement relating to this Agreement) which the
Agent in its sole discretion may deem necessary or appropriate to further
perfect the Security Interests.
(B) Holdings agrees that it will not change (i) its name, identity
or corporate structure in any manner or (ii) the location of its chief
executive office unless it
5
<PAGE>
shall have given the Agent not less than 30 days' prior notice thereof.
SECTION 6. Record Ownership of Pledged Stock.
---------------------------------
Upon the occurrence and during the continuation of an Event of
Default, the Agent may, in its sole and reasonable discretion, cause any or
all of the Pledged Stock to be transferred of record into the name of the
Agent or its nominee. Holdings will promptly give to the Agent copies of any
notices or other communications received by it with respect to Pledged Stock
registered in the name of Holdings and the Agent will promptly give to
Holdings copies of any notices and communications received by the Agent with
respect to Pledged Stock registered in the name of the Agent or its nominee.
SECTION 7. Right to Receive Distributions on Collateral.
--------------------------------------------
The Agent shall have the right to receive and, upon the occurrence
and during the continuance of any Event of Default, to retain as Collateral
hereunder all dividends (except for any Tax Sharing Dividends), interest and
other payments and distributions made upon or with respect to the Collateral
and Holdings shall take all such action as the Agent may deem necessary or
appropriate to give effect to such right. All such dividends, interest and
other payments and distributions which are received by Holdings shall be
received in trust for the benefit of the Agent and the Secured Parties and,
if the Agent so directs upon the occurrence and during the continuance of an
Event of Default, shall be segregated from other funds of Holdings and shall,
forthwith upon demand by the Agent during the continuance of an Event of
Default, be paid over to the Agent as Collateral in the same form as received
(with any necessary endorsement). After all Events of Defaults that shall
have occurred have been cured, the Agent's right to retain dividends,
interest and other payments and distributions under this Section 7 shall
cease and the Agent shall pay over to Holdings any such Collateral retained
by the Agent during the continuance of an Event of Default.
6
<PAGE>
SECTION 8. Right to Vote Pledged Stock.
---------------------------
Unless an Event of Default shall have occurred and be continuing,
Holdings shall have the right, from time to time, to vote and to give
consents, ratifications and waivers with respect to the Pledged Stock, and
the Agent shall, upon receiving a written request from Holdings accompanied
by a certificate signed by its principal financial officer stating that no
Event of Default has occurred and is continuing, deliver to Holdings or as
specified in such request such proxies, powers of attorney, consents,
ratifications and waivers in respect of any of the Pledged Stock which is
registered in the name of the Agent or its nominee as shall be specified in
such request and be in form and substance satisfactory to the Agent.
If an Event of Default shall have occurred and be continuing, the
Agent shall have the right to the extent permitted by law and Holdings shall
take all such action as may be necessary or appropriate to give effect to
such right, to vote and to give consents, ratifications and waivers, and take
any other action with respect to any or all of the Pledged Stock with the
same force and effect as if the Agent were the absolute and sole owner
thereof.
SECTION 9. General Authority.
-----------------
Holdings hereby irrevocably appoints the Agent its true and lawful
attorney, with full power of substitution, in the name of Holdings, the
Agent, the Secured Parties or otherwise, for the sole use and benefit of the
Agent and Secured Parties, but at the expense of Holdings, to the extent
permitted by law to exercise, at any time and from time to time while an
Event of Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for
any and all monies due or to become due upon or by virtue thereof,
7
<PAGE>
(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof, as fully and effectually as if
the Agent were the absolute owner thereof, and
(iv) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
provided that the Agent shall give Holdings not less than ten days' prior
--------
written notice of the time and place of any sale or other intended
disposition of any of the Collateral except any Collateral which is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. The Agent and Holdings agree that
such notice constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the Uniform Commercial Code.
SECTION 10. Remedies upon Event of Default.
------------------------------
If any Event of Default shall have occurred and be continuing, the
Agent may exercise on behalf of the Secured Parties all the rights of a
secured party under the Uniform Commercial Code (whether or not in effect in
the jurisdiction where such rights are exercised) and, in addition, the Agent
may, without being required to give any notice, except as herein provided or
as may be required by mandatory provisions of law, (i) apply the cash, if
any, then held by it as Collateral as specified in Section 13 and (ii) if
there shall be no such cash or if such cash shall be insufficient to pay all
the Secured Obligations in full, sell the Collateral or any part thereof at
public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery, and at such price or
prices as the Agent may deem satisfactory. Any Secured Party may be the
purchaser of any or all of the Collateral so sold at any public sale (or, if
the Collateral is of a type customarily sold in a recognized market or is of
a type which is the subject of widely distributed
8
<PAGE>
standard price quotations, at any private sale). The Agent is authorized, in
connection with any such sale, if it deems it advisable so to do, (i) to
restrict the prospective bidders on or purchasers of any of the Pledged Stock
to a limited number of sophisticated investors who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or sale of any of such Pledged Stock, (ii) to cause
to be placed on certificates for any or all of the Pledged Stock or on any
other securities pledged hereunder a legend to the effect that such security
has not been registered under the Securities Act of 1933 and may not be
disposed of in violation of the provision of said Act, and (iii) to impose
such other limitations or conditions in connection with any such sale as the
Agent deems necessary or advisable in order to comply with said Act or any
other law. Holdings covenants and agrees that it will execute and deliver
such documents and take such other action as the Agent deems necessary or
advisable in order that any such sale may be made in compliance with law.
Upon any such sale the Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at
any such sale shall hold the Collateral so sold absolutely and free from any
claim or right of whatsoever kind, including any equity or right of
redemption of Holdings which may be waived, and Holdings, to the extent
permitted by law, hereby specifically waives all rights of redemption, stay
or appraisal which it has or may have under any law now existing or hereafter
adopted. The notice (if any) of such sale required by Section 9 shall (1) in
case of a public sale, state the time and place fixed for such sale, (2) in
case of sale at a broker's board or on a securities exchange, state the board
or exchange at which such sale is to be made and the day on which the
Collateral, or the portion thereof so being sold, will first be offered for
sale at such board or exchange, and (3) in the case of a private sale, state
the day after which such sale may be consummated. Any such public sale shall
be held at such time or times within ordinary business hours and at such
place or places as the Agent may fix in the notice of such sale. At any such
sale the Collateral may be sold in one lot as an entirety or in separate
parcels, as the Agent may
9
<PAGE>
determine. The Agent shall not be obligated to make any such sale pursuant
to any such notice. The Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned. In
case of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Agent until the
selling price is paid by the purchaser thereof, but the Agent shall not incur
any liability in case of the failure of such purchaser to take up and pay for
the Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Agent, instead of exercising the power
of sale herein conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the Security Interests and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
SECTION 11. Expenses.
--------
Holdings agrees that it will forthwith upon demand pay to the
Agent:
(i) the amount of any taxes which the Agent may have been required
to pay by reason of the Security Interests or to free any of the
Collateral from any Lien thereon, and
(ii) the amount of any and all out-of-pocket expenses, including
the fees and disbursements of counsel and of any other experts, which
the Agent may incur in connection with (w) the administration or
enforcement of this Agreement, including such expenses as are incurred
to preserve the value of the Collateral and the validity, perfection,
rank and value of any Security Interest, (x) the collection, sale or
other disposition of any of the Collateral, (y) the exercise by the
Agent of any of the rights conferred upon it hereunder or (z) any
Default or Event of Default.
10
<PAGE>
Any such amount not paid on demand shall bear interest (computed on the basis
of the number of days elapsed over a year of 360 days) at a rate per annum
equal to 5% plus the rate announced from time to time by NationsBank, N.A. as
its prime rate.
SECTION 12. Limitation on Duty of Agent
in Respect of Collateral.
---------------------------
Beyond the exercise of reasonable care in the custody thereof, the
Agent shall have no duty as to any Collateral in its possession or control or
in the possession or control of any agent or bailee or any income thereon or
as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if
the Collateral is accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or responsible for any loss
or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any agent or bailee selected by
the Agent in good faith.
SECTION 13. Application of Proceeds.
-----------------------
Upon the occurrence and during the continuance of an Event of
Default, the proceeds of any sale of, or other realization upon, all or any
part of the Collateral and any cash held shall be applied by the Agent in the
following order of priorities:
first, to payment of the expenses of such sale or other
-----
realization, including reasonable compensation to agents and counsel for
the Agent, and all expenses, liabilities and advances incurred or made
by the Agent in connection therewith, and any other unreimbursed
expenses for which the Agent or any Secured Party is to be reimbursed
pursuant to Section 10.04 of the Credit Agreement or Section 11 hereof
and unpaid fees owing to the Agent under the Credit Agreement;
11
<PAGE>
second, to the ratable payment of unpaid principal of the Secured
------
Obligations;
third, to the ratable payment of accrued but unpaid interest on the
-----
Secured Obligations in accordance with the provisions of the Credit
Agreement;
fourth, to the ratable payment of all other Secured Obligations,
------
until all Secured Obligations shall have been paid in full; and
finally, to payment to Holdings or its successors or assigns, or as
-------
a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
SECTION 14. Concerning the Agent.
--------------------
The provisions of Article XI of the Credit Agreement shall inure to
the benefit of the Agent in respect of this Agreement and shall be binding
upon the parties to the Credit Agreement in such respect. In furtherance and
not in derogation of the rights, privileges and immunities of the Agent
therein set forth:
(A) The Agent is authorized to take all such action as is provided
to be taken by it as Agent hereunder and all other action reasonably
incidental thereto. As to any matters not expressly provided for herein
(including, without limitation, the timing and methods of realization upon
the Collateral) the Agent shall act or refrain from acting in accordance with
written instructions from the Required Lenders or, in the absence of such
instructions, in accordance with its discretion.
(B) The Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity,
perfection, priority or enforceability of the Security Interests in any of
the Collateral, whether impaired by operation of law or by reason of any
action or omission to act on its part hereunder. The Agent shall have no
duty to ascertain or inquire as to the performance or
12
<PAGE>
observance of any of the terms of this Agreement by Holdings.
SECTION 15. Appointment of Co-Agents.
------------------------
At any time or times, in order to comply with any legal requirement
in any jurisdiction, the Agent may appoint another bank or trust company or
one or more other persons, either to act as co-agent or co-agents, jointly
with the Agent, or to act as separate agent or agents on behalf of the
Secured Parties with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of the Agent, include
provisions for the protection of such co-agent or separate agent similar to
the provisions of Section 14).
SECTION 16. Termination of Security
Interests; Release of Collateral.
--------------------------------
Upon the repayment in full of all Secured Obligations, the
termination or cancellation of all outstanding Letters of Credit and the
termination of the Commitments under the Credit Agreement, the Security
Interests shall terminate and all rights to the Collateral shall revert to
Holdings. At any time and from time to time prior to such termination of the
Security Interests, the Agent may release any of the Collateral with the
prior written consent of the Lenders. Upon any such termination of the
Security Interests or release of Collateral, the Agent will, at the expense
of Holdings, execute and deliver to Holdings such documents as Holdings shall
reasonably request to evidence the termination of the Security Interests or
the release of such Collateral, as the case may be.
SECTION 17. Notices.
-------
All notices, communications and distributions hereunder shall be
given in accordance with Section 12.03 of the Credit Agreement.
13
<PAGE>
SECTION 18. Waivers, Non-Exclusive Remedies.
-------------------------------
No failure on the part of the Agent to exercise, and no delay in
exercising and no course of dealing with respect to, any right under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by the Agent of any right under the Credit Agreement, any other
Financing Document or this Agreement preclude any other or further exercise
thereof or the exercise of any other right. The rights in this Agreement,
the other Security Documents and the Credit Agreement are cumulative and are
not exclusive of any other remedies provided by law.
SECTION 19. Successors and Assigns.
----------------------
This Agreement is for the benefit of the Agent and the other
Secured Parties and their successors and assigns, and in the event of an
assignment of all or any of the Secured Obligations, the rights hereunder, to
the extent applicable to the indebtedness so assigned, may be transferred
with such indebtedness. This Agreement shall be binding on Holdings and its
successors and assigns.
SECTION 20. Obligations Unconditional; Discharge of
Obligations, etc.
---------------------------------------
(a) The obligations of Holdings hereunder are unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company under any Operative
Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any
Operative Document;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of the Company under any
Operative Document;
14
<PAGE>
(iv) any change in the corporate existence, structure or
ownership of the Company or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company or
any of its assets or any resulting release or discharge of any
obligation of the Company contained in any Operative Document;
(v) the existence of any claim, set-off or other rights which
Holdings may have at any time against the Company, the Agent, any
Lender or any other Person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent
--------
the assertion of any such claim by separate suit or compulsory
counterclaim;
(vi) any invalidity or unenforceability relating to or against
the Company for any reason of any Operative Document, or any
provision of applicable law or regulation purporting to prohibit
the payment by the Company of the principal of or interest on any
Note or any other amount payable by the Company under any Operative
Document; or
(vii) any other act or omission to act or delay of any kind by the
Company, the Agent, any Lender or any other Person or any other
circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of Holdings'
obligations hereunder.
(b) Holdings' obligations hereunder shall remain in full force and
effect until the Commitments and all outstanding Letters of Credit under the
Credit Agreement shall have terminated and the principal of and interest on
the Notes and all other amounts payable by the Company under the Credit
Agreement shall have been paid in full. If at any time any payment of the
principal of or interest on any Note or any other amount payable by the
Company under the Credit Agreement is rescinded or must be otherwise restored
15
<PAGE>
or returned upon the insolvency, bankruptcy or reorganization of the Company
or otherwise, Holdings' obligations hereunder with respect to such payment
shall be reinstated as though such payment had been due but not made at such
time.
(c) Holdings irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein, as well as any
requirement that at any time any action be taken by any corporation or Person
against the Company or any other corporation or Person.
(d) Holdings hereby waives any right or claim of exoneration,
reimbursement, subrogation, contribution or indemnity and any other similar
right or claim arising out of any performance of its obligations hereunder.
(e) If acceleration of the time for payment of any amount payable
by the Company under the Credit Agreement or any Note is stayed upon the
insolvency, bankruptcy or reorganization of the Company, the obligations of
Holdings hereunder with respect to all such amounts otherwise subject to
acceleration will nonetheless be performed forthwith on demand by the Agent
(at the request of the Required Lenders).
SECTION 21. Changes in Writing.
------------------
Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only in writing signed by
Holdings and the Agent with the consent of the Required Lenders (or in the
case of Section 16, all of the Lenders).
SECTION 22. NEW YORK LAW.
------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF
LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF
16
<PAGE>
ANY JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH
JURISDICTION.
SECTION 23. Severability.
------------
If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Agent and the Secured
Parties in order to carry out the intentions of the parties hereto as nearly
as may be possible; and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 24. Counterparts.
------------
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
P.D. HOLDINGS, INC.
By /s/ Philip L. Fitting
----------------------------
Philip L. Fitting
Chairman
NationsCredit Commercial
Corporation, as Agent
By /s/ Rebecca Carey
---------------------------
Title: Authorized Signatory
18
Exhibit 9
[EXECUTION COPY]
INVESTORS SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of May 17, 1996 among Possible
Dreams, Ltd., a Delaware corporation (the "Company"), the Subordinated
Obligations Holders (as defined below) and NationsCredit Commercial
Corporation, as Agent (the "Agent") for the Lenders referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, P.D. Holdings, Inc., the Lenders party
thereto (the "Lenders") and the Agent are parties to the Credit Agreement (as
defined below); and
WHEREAS, in order to induce the Lenders to enter into such Credit
Agreement, the Company and the Subordinated Obligations Holders have agreed
to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. Terms defined in the Credit Agreement and
-----------
not otherwise defined herein have, as used herein, the respective meanings
provided for therein. The following additional terms, as used herein, have
the following respective meanings:
"Credit Agreement" means the Credit Agreement dated as of May 17,
1996, among the Company, P.D. Holdings, Inc., the Lenders and the Agent, as
the same may be amended from time to time.
<PAGE>
"Management Agreement" means the Management Advisory Services
Agreement dated as of the date hereof between Security Capital and the
Company.
"Senior Commitments" means, without duplication, all commitments to
extend credit (including without limitation any commitments to issue any
letters of credit) and all instruments pursuant to which commitments or
instruments Senior Debt may be incurred (including without limitation any
letters of credit).
"Senior Debt" means all amounts payable with respect to the Credit
Agreement, which include (a) all principal of and interest (including any
interest which accrues after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization of the
Company or any of its Subsidiaries or Affiliates, whether or not allowed or
allowable as a claim in any such proceeding) on any loan under, or any note
issued pursuant to, the Credit Agreement, (b) all reimbursement obligations
of the Company with respect to any letter of credit issued pursuant to the
Credit Agreement (including any interest which accrues after the commencement
of any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company or any of its Subsidiaries or
Affiliates, whether or not allowed or allowable as a claim in any such
proceeding), (c) all other amounts payable by the Company or any of its
Subsidiaries thereunder or under any other Financing Document and (d) any
amendments, restatements, renewals, extensions or modifications of any of the
foregoing.
"Subordinated Obligations" means (a) all amounts payable by the
Company pursuant to the Management Agreement (including any interest which
accrues after the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of the Company,
whether or not allowed or allowable as a claim in any such proceeding) and
any other amounts payable with respect thereto and (b) any amendments,
restatements, renewals, extensions or modifications of any of the foregoing.
2
<PAGE>
"Subordinated Obligations Holder" means any holder from time to
time of Subordinated Obligations.
SECTION 2. Covenants of Subordinated Obligations Holders.
---------------------------------------------
(a) Each Subordinated Obligations Holder acknowledges and agrees that
(i) the Credit Agreement restricts the ability of the Company and its
Subsidiaries to make payments in respect of Subordinated Obligations and
(ii) should any Subordinated Obligations Holder collect or receive, directly
or indirectly, any payment of any kind or character, whether in cash or
property in respect of any Subordinated Obligations (and whether by way of
payment of principal or interest, redemption, purchase, other acquisition,
dividend, distribution, guarantee, grant of a security interest, realization
of security or the proceeds thereof, set-off, exercise of contractual or
statutory rights or otherwise), (x) at a time when such payment is prohibited
by the terms of the Credit Agreement, (y) through exercise of remedies
permitted under Section 2(c) at any time while any Senior Debt or any Senior
Commitment is outstanding or (z) in the event of any insolvency or bankruptcy
proceeding or any receivership, liquidation, reorganization or other similar
proceeding in connection therewith, relative to the Company or to any of its
creditors, in their capacity as creditors of the Company, or to substantially
all of its property, and in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, such Subordinated Obligations Holder will
forthwith deliver the same to the Agent for the equal and ratable benefit of
the holders of Senior Debt in precisely the form received (except for the
endorsement or the assignment of or by such Subordinated Obligations Holder
where necessary) for application to payment of all Senior Debt in full, after
giving effect to any concurrent payment or distribution to the holders of
Senior Debt and, until so delivered, the same shall be held in trust by such
Subordinated Obligations Holder as the property of the holders of Senior
Debt.
(b) Unless and until all Senior Debt shall have been paid in full
and all Senior Commitments shall have
3
<PAGE>
terminated or been canceled, neither the Company nor any of its Subsidiaries
or Affiliates shall make, and no Subordinated Obligations Holder shall
demand, accept or receive, or shall attempt to collect or commence any legal
proceedings to collect, any direct or indirect payment (in cash or property
or by setoff, exercise of contractual or statutory rights or otherwise) of or
on account of any amount payable on or with respect to any Subordinated
Obligations (including any payment in respect of redemption or purchase or
other acquisition), except (x) as expressly permitted under clause (i) of
Section 8.12 of the Credit Agreement and (y) as expressly permitted under
Section 2(c).
(c) Unless and until all Senior Debt shall have been paid in full
and all Senior Commitments shall have terminated or been canceled, no
Subordinated Obligations Holder will commence or maintain any action, suit or
any other legal or equitable proceeding against the Company or any of its
Subsidiaries or Affiliates, or join with any creditor in any such proceeding;
provided that nothing in this Section 2(c) will preclude any Subordinated
--------
Obligations Holder (i) from commencing at any time any action, suit or any
other legal or equitable proceeding to enforce any remedies to which such
Subordinated Obligations Holder is entitled under the instrument governing
the Subordinated Obligations held by such Subordinated Obligations Holder if
at such time the holders of Senior Debt have commenced an action, suit or
proceeding to enforce substantially similar remedies or (ii) from joining
with any creditor in any such proceeding, under any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding if the
holders of Senior Debt have joined in any such proceeding.
(d) Each Subordinated Obligations Holder hereby waives any and all
notice in respect of the Credit Agreement and agrees and consents that
without notice to or assent by such Subordinated Obligations Holder:
(i) the obligations and liabilities of the Company or any
other party or parties to the Credit Agreement (or any promissory
note, security
4
<PAGE>
document or guaranty evidencing or securing the same) may, from time to
time, in whole or in part, be renewed, extended, modified, amended,
restated, accelerated, compromised, supplemented, terminated, sold,
exchanged, waived or released;
(ii) the Agent and the Lenders may exchange, release or surrender
any collateral to the Company or any other Person, waive, release or
subordinate any security interest, obtain a guaranty of any Person or a
security interest in or mortgage or other encumbrance on any additional
property as collateral for any obligations of the Company in its sole
discretion may elect;
(iii) the Agent and the Lenders may apply payments by the Company
or any other Person to such portion of the Secured Obligations (as
defined in the Security Agreements) as they in their sole discretion may
elect;
(iv) any Lender may provide additional financing or otherwise
extend credit to the Company;
(v) the Agent and the Lenders may exercise or refrain from
exercising any right, remedy or power granted by or in connection
with the Credit Agreement, any other Financing Documents or any
other agreements relating thereto; and
(vi) any Lender or the Agent may surrender or release, from
time to time, in whole or in part, any balance or balances of funds
with the Agent or any Lender at any time standing to the credit of
the Company;
all as the Agent or the Lenders may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the obligations of the Company
and the Subordinated Obligations Holders hereunder.
(e) Each Subordinated Obligations Holder agrees that it will not
contest the validity, perfection, priority
5
<PAGE>
or enforceability of any lien or security interest granted to secure any
Senior Debt or of any guaranty securing Senior Debt.
SECTION 3. Dissolution, Liquidation or Reorganization of the
-------------------------------------------------
Company. (a) In the event of any insolvency or bankruptcy proceedings, and
-------
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to any of its creditors, in
their capacity as creditors of the Company, or to substantially all of its
property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether or not involving
insolvency or bankruptcy, then:
(i) the holders of the Senior Debt shall first be entitled to
receive payment in full in cash of the principal thereof, premium, if any,
interest and all other amounts payable thereon (accruing before and after the
commencement of the proceedings) before any Subordinated Obligations Holder
is entitled to receive any payment on account or in respect of Subordinated
Obligations; and
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities to which any
Subordinated Obligations Holder would be entitled, but for the provisions of
this Section 3, shall be paid or distributed by the liquidating trustee or
agent or other Person making such payment or distribution, whether a trustee
in bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the Agent and any other representative on behalf of the holders
of Senior Debt to the extent necessary to make payment in full of all amounts
of Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of the Senior Debt.
(b) The Subordinated Obligations Holders shall not be subrogated to
the rights of the holders of the Senior Debt to receive payments or
distributions of assets of the Company until all Senior Debt shall have been
paid in full and all Senior Commitments shall have terminated or been
6
<PAGE>
canceled; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which any Subordinated Obligations Holder would be entitled
except for these provisions shall, as between the Company, its creditors
other than the holders of the Senior Debt, and such Subordinated Obligations
Holder, be deemed to be a payment by the Company to or on account of the
Senior Debt. The provisions of Sections 2 and 3 of this Agreement are and
are intended solely for the purpose of defining the relative rights of
holders of Subordinated Obligations, on the one hand, and the holders of the
Senior Debt, on the other hand.
(c) Upon payment in full of all Senior Debt and the termination or
cancellation of all Senior Commitments, the Subordinated Obligations Holders
shall be subrogated (equally and ratably with the holders of all subordinated
indebtedness of the Company, which, by its terms, is not superior in right of
payment to the Subordinated Obligations, and ranks on a parity with the
Subordinated Obligations) to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on the
Subordinated Obligations shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Subordinated
Obligations of cash, property, securities or other assets by virtue of the
subrogation herein provided which otherwise would have been made to the
holders of the Senior Debt shall, as between the Company, its creditors other
than the holders of Senior Debt and the holders of the Subordinated
Obligations, be deemed to be a payment to or on account of the Subordinated
Obligations. The Subordinated Obligations Holders agree that, in the event
that all or any part of any payment made on account of the Senior Debt is
recovered from the holders of Senior Debt as a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law,
any payment or distribution received by the Subordinated Obligations Holders
on account of the Subordinated Obligations at any time after the date of the
payment so recovered, whether pursuant to the right of subrogation provided
for in this Section 3(c) or otherwise,
7
<PAGE>
shall be deemed to have been received by such holders of Subordinated
Obligations in trust as the property of the holders of the Senior Debt and
such holders shall forthwith deliver the same to the Agent for the equal and
ratable benefit of the holders of the Senior Debt for application to payment
of all Senior Debt in full.
(d) Each Subordinated Obligations Holder agrees that, if an order
for relief under the Bankruptcy Code is entered for or against the Company,
it will not oppose any motion of the Company for an order under the
Bankruptcy Code authorizing the Company: (i) to obtain new credit from and
incur additional indebtedness to the holders of Senior Debt (which
indebtedness, inclusive of all interest and other charges which may accrue in
respect thereof, is sometimes hereinafter referred to as the "Post-Petition
Indebtedness") with such indebtedness to have priority over any or all
administrative expenses of the kind specified in Section 503(b) or 507(b) of
the Bankruptcy Code in accordance with Section 364(c)(1) of the Bankruptcy
Code; (ii) to secure repayment of the Post-Petition Indebtedness by granting
the holders of Senior Debt liens on and security interests in the assets of
the Company that are created or acquired after the commencement of any such
case under the Bankruptcy Code, which shall be senior and prior to any and
all other liens, security interests and other claims (the "Post-Petition
Collateral"), and (iii) to secure repayment of amounts then owing to the
holders of Designated Debt under the Credit Agreement or the other Financing
Documents by granting to the holders of Senior Debt a security interest in
the Post-Petition Collateral. In the event that the holders of Senior Debt
commence an adversary proceeding for relief from the automatic stay under
Section 362 of the Bankruptcy Code, each Subordinated Obligations Holder
agrees that it will not oppose such proceeding.
SECTION 4. Representations and Warranties. Each Subordinated
------------------------------
Obligations Holder represents and warrants that:
(a) The execution, delivery and performance by him of this
Agreement require no action by or in respect of, or
8
<PAGE>
filing with, any governmental body, agency or official and do not contravene,
or constitute a default under, any provision of applicable law or regulation
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon him.
(b) This Agreement constitutes a valid and binding agreement of
such Subordinated Obligations Holder.
SECTION 5. Other Agreements. (a) Each Subordinated Obligations
----------------
Holder acknowledges and agrees that the Credit Agreement restricts the
Company and any of its Subsidiaries from agreeing to any amendment or waiver
of any of the terms and conditions of the Operative Documents unless it
obtains the prior written consent of the Required Lenders.
(b) Each Subordinated Obligations Holder acknowledges and agrees
that the holders of Senior Debt have relied upon and will continue to rely
upon the covenants of the Company and the Subordinated Obligations Holders
contained herein in entering into the Credit Agreement and in extending
credit to the Company pursuant thereto.
SECTION 6. Binding Effect; Restrictions on Transfer. The
----------------------------------------
covenants of the Subordinated Obligations Holders contained herein shall be
binding upon any Subordinated Obligations Holder and upon their respective
heirs, legal representatives, successors and assigns. Each Subordinated
Obligations Holder agrees that it will not assign, pledge or otherwise
transfer, for security purposes or otherwise, any interest in the
Subordinated Obligations held by him.
SECTION 7. No Partnership. Nothing contained in this Agreement,
--------------
and no action taken by the holders of Senior Debt (or any of them) pursuant
hereto, is intended to constitute or shall be deemed to constitute the
holders of Senior Debt a partnership, association, joint venture or other
entity.
SECTION 8. Notices. Unless otherwise specified herein, all
-------
notices, requests and other communications to
9
<PAGE>
any party hereunder shall be in writing (including telex, facsimile copy or
similar writing) and shall be given to such party at its address or facsimile
number set forth on the signature pages hereof or such other address or telex
or facsimile number as such party may hereafter specify for the purpose by
notice to the other parties hereto.
SECTION 9. Amendments and Waivers. Any provision of this Agreement
----------------------
may be amended or waived if, and only if, such amendment or waiver is in
writing and signed by the Company and each Subordinated Obligations Holder
whose rights or duties are affected thereby and each holder of Senior Debt
whose rights or duties are affected thereby.
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. EACH
PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT THAT MAY BE BROUGHT OR INSTITUTED AGAINST
IT.
Section 11. Counterparts. This Agreement may be signed in any
------------
number of counterparts, each of which shall be an original, and all of which
taken together shall constitute a single agreement, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date hereof by their respective
officers thereunto duly authorized.
NATIONSCREDIT COMMERCIAL
CORPORATION, as Agent
By: /s/ Rebecca Carey
------------------------------------
Name: Rebecca Carey
Title: Authorized Signatory
Address: One Canterbury
Green
P.O. Box 120013
Stamford, CT
06912-0013
Telecopy: 203-352-4171
POSSIBLE DREAMS, LTD.
By: /s/ Philip L. Fitting
------------------------------------
Name: Philip L. Fitting
Title: Chairman
Address: c/o Capital
Partners
One Pickwick
Plaza
Suite 310
Greenwich, CT
06830
Telecopy: 203-625-0423
11
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SECURITY CAPITAL CORPORATION
By: /s/ Brian D. Fitzgerald
-------------------------------
Name: Brian D. Fitzgerald
Title: Chairman of the Board
Address:
Telecopy:
12
Exhibit 10
[EXECUTION COPY]
SELLER SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of May 17, 1996 among Possible
Dreams, Ltd., a Delaware corporation (together with its successors, the
"Company"), the Subordinated Obligations Holders (as defined below) and
NationsCredit Commercial Corporation, as Agent (the "Agent") for the Lenders
referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, P.D. Holdings, Inc., the Lenders party
thereto (the "Lenders") and the Agent are parties to the Credit Agreement (as
defined below); and
WHEREAS, in order to induce the Lenders to enter into such Credit
Agreement, the Company and the Subordinated Obligations Holders have agreed
to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. Terms defined in the Credit Agreement and
-----------
not otherwise defined herein have, as used herein, the respective meanings
provided for therein. The following additional terms, as used herein, have
the following respective meanings:
"Credit Agreement" means the Credit Agreement dated as of May 17,
1996, among the Company, P.D. Holdings, Inc., the Lenders and the Agent, as
the same may be amended from time to time.
<PAGE>
"Seller Notes" means the Notes dated the Closing Date and issued by
the Company to Columbia National Corporation, a Massachusetts corporation and
Possible Dreams, Ltd., a Massachusetts corporation, in the initial principal
amount of $2,460,000, substantially in the form of Exhibit M to the Credit
Agreement.
"Senior Commitments" means, without duplication, all commitments to
extend credit (including without limitation any commitments to issue any
letters of credit) and all instruments pursuant to which commitments or
instruments Senior Debt may be incurred (including without limitation any
letters of credit).
"Senior Debt" means all amounts payable with respect to the Credit
Agreement, which include (a) all principal of and interest (including any
interest which accrues after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization of the
Company or any of its Subsidiaries or Affiliates, whether or not allowed or
allowable as a claim in any such proceeding) on any loan under, or any note
issued pursuant to, the Credit Agreement, (b) all reimbursement obligations
of the Company with respect to any letter of credit issued pursuant to the
Credit Agreement (including any interest which accrues after the commencement
of any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company or any of its Subsidiaries or
Affiliates, whether or not allowed or allowable as a claim in any such
proceeding), (c) all other amounts payable by the Company or any of its
Subsidiaries thereunder or under any other Financing Document and (d) any
amendments, restatements, renewals, extensions or modifications of any of the
foregoing.
"Subordinated Obligations" means (a) all principal of, and interest
on the Seller Notes (including any interest which accrues after the
commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Company or any of its
Subsidiaries or Affiliates, whether or not allowed or allowable as a claim in
any such proceeding) and any other amounts payable with
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respect thereto and (b) any amendments, restatements, renewals, extensions or
modifications of any of the foregoing.
"Subordinated Obligations Holder" means any holder from time to
time of Subordinated Obligations.
SECTION 2. Covenants of Subordinated Obligations Holders.
---------------------------------------------
(a) Each Subordinated Obligations Holder acknowledges and agrees that
(i) the Credit Agreement restricts the ability of the Company and its
Subsidiaries to make payments in respect of Subordinated Obligations and
(ii) should any Subordinated Obligations Holder collect or receive, directly
or indirectly, any payment of any kind or character, whether in cash or
property in respect of any Subordinated Obligations (and whether by way of
payment of principal or interest, redemption, purchase, other acquisition,
dividend, distribution, guarantee, grant of a security interest, realization
of security or the proceeds thereof, set-off, exercise of contractual or
statutory rights or otherwise), (x) at a time when such payment is prohibited
by the terms of this Agreement, (y) through exercise of remedies permitted
under Section 2(c) at any time while any Senior Debt or any Senior Commitment
is outstanding (except for payments received pursuant to the exercise of
remedies permitted under clause (iii) of Section 2(c) so long as, at the time
such payment is received, no Event of Default (as defined in the Credit
Agreement as in existence of the date hereof) or (z) in the event of any
insolvency or bankruptcy proceeding or any receivership, liquidation,
reorganization or other similar proceeding in connection therewith, relative
to the Company or to any of its creditors, in their capacity as creditors of
the Company, or to substantially all of its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, such Subordinated
Obligations Holder will forthwith deliver the same to the Agent for the equal
and ratable benefit of the holders of Senior Debt in precisely the form
received (except for the endorsement or the assignment of or by such
Subordinated Obligations Holder where necessary) for application to
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<PAGE>
payment of all Senior Debt in full, after giving effect to any concurrent
payment or distribution to the holders of Senior Debt and, until so
delivered, the same shall be held in trust by such Subordinated Obligations
Holder as the property of the holders of Senior Debt.
(b) Unless and until all Senior Debt shall have been paid in full
and all Senior Commitments shall have terminated or been canceled, neither
the Company nor any of its Subsidiaries or Affiliates shall make, and no
Subordinated Obligations Holder shall demand, accept or receive, or shall
attempt to collect or commence any legal proceedings to collect, any direct
or indirect payment (in cash or property or by setoff, exercise of
contractual or statutory rights or otherwise) of or on account of any amount
payable on or with respect to any Subordinated Obligations (including any
payment in respect of redemption or purchase or other acquisition), except
(i) the Company may make regularly scheduled payments of interest on the
Seller Notes so long as, immediately before and after giving effect to any
such payment, no Event of Default (as defined in the Credit Agreement as in
existence on the date hereof) has occurred and is continuing, (ii) the
Company may make a payment of the aggregate outstanding principal amount of
the Seller Notes on May 17, 2003, so long as, immediately before and after
giving effect to such payment, no Event of Default (as defined in the Credit
Agreement as in existence on the date hereof) has occurred and is continuing;
provided that the making of such payment shall not be considered an Event of
--------
Default under Section 9.01(b) of the Credit Agreement caused by a failure by
the Company to comply with the provisions of Section 8.04(b)(ii) of the
Credit Agreement) and (iii) as expressly permitted under Section 2(c).
(c) Unless and until all Senior Debt shall have been paid in full
and all Senior Commitments shall have terminated or been canceled, no
Subordinated Obligations Holder will commence or maintain any action, suit or
any other legal or equitable proceeding against the Company or any of its
Subsidiaries or Affiliates, or join with any creditor in any such proceeding;
provided that nothing in this Section 2(c) will preclude any Subordinated
--------
Obligations
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<PAGE>
Holder (i) from commencing at any time any action, suit or any other legal or
equitable proceeding to enforce any remedies to which such Subordinated
Obligations Holder is entitled under the instrument governing the
Subordinated Obligations held by such Subordinated Obligations Holder if at
such time the holders of Senior Debt have commenced an action, suit or
proceeding to enforce substantially similar remedies or (ii) from joining
with any creditor in any such proceeding, under any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding if the
holders of Senior Debt have joined in any such proceeding or (iii) from
commencing at any time any action, suit or other proceeding to enforce any
payment of interest on the Seller Notes in such payment is permitted under
clause (i) of Section 2(b).
(d) Each Subordinated Obligations Holder hereby waives any and all
notice in respect of the Credit Agreement and agrees and consents that
without notice to or assent by such Subordinated Obligations Holder:
(i) the obligations and liabilities of the Company or any
other party or parties to the Credit Agreement (or any promissory
note, security document or guaranty evidencing or securing the
same) may, from time to time, in whole or in part, be renewed,
extended (subject to the proviso set forth in clause (i) of the
definition of "Senior Indebtedness" set forth in the Seller Notes),
modified, amended, restated, accelerated, compromised,
supplemented, terminated, sold, exchanged, waived or released;
(ii) the Agent and the Lenders may exchange, release or surrender
any collateral to the Company or any other Person, waive, release or
subordinate any security interest, obtain a guaranty of any Person or a
security interest in or mortgage or other encumbrance on any additional
property as collateral for any obligations of the Company in its sole
discretion may elect;
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<PAGE>
(iii) the Agent and the Lenders may apply payments by the Company
or any other Person to such portion of the Secured Obligations (as
defined in the Security Agreements) as they in their sole discretion may
elect;
(iv) any Lender may provide additional financing or otherwise
extend credit to the Company (subject to the proviso set forth in clause
(i) of the definition of "Senior Indebtedness" set forth in the Seller
Notes);
(v) the Agent and the Lenders may exercise or refrain from
exercising any right, remedy or power granted by or in connection
with the Credit Agreement, any other Financing Documents or any
other agreements relating thereto; and
(vi) any Lender or the Agent may surrender or release, from
time to time, in whole or in part, any balance or balances of funds
with the Agent or any Lender at any time standing to the credit of
the Company;
all as the Agent or the Lenders may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the obligations of the Company
and the Subordinated Obligations Holders hereunder.
(e) Each Subordinated Obligations Holder agrees that it will not
contest the validity, perfection, priority or enforceability of any lien or
security interest granted to secure any Senior Debt or of any guaranty
securing Senior Debt.
SECTION 3. Dissolution, Liquidation or Reorganization of the
-------------------------------------------------
Company. (a) In the event of any insolvency or bankruptcy proceedings, and
-------
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to any of its creditors, in
their capacity as creditors of the Company, or to substantially all of its
property, and in the event of any proceedings for voluntary liquidation,
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<PAGE>
dissolution or other winding up of the Company, whether or not involving
insolvency or bankruptcy, then:
(i) the holders of the Senior Debt shall first be entitled to
receive payment in full in cash of the principal thereof, premium, if any,
interest and all other amounts payable thereon (accruing before and after the
commencement of the proceedings) before any Subordinated Obligations Holder
is entitled to receive any payment on account or in respect of Subordinated
Obligations; and
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities to which any
Subordinated Obligations Holder would be entitled, but for the provisions of
this Section 3, shall be paid or distributed by the liquidating trustee or
agent or other Person making such payment or distribution, whether a trustee
in bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the Agent and any other representative on behalf of the holders
of Senior Debt to the extent necessary to make payment in full of all amounts
of Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of the Senior Debt.
(b) The Subordinated Obligations Holders shall not be subrogated to
the rights of the holders of the Senior Debt to receive payments or
distributions of assets of the Company until all Senior Debt shall have been
paid in full and all Senior Commitments shall have terminated or been
canceled; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which any Subordinated Obligations Holder would be entitled
except for these provisions shall, as between the Company, its creditors
other than the holders of the Senior Debt, and such Subordinated Obligations
Holder, be deemed to be a payment by the Company to or on account of the
Senior Debt. The provisions of Sections 2 and 3 of this Agreement are and
are intended solely for the purpose of defining the relative rights of
holders of Subordinated Obligations, on the one hand, and the holders of the
Senior Debt, on the other hand.
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<PAGE>
(c) Upon payment in full of all Senior Debt and the termination or
cancellation of all Senior Commitments, the Subordinated Obligations Holders
shall be subrogated (equally and ratably with the holders of all subordinated
indebtedness of the Company, which, by its terms, is not superior in right of
payment to the Subordinated Obligations, and ranks on a parity with the
Subordinated Obligations) to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on the
Subordinated Obligations shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Subordinated
Obligations of cash, property, securities or other assets by virtue of the
subrogation herein provided which otherwise would have been made to the
holders of the Senior Debt shall, as between the Company, its creditors other
than the holders of Senior Debt and the holders of the Subordinated
Obligations, be deemed to be a payment to or on account of the Subordinated
Obligations. The Subordinated Obligations Holders agree that, in the event
that all or any part of any payment made on account of the Senior Debt is
recovered from the holders of Senior Debt as a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law,
any payment or distribution received by the Subordinated Obligations Holders
on account of the Subordinated Obligations at any time after the date of the
payment so recovered, whether pursuant to the right of subrogation provided
for in this Section 3(c) or otherwise, shall be deemed to have been received
by such holders of Subordinated Obligations in trust as the property of the
holders of the Senior Debt and such holders shall forthwith deliver the same
to the Agent for the equal and ratable benefit of the holders of the Senior
Debt for application to payment of all Senior Debt in full.
(d) Each Subordinated Obligations Holder agrees that, if an order
for relief under the Bankruptcy Code is entered for or against the Company,
it will not oppose any motion of the Company for an order under the
Bankruptcy Code authorizing the Company: (i) to obtain new credit from and
incur additional indebtedness to the holders of Senior Debt
8
<PAGE>
(which indebtedness, inclusive of all interest and other charges which may
accrue in respect thereof, is sometimes hereinafter referred to as the "Post-
Petition Indebtedness") with such indebtedness to have priority over any or
all administrative expenses of the kind specified in Section 503(b) or 507(b)
of the Bankruptcy Code in accordance with Section 364(c)(1) of the Bankruptcy
Code; (ii) to secure repayment of the Post-Petition Indebtedness by granting
the holders of Senior Debt liens on and security interests in the assets of
the Company that are created or acquired after the commencement of any such
case under the Bankruptcy Code, which shall be senior and prior to any and
all other liens, security interests and other claims (the "Post-Petition
Collateral"), and (iii) to secure repayment of amounts then owing to the
holders of Senior Debt under the Credit Agreement or the other Financing
Documents by granting to the holders of Senior Debt a security interest in
the Post-Petition Collateral. In the event that the holders of Senior Debt
commence an adversary proceeding for relief from the automatic stay under
Section 362 of the Bankruptcy Code, each Subordinated Obligations Holder
agrees that it will not oppose such proceeding.
SECTION 4. Representations and Warranties. Each Subordinated
------------------------------
Obligations Holder represents and warrants that:
(a) The execution, delivery and performance by him of this
Agreement require no action by or in respect of, or filing with, any
governmental body, agency or official and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree or other instrument binding
upon him.
(b) This Agreement constitutes a valid and binding agreement of
such Subordinated Obligations Holder.
SECTION 5. Other Agreements. (a) Each Subordinated Obligations
----------------
Holder acknowledges and agrees that the Credit Agreement restricts the
Company and any of its Subsidiaries from agreeing to any amendment or waiver
of any of the terms
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and conditions of the Operative Documents unless it obtains the prior written
consent of the Required Lenders.
(b) Each Subordinated Obligations Holder acknowledges and agrees
that the holders of Senior Debt have relied upon and will continue to rely
upon the covenants of the Company and the Subordinated Obligations Holders
contained herein in entering into the Credit Agreement and in extending
credit to the Company pursuant thereto.
SECTION 6. Binding Effect; Restrictions on Transfer. The
----------------------------------------
covenants of the Subordinated Obligations Holders contained herein shall be
binding upon any Subordinated Obligations Holder and upon their respective
heirs, legal representatives, successors and assigns. Each Subordinated
Obligations Holder agrees that it will not assign, pledge or otherwise
transfer, for security purposes or otherwise, any interest in the
Subordinated Obligations held by him; provided that each Seller may
--------
distribute the Seller Note held by such Seller to its shareholders in
connection with a liquidation of the assets of such Seller so long as, prior
to the consummation of such distribution, such shareholders agree to be bound
by the terms of this Agreement.
SECTION 7. No Partnership. Nothing contained in this Agreement,
--------------
and no action taken by the holders of Senior Debt (or any of them) pursuant
hereto, is intended to constitute or shall be deemed to constitute the
holders of Senior Debt a partnership, association, joint venture or other
entity.
SECTION 8. Notices. Unless otherwise specified herein, all
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notices, requests and other communications to any party hereunder shall be in
writing (including telex, facsimile copy or similar writing) and shall be
given to such party at its address or facsimile number set forth on the
signature pages hereof or such other address or telex or facsimile number as
such party may hereafter specify for the purpose by notice to the other
parties hereto.
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SECTION 9. Amendments and Waivers. Any provision of this Agreement
----------------------
may be amended or waived if, and only if, such amendment or waiver is in
writing and signed by the Company and each Subordinated Obligations Holder
whose rights or duties are affected thereby and each holder of Senior Debt
whose rights or duties are affected thereby.
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. EACH
PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT THAT MAY BE BROUGHT OR INSTITUTED AGAINST
IT.
Section 11. Counterparts. This Agreement may be signed in any
------------
number of counterparts, each of which shall be an original, and all of which
taken together shall constitute a single agreement, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be duly executed as of the date hereof by their respective
officers thereunto duly authorized.
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NATIONSCREDIT COMMERCIAL
CORPORATION, as Agent
By: /s/ Rebecca Carey
--------------------------------
Name: Rebecca Carey
Title: Authorized Signatory
Address: One Canterbury Green
P.O. Box 120013
Stamford, CT
06912-0013
Telecopy: 203-352-4171
POSSIBLE DREAMS, LTD.,
a Delaware corporation
By: /s/ Philip L. Fitting
---------------------------
Name: Philip L. Fitting
Title: Chairman
Address:
Telecopy:
COLUMBIA NATIONAL CORPORATION
By: /s/ Leonard Miller
---------------------------
Name: Leonard Miller
Title:
Address:
Telecopy:
POSSIBLE DREAMS, LTD.,
a Massachusetts corporation
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By: /s/ Warren Stanley
-----------------------------
Name: Warrem Stanley
Title: President
Address:
Telecopy:
13
Exhibit 11
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT dated as of May 17, 1996, is among:
P.D. HOLDINGS, INC., a Delaware corporation (the "Company");
ARNOLD LEE of Seekonk, Massachusetts ("Lee");
WARREN STANLEY of Madiera Beach, Florida ("Stanley"); and
SECURITY CAPITAL CORPORATION, a Delaware corporation ("Security
Capital").
RECITALS
Possible Dreams, Ltd., a Delaware corporation and wholly-owned
subsidiary of the Company (the "Subsidiary"), Lee, Stanley, Leonard Miller
("Miller"), the Samuel C. Miller Trust u/d/t 8/5/85, Possible Dreams, Ltd., a
Massachusetts corporation ("PDL") and Columbia National Corporation, a
Massachusetts corporation ("Columbia", and together with PDL, collectively the
"Sellers") entered into an Asset Purchase Agreement dated as of May 17, 1996 (as
amended and in effect from time to time, the "Purchase Agreement") pursuant to
which the Subsidiary agreed to purchase and assume from Sellers, and Sellers
agreed to sell and assign to the Subsidiary, substantially all of the assets and
certain of the liabilities of Sellers.
The parties hereto believe it is in the best interests of each of them
to enter into this Agreement to set forth their understanding with respect to
future dispositions of shares of the Company's capital stock and other matters
affecting the Company, all as more particularly set forth herein.
NOW THEREFORE, the parties to this Agreement hereby agree as follows:
Sec. 1. DEFINITIONS.
(a) For all purposes of this Agreement, the following terms shall have
the meanings set forth below (capitalized terms not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement for each such term):
Appraiser. Appraiser shall mean an investment banking firm, a "Big-Six"
accounting firm, or other similarly qualified Person of recognized regional
standing who conducts appraisals for any of the purposes set forth in this
Agreement, which Person shall be an independent, disinterested third party and
shall be knowledgeable in the business of valuing companies, including companies
engaged in the industry in which the Company then competes.
Capital Partners. Capital Partners shall mean Capital Partners
Holdings II-A, L.P. and Capital Partners Holdings II-B, L.P., each a Delaware
limited partnership, and any affiliates thereof.
Cause. Cause shall mean, with respect to any Management Stockholder,
any of the following: (i) any conviction of, or a plea of guilty or no contest
to, any charge of embezzlement, theft or fraudulent act, or any felony which the
Board of Directors of the Subsidiary, acting in good faith, determine has had or
would reasonably be expected to have a material adverse effect upon the
business, operations, financial condition or prospects of the Subsidiary; (ii)
any breach by such Management Stockholder of obligations regarding
non-competition or confidentiality set forth in any written agreement between
the Subsidiary
<PAGE>
and such Management Stockholder; (iii) willful misconduct or gross
negligence by such Management Stockholder in the course of performing any term
or condition of his employment agreement with the Subsidiary or, in the absence
of such an agreement, as the Board of Directors of the Subsidiary, acting in
good faith, have reasonably required of such Management Stockholder if and so
long as such requirement was reasonably consistent with his past duties; (iv)
material failure by such Management Stockholder in the performance of any other
term or condition of his employment agreement with the Subsidiary or, in the
absence of such an agreement, as the Board of Directors of the Subsidiary,
acting in good faith, have reasonably required of such Management Stockholder if
and so long as such requirement was reasonably consistent with his past duties
(and, in the case of either clause (iii) or (iv) above, which the Board of
Directors of the Subsidiary, acting in good faith, determine has had or would
reasonably be expected to have a material adverse effect upon the business,
operations, financial condition or prospects of the Subsidiary and for which a
cure has not been commenced and diligently pursued within 10 days of notice to
such Management Stockholder from the Board of Directors of the Subsidiary).
Common Stock. Common Stock shall mean the shares of the Company's Class
A and Class B common stock, $.01 par value per share. Shares of Common Stock
will continue to be Common Stock subject to the terms of this Agreement
following any Transfer to a subsequent holder thereof (provided that such
Transfer to a subsequent holder is permitted by this Agreement) and, except as
otherwise expressly provided herein, each such subsequent holder will succeed to
the rights and obligations of a holder of Common Stock hereunder, provided that
shares of Common Stock will cease to be shares of Common Stock subject to the
terms of this Agreement when Transferred (i) pursuant to a Public Sale or (ii)
to the Company pursuant to the terms hereof.
Disability; Disabled. Disability or Disabled shall mean a mental or
physical condition which in the reasonable opinion of the Board of Directors of
the Subsidiary renders a Management Stockholder unable or incompetent to
properly carry out his duties and responsibilities contemplated under any
employment agreement between the Subsidiary and such Management Stockholder or,
in the absence of such an agreement, as the Board of Directors of the
Subsidiary, acting in good faith, have reasonably required of such Management
Stockholder if and so long as such requirement was reasonably consistent with
his past duties, which condition shall have existed for a period of 120 or more
consecutive days. If the Management Stockholder should dispute the determination
of the Board of Directors as to whether a Disability exists, either the
Management Stockholder or the Subsidiary may require that the Management
Stockholder be examined by a physician and in such case the decision of such
physician shall be conclusive and binding on all parties. The examining
physician shall be mutually satisfactory to the Management Stockholder and the
Subsidiary, except if they are unable to agree, the Management Stockholder and
the Subsidiary shall each designate a physician and the examining physician
shall be a physician mutually acceptable to each of such designees.
Employees. Employees shall mean any employee of the Subsidiary
determined by the Company's Board of Directors to be eligible to participate in
any stock option plan approved by the Board and adopted by the Company.
Fair Market Value. Fair Market Value shall mean the total value of the
consideration which would be received upon the sale of shares of Common Stock
between a willing buyer and the holder of such shares as a willing seller with
the former under no compulsion to buy and the latter under no compulsion to
sell, all parties having reasonable knowledge of all relevant facts, calculated
without discount for illiquidity or minority interest and without premium for
control and, in the case of any sale occurring as a result of any Management
Stockholder's death, without discount for the effects of his death.
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<PAGE>
Good Reason. Good Reason shall mean a cessation of employment of a
Management Stockholder occurring (i) as a result of the Disability of such
Management Stockholder, (ii) as a result of a significant health or other
material problem directly involving a member of such Management Stockholder's
immediate family which the Subsidiary's Board of Directors, acting in good
faith, reasonably determines will require the long-term relocation of the
Management Stockholder or will materially interfere with the proper discharge of
his duties and responsibilities to the Subsidiary on a long-term basis, or (iii)
after the fifth anniversary of the date hereof.
Instrument of Accession. Instrument of Accession shall mean an
Instrument of Accession in the form of Schedule 1 hereto.
Management Stockholders. Management Stockholders shall mean, initially,
Stanley (as a holder of Common Stock and a holder of Options and any Common
Stock issued pursuant thereto) and Lee (as a holder of Options and any Common
Stock issued pursuant thereto) and thereafter, any other employee of the
Subsidiary who is or becomes a Stockholder for purposes of this Agreement.
Permitted Transferee. Permitted Transferee shall mean, (x) with respect
to any individual Stockholder, (a) such Stockholder's executor, administrator,
spouse, children or other lineal descendants, or (b) a trust established
exclusively for the benefit of such Stockholder and/or such Stockholder's
spouse, children or other lineal descendants, (y) with respect to any corporate
Stockholder, the stockholders of such Stockholder or a liquidating trust
established for the benefit of such stockholders or any other affiliate of such
Stockholder, and (z) with respect to Lee only, Stanley and any Permitted
Transferees of Stanley. Whenever reference is made in this Agreement to the
rights and obligations of a Stockholder or group of Stockholders hereunder in
respect of Common Stock or Options owned by such Stockholder or group of
Stockholders, such reference shall be deemed to include all Permitted
Transferees of such Stockholder or group of Stockholders and all shares of
Common Stock and Options held by such Permitted Transferees.
Person. Person shall mean an individual, partnership, limited liability
company, limited liability partnership, corporation, association, trust, joint
venture, unincorporated organization, or any government, governmental department
or agency or political subdivision thereof.
Prime. Prime shall mean the interest rate designated by Nations Bank
as being its prime rate of interest from time to time.
Public Sale. Public Sale shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act.
Securities Act. Securities Act shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and regulations of
the Securities and Exchange Commission thereunder, all as the same may be in
effect at the time.
Stockholders. Stockholders shall mean, initially, the Management
Stockholders and Security Capital and thereafter, any Person who becomes a party
to this Agreement by executing an Instrument of Accession accepted by the
Company in connection with the issue or transfer to or acquisition by such
Person of shares of Common Stock from the Company, any Stockholder or any
subsequent transferee of a Stockholder.
Transfer. Transfer shall mean (i) the sale, assignment, transfer,
exchange, gift or other disposition of shares of Common Stock or any Option, or
(ii) the pledge, mortgage, or hypothecation of any interest in shares of Common
Stock or any Option, or (iii) the grant of any option or other right to acquire
shares of Common Stock or any Option.
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Trigger Event. Trigger Event shall mean the occurrence of any of the
following: (i) the sale of assets of the Subsidiary having a fair value greater
than 80% of the fair value of all assets of the Subsidiary pursuant to any
single sale or series of related sales (other than the sale of inventory in the
ordinary course of business); (ii) the date a registration statement filed by
the Subsidiary or the Company pursuant to the Securities Act with respect to
such issuer's shares of common stock is declared effective by the Securities and
Exchange Commission; (iii) a sale of stock or series of related sales or a
merger, consolidation or similar corporate reorganization of the Subsidiary, and
as a result of which the Company shall own, directly or indirectly, less than
51% of the outstanding voting securities of the Subsidiary; (iv) a sale of stock
or series of related sales or a merger, consolidation or similar corporate
reorganization of the Company, and as a result of which Security Capital shall
own, directly or indirectly, less than 51% of the outstanding voting securities
of the Company; (v) a sale of stock or series of related sales or a merger,
consolidation or similar corporate reorganization of Security Capital, and as a
result of which Capital Partners shall own, directly or indirectly, in the
aggregate less than 50% of the number of outstanding voting securities of
Security Capital owned by Capital Partners on the date hereof or (vi) Capital
Partners shall cease to have the ability to elect a majority of the Board of
Directors of Security Capital (either through the ownership of voting stock, by
contract or otherwise).
(b) In addition to the foregoing definitions, the following terms shall
have the meanings ascribed to them in the Section set forth opposite such terms:
Term Section Defined
"Adjustment Event" 6.1(d)
"Company" Preamble
"Management Call Notice" 6.1(a)
"Management Call Option" 6.1(a)
"Management Call Price" 6.1(b)
"Management Put Notice" 6.2(a)
"Management Put Option" 6.2(a)
"Management Put Price" 6.2(a)
"Notice of Proposed Transfer" 3.1(a)
"Offer" 3.1(a)
"Offered Shares" 3.1(a)
"Offeror" 3.1(a)
"Options" 6.1(a)
"Permitted Voluntary Termination" 6.2(a)
"Proposed Purchaser" 3.1(a)
"Refusal Purchase Price" 3.1(e)
"Purchase Agreement" Recitals
"Security Capital" Preamble
"Subordinated Promissory Note" 6.3(b)
"Subsidiary" Recitals
Sec. 2. RESTRICTIONS ON DISPOSITIONS OF COMMON STOCK AND OPTIONS.
(a) Notwithstanding any other provision of this Agreement, except as
expressly permitted or required by Sections 6, 7, 8, 9 or 10 hereof, no
Stockholder shall Transfer any
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shares of Common Stock, including any shares of Common Stock issued or
issuable upon the exercise or conversion of options, warrants, convertible
securities or other similar instruments, nor any interest therein to any Person
other than a Permitted Transferee of such Stockholder, without the prior written
consent of the Board of Directors of the Company, which consent shall not be
unreasonably withheld.
(b) In addition to the requirement set forth in paragraph (a) hereof,
no Stockholder shall Transfer any shares of Common Stock nor any interest
therein to any Person other than a Permitted Transferee of such Stockholder,
except (i) pursuant to a Transfer in accordance with Section 3 hereof; or (ii)
as otherwise required or permitted in this Agreement; and no transferee of any
such Stockholder (including any Permitted Transferee) shall be entitled to the
benefits of this Agreement unless and until such transferee has executed and
delivered to the Company an Instrument of Accession and, in the case of a
transferee other than a Permitted Transferee, such Instrument of Accession has
been accepted by the Company.
(c) Notwithstanding any other provision of this Agreement, except as
expressly permitted or required by Sections 6, 7 or 10 hereof, no Management
Stockholder shall Transfer any Options nor any interest therein to any Person
other than a Permitted Transferee of such Stockholder, without the prior written
consent of the Board of Directors of the Company.
Sec. 3. RIGHTS OF REFUSAL.
3.1 Except as permitted by Section 2(b) hereof, no Stockholder shall
Transfer any shares of Common Stock, including shares of Common Stock issued or
issuable upon the exercise or conversion of options, warrants, convertible
securities or other similar instruments, nor any interest therein, whether
presently owned by such Stockholder or hereafter acquired by purchase from
another Stockholder or by stock dividend, split up, combination,
reclassification, reorganization, consolidation or merger, except in accordance
with the terms of this Section 3 as follows:
(a) In the event that any Stockholder desires to Transfer all or any
portion of his shares of Common Stock or any interest therein
(hereinafter sometimes referred to as the "Offeror"), he shall first
deliver to the Company and to each other Stockholder, a written notice
(the "Notice of Proposed Transfer") specifying the name and address of
the proposed transferee (hereinafter sometimes referred to as the
"Proposed Purchaser"), the identity and total number of shares of Common
Stock which the Offeror then desires to Transfer (the "Offered Shares"),
and all of the terms, including the price and payment terms, upon which
the Offeror proposes to Transfer the Offered Shares to the Proposed
Purchaser. The Notice of Proposed Transfer shall also state that the
Company and/or the other Stockholders shall have the right to purchase
the Offered Shares in the order specified in paragraph (b) hereof, at the
price specified in paragraph (e) hereof, and on the other terms specified
in the Notice of Proposed Transfer (an "Offer").
(b) (i) During the thirty (30) day period commencing on the date of the
Company's receipt of the Notice of Proposed Transfer, the Company shall
have the first option to purchase all or any portion of the Offered
Shares, before the same may be Transferred to any other Person. The
Company must give written notice of its election to the Offeror and the
other Stockholders during such 30-day period, specifying the number of
shares it intends to purchase and stating that it has the ability to
complete the intended purchase.
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(ii) In the event that the Company does not elect to purchase
all of the Offered Shares pursuant to clause (i) of this paragraph (b),
then each other Stockholder shall have the second option to purchase, for
a period of fifteen (15) days commencing on the first day immediately
following the expiration of the 30-day period specified in clause (i) of
this paragraph (b), before the same may be Transferred to any other
Person, that proportion of the remaining Offered Shares as the number of
shares of Common Stock then owned by such Stockholder bears to the total
number of shares of Common Stock then held by all Stockholders electing
to participate in the Offer. This second option shall be exercisable by
giving written notice to the Offeror, the other Stockholders and the
Company of such election within the 15-day period specified in this
clause (ii), and shall include a statement to the effect that such
Stockholder has the ability to complete the intended purchase. To the
extent a Stockholder elects not to purchase his entire proportionate
share of the remaining Offered Shares, the right to purchase any
remaining Offered Shares shall be reallocated among the participating
Stockholders, ratably.
(c) If the Company and/or the other Stockholders have not given notice
of their intention to purchase all of the Offered Shares pursuant to
paragraph (b) hereof, neither the Company nor the other Stockholders
shall be entitled to purchase any of the Offered Shares and during the
period of ninety (90) days commencing on the first day immediately
following the expiration of the last refusal period specified in
paragraph (b), the Offeror shall have the right to Transfer all of the
Offered Shares to the Proposed Purchaser at a price and on terms not more
favorable to the Proposed Purchaser than those specified in the Notice of
Proposed Transfer, provided that the Proposed Purchaser agrees in writing
to become a party to this Agreement by executing an Instrument of
Accession accepted by the Company. If for any reason the Offered Shares
are not Transferred to the Proposed Purchaser within such period and at
such stated price and on such stated terms, the right to Transfer in
accordance with the Notice of Proposed Transfer shall expire and the
provisions of this Agreement shall continue to be applicable to said
shares.
(d) Offered Shares which are Transferred to a Proposed Purchaser shall
continue to be subject to the provisions of this Agreement, and the
Company shall not be obligated to issue any shares of Common Stock in the
name of such Proposed Purchaser unless and until he shall have become a
party to this Agreement by executing an Instrument of Accession accepted
by the Company.
(e) The Company or the Stockholder purchasing the greatest percentage
of the Offered Shares shall state in a written notice to the Offeror the
time and date for the closing of the purchase by all electing offerees,
which closing shall not be less than 30 days, nor more than 45 days,
after the first day immediately following the expiration of the last
refusal period specified in paragraph (b) hereof. The price to be paid to
the Offeror for the Offered Shares upon the exercise of the option
provided for in this Section 3.1 shall be the price at which the Offered
Shares are proposed to be Transferred as set forth in the Notice of
Proposed Transfer (the "Refusal Purchase Price").
3.2 The Refusal Purchase Price shall, unless otherwise agreed in
writing by the parties to such transaction, be paid on the same terms as are
specified in the Notice of Proposed Transfer on the date of the closing.
3.3 The closing of the purchase and sale of the Offered Shares shall be
held at the principal place of business of the Company on the date specified in
the notice described in
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Section 3.1(e), or at such earlier time or at such other place as the Offeror
and the participating Stockholders and/or Company, as the case may be, shall
mutually agree upon. At the closing, the participating Stockholders or the
Company, as the case may be, shall deliver the consideration required by Section
3.2, and the Offeror shall deliver certificates representing the Offered Shares
together with stock powers duly endorsed for the transfer thereof.
3.4 Whenever the Company or any Stockholder agrees to purchase shares
of Common Stock of the Company pursuant to this Agreement, each Stockholder or
the personal representative of any decedent Stockholder shall do all things and
execute and deliver all papers as may be reasonably necessary to consummate such
purchase.
3.5 If any Transfer is made or attempted contrary to the provisions of
this Agreement, the other Stockholders and the Company shall have the option to
purchase the Common Stock so Transferred or attempted to be Transferred, in the
order of priority set forth in this Section 3 which would have been applicable
had there been compliance with this Agreement. Such option shall be exercisable
within one hundred eighty (180) days after the Stockholders and the Company
receive actual notice of such Transfer or attempted Transfer by giving written
notice to the owner thereof or his transferees either before or after the
Transfer.
3.6 Notwithstanding the foregoing provisions of this Section 3, no
Management Stockholder nor any Permitted Transferee of such Management
Stockholder shall be entitled to participate in the purchase of the Offered
Shares if such Management Stockholder's employment has been terminated by the
Subsidiary for any reason, including, but not limited to, death, Disability or
other termination, whether with or without Cause or Good Reason.
Sec. 4. BOARD OF DIRECTORS OF THE COMPANY.
(a) From and after the date hereof, in any and all elections of
directors of the Company (whether at a meeting or by written consent in lieu of
a meeting), each Stockholder shall vote, or caused to be voted, all shares of
Common Stock owned by such Stockholder or over which such Stockholder has voting
control, so as to fix the number of directors of the Company at not less than
five (5) nor more than (7), and to nominate and elect at least five (5)
directors of the Company including:
(i) One (1) individual designated by Stanley, so long as
Stanley is a Stockholder; and
(ii) at least four (4) individuals designated by Security
Capital, so long as Security Capital is a Stockholder.
(b) From and after the date hereof, in any and all elections of
directors of the Subsidiary (whether at a meeting or by written consent in lieu
of a meeting), the Company shall vote, or caused to be voted, all shares of the
Subsidiary's common stock owned by the Company or over which the Company has
voting control, so as to fix the number of directors of the Subsidiary at not
less than five (5) nor more than (7), and to nominate and elect at least five
(5) directors of the Subsidiary, including:
(i) One (1) individual designated by Stanley, so long as
Stanley is a Stockholder; and
(ii) at least four (4) individuals designated by Security
Capital, so long as Security Capital is a Stockholder.
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(c) If any vacancy shall occur in the Board of Directors of the Company
or the Subsidiary as a result of death, disability, resignation or any other
removal of a director, the replacement for such vacating director shall be
designated by the Person or group of Persons who, pursuant to paragraph (a)
above, originally designated such vacating director. Each Person or group of
Persons entitled to designate a director pursuant to this Section shall also be
entitled to designate the removal of such director with or without cause and a
replacement for any director so removed. Each Stockholder hereby agrees to vote
or cause to be voted or cause such Stockholder's designees as directors to vote
all shares of Common Stock owned by such Stockholder so as to comply with this
Section.
(d) IN THE EVENT OF ANY BREACH BY ANY STOCKHOLDER OF ITS OR HIS
OBLIGATIONS UNDER THE VOTING AGREEMENT CONTAINED HEREIN, SUCH STOCKHOLDER HEREBY
GRANTS TO THE NON-BREACHING STOCKHOLDERS ACTING THROUGH A MAJORITY IN INTEREST
OF NON-BREACHING STOCKHOLDERS AN IRREVOCABLE PROXY, COUPLED WITH AN INTEREST, TO
VOTE ALL SHARES OF COMMON STOCK OF SUCH STOCKHOLDER TO THE EXTENT NECESSARY TO
CARRY OUT THE PROVISIONS OF THIS SECTION.
(e) Each Stockholder further agrees that such Stockholder will not vote
any shares of Common Stock owned by such Stockholder or over which such
Stockholder has voting control, or take any action by written consent, or take
any other action to circumvent the voting arrangements required by this Section.
(f) The Company agrees that it will not issue any of the 75,000 shares
of preferred stock authorized by its Certificate of Incorporation unless such
issuance shall have been unanimously approved by the full Board of Directors of
the Company then in office.
Sec. 5. PRE-EMPTIVE RIGHTS.
5.1 Except for the issuance or sale of Common Stock (or securities
convertible into or containing warrants, options or other rights to acquire
shares of Common Stock) (i) pursuant to a Public Sale, (ii) to Employees
pursuant to option plans approved by the Board of Directors of the Company,
(iii) to the Management Stockholders pursuant to options granted by the Company,
and (iv) to an institutional lender of the Company pursuant to warrants or
rights of exchange granted by the Company providing for the issuance of the
Company's Common Stock, if, after the date hereof, the Company authorizes the
issuance and sale of its equity securities or any securities convertible into or
containing warrants, options or other rights to acquire any of its equity
securities, the Company will first offer to sell to each of the Stockholders at
the same price and on the same terms and other conditions as the Company
proposes to sell such securities, a portion of such securities equal to the
percentage determined by dividing (A) the number of shares of Common Stock held
by such Stockholder, by (B) the number of issued and outstanding shares of
Common Stock.
5.2 The Stockholders must exercise their rights under this Section 5 by
giving written notice to the Company of such exercise within 15 days after
receipt of written notice from the Company describing in reasonable detail the
securities being offered, the purchase price thereof, the payment terms and a
calculation of the Stockholders' percentage allotment. Upon the expiration of
the offering period described above, the Company will be free to sell such
securities which the Stockholders have not elected to purchase during the 180
days following such expiration on terms and conditions not materially more
favorable to the purchasers thereof than those offered to the Stockholders. The
participating Stockholders shall be required to purchase any securities to which
they shall have subscribed pursuant to this Section concurrently with the
closing of the Company's sale of securities to the other purchasers, provided
that the Company shall provide to the participating Stockholders at least ten
days notice of the proposed date of
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such closing. Any securities offered or sold by the Company after such 180-day
period must be reoffered to the Stockholders pursuant to the terms of this
Section before otherwise being offered or sold.
5.3 Notwithstanding anything contained in this Section, the Company
shall not issue or sell any securities except in accordance with the provisions
of the Securities Act and applicable state blue sky laws.
5.4 Notwithstanding the foregoing provisions of this Section 5, no
Management Stockholder nor any Permitted Transferee of such Management
Stockholder shall be entitled to participate in the purchase of shares issued by
the Company pursuant to this Section 5 if such Management Stockholder shall have
ceased to be employed by the Company for any reason, including, but not limited
to, death, Disability or other termination, whether with or without Cause or
Good Reason.
Sec. 6. PUT/CALL RIGHTS IN RESPECT OF MANAGEMENT STOCKHOLDERS
(OTHER THAN DEATH).
6.1 Call. (a) In the event a Management Stockholder ceases to be
employed by the Subsidiary for any reason, other than the death of such
Management Stockholder, then, at any time within one year of the occurrence of
any such cessation of employment, the Company may, at its sole option, purchase
from such Management Stockholder and any Permitted Transferees of such
Management Stockholder, all of the Common Stock owned by such Management
Stockholder and Permitted Transferees of such Management Stockholder and any
rights to shares of Common Stock issuable upon exercise of options, if any, in
which such Management Stockholder had a vested interest as of the date of the
occurrence of such event ("Options"), and such Management Stockholder and any
Permitted Transferees of such Management Stockholder shall, upon the exercise of
such call option, sell all of such Common Stock and any Options to the Company,
at the applicable purchase price set forth in paragraph (b) hereof (the
"Management Call Option"). The Management Call Option shall be exercised by
delivery of written notice to such Management Stockholder and any Permitted
Transferees of such Management Stockholder within the one year period after the
occurrence of such cessation of employment (a "Management Call Notice"),
specifying a date not less than 60 and not more than 90 days after the date of
such Management Call Notice on which date the Company will purchase the Common
Stock and any Options of such Management Stockholder and any Permitted
Transferees of such Management Stockholder.
(b) If the Company elects to purchase Common Stock and any Options of a
Management Stockholder and his Permitted Transferees pursuant to a Management
Call Option, then
(w) in the case of a cessation of employment of such
Management Stockholder occurring prior to the third anniversary of the
date hereof for any reason, other than the death of such Management
Stockholder, the purchase price per share of such Common Stock shall be
equal to the original cost therefor paid by such Management Stockholder
upon issuance thereof, and there shall be no consideration required to
be paid for the cancellation of any Option;
(x) in the case of a cessation of employment of such
Management Stockholder occurring on or after the third anniversary of
the date hereof, by reason of the voluntary cessation by such
Management Stockholder of his duties and responsibilities as an
employee without Good Reason, the purchase price per share of such
Common Stock shall be equal to the original cost therefor paid by such
Management Stockholder upon issuance thereof, and there shall be no
consideration required to be paid for the cancellation of any Option;
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(y) in the case of a cessation of employment of such
Management Stockholder occurring on or after the third anniversary of
the date hereof by reason of a termination by the Subsidiary with
Cause, the purchase price per share of Common Stock acquired by such
Management Stockholder as of the date hereof shall be equal to the Fair
Market Value thereof, the purchase price per share of any Common Stock
acquired by such Management Stockholder pursuant to the Options shall
be equal to the original cost therefor paid by such Management
Stockholder upon issuance thereof, and there shall be no consideration
required to be paid for the cancellation of any Option; and
(z) in the case of a cessation of employment of such
Management Stockholder occurring on or after the third anniversary of
the date hereof by reason of a termination by the Subsidiary without
Cause or the voluntary cessation by such Management Stockholder of his
duties and responsibilities as an employee for Good Reason, the
purchase price per share of such Common Stock shall be equal to the
Fair Market Value thereof, and the purchase price for each Option, if
any, shall be equal to the Fair Market Value of each share of Common
Stock issuable thereunder net of the applicable exercise price,
in each case as determined as at the date of the Management Call Notice (the
"Management Call Price").
(c) At the closing of the purchase of such shares of Common Stock and
any Options owned by such Management Stockholder and any Permitted Transferees
of such Management Stockholder pursuant to the exercise of a Management Call
Option, the Company shall pay in cash, or by certified or bank cashier's check,
the maximum amount of the Management Call Price then permitted to be paid in
cash by the Company's lenders, with the balance, if any, payable by delivery of
a Subordinated Promissory Note described in Section 6.3(b) hereof. The Company
will utilize commercially reasonable efforts (without any obligation on its part
to raise additional equity or debt for such purpose) to obtain any required
waivers from its lenders so as to permit payment of the Management Call Price in
cash to the maximum extent possible.
(d) In the event the Company exercises a Management Call Option and
purchases Common Stock and any Options at a price based upon the Fair Market
Value of shares of Common Stock and then, within twelve months of the closing
thereof, (i) an initial public offering of the common stock of the Company or
the Subsidiary becomes effective, (ii) there occurs a sale of assets of the
Subsidiary having fair value greater than 80% of the fair value of all assets of
the Subsidiary pursuant to a single sale or series of related sales (other than
the sale of inventory in the ordinary course of business), (iii) there occurs a
sale of stock or series of related sales or a merger, consolidation or similar
corporate reorganization of the Subsidiary, and as a result of which the Company
owns, directly or indirectly, less than 51% of the outstanding voting securities
of the Subsidiary, or (iv) there occurs a sale of stock or series of related
sales or a merger, consolidation or similar corporate reorganization of the
Company, and as a result of which Security Capital owns, directly or indirectly,
less than 51% of the outstanding voting securities of the Company (each of such
events being referred to as an "Adjustment Event"), the Company shall pay to the
Management Stockholder and any of his Permitted Transferees who shall have sold
Common Stock and any Options pursuant to the Management Call Option, as
additional consideration with respect to the exercise of the Management Call
Option, the difference between the price per share paid as a result of the
Adjustment Event (less underwriting commissions and other appropriate
transaction costs and expenses) less the amount actually paid to such Management
Stockholder and his Permitted Transferees with respect to the Management Call
Option.
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6.2 Put. (a) In the event a Management Stockholder who is employed by
the Subsidiary shall cease to be employed by reason of his voluntary retirement
or resignation at any time on or after the fifth anniversary of the date hereof,
then, at any time within one year after the seventh anniversary hereof, the
Management Stockholder and any Permitted Transferees of such Management
Stockholder may, at the sole option of such Management Stockholder and any of
his Permitted Transferees, require the Company to purchase from such Management
Stockholder and any Permitted Transferees of such Management Stockholder all of
the Common Stock and any Options owned by such Management Stockholder and any
Permitted Transferees of such Management Stockholder (the "Management Put
Option"), and the Company shall, upon exercise of a Management Put Option,
purchase all of such Common Stock and any Options from such Management
Stockholder and any Permitted Transferees of such Management Stockholder, at the
purchase price set forth in paragraph (b) hereof. The Management Put Option
shall be exercised by delivery of written notice to the Company within the one
year period after the seventh anniversary hereof (the "Management Put Notice"),
specifying a date not less than 60 and not more than 90 days after the date of
such Management Put Notice on which date the Company shall be required to
purchase such shares of Common Stock and any Options owned by such Management
Stockholder and any Permitted Transferees of such Management Stockholder.
(b) If the Management Stockholder and any Permitted Transferees of such
Management Stockholder elect to require the Company to purchase Common Stock and
any Options of a Management Stockholder and his Permitted Transferees pursuant
to a Management Put Option, the purchase price per share of such Common Stock
shall be equal to the Fair Market Value thereof, and the purchase price for each
Option, if any, shall be equal to the Fair Market Value of each share of Common
Stock issuable thereunder net of the applicable exercise price, all as
determined as at the date of the Management Put Notice (the "Management Put
Price").
(c) At the closing of the purchase of such shares of Common Stock and
any Options owned by such Management Stockholder and any Permitted Transferees
of such Management Stockholder pursuant to the exercise of a Management Put
Option, the Company shall pay in cash, or by certified or bank cashier's check,
the maximum amount of the Management Put Price then permitted to be paid in cash
by the Company's lenders, with the balance, if any, payable by delivery of a
Subordinated Promissory Note described in Section 6.3(b) hereof. The Company
will utilize commercially reasonable efforts (without any obligation on its part
to raise additional equity or debt for such purpose) to obtain any required
waivers from its lenders so as to permit payment of the Management Put Price in
cash to the maximum extent possible.
6.3 (a) In the event the Fair Market Value of shares of Common Stock
owned by such Management Stockholder and any Permitted Transferees of such
Management Stockholder or issuable under any Options owned by such Management
Stockholder shall not be agreed upon by the parties under this Section 6 within
30 days after the mailing of the Management Put or Call Notice, as applicable,
then the Fair Market Value of such shares shall be determined by an Appraiser
reasonably satisfactory to the parties; provided, that if the parties cannot so
agree, then: (i) the Company shall designate an Appraiser; (ii) the Management
Stockholder shall designate an Appraiser; (iii) the two Appraisers shall
designate a third Appraiser; and (iv) the third Appraiser shall perform the
appraisal. In the event the two Appraisers are unable to promptly designate the
third Appraiser, the parties shall then immediately submit the issue of
determining such Fair Market Value to binding arbitration before an arbitrator
selected from a list of arbitrators practicing in Providence, Rhode Island with
any arbitration proceedings in connection therewith to be held in Providence,
Rhode Island in accordance with the rules and procedures of the American
Arbitration Association applicable to commercial transactions. Any such
appraisal or arbitration shall be final and binding on the parties. The cost of
such appraisal or arbitration shall be borne equally by the parties to such
transaction so long as the Arbitrator's final valuation is no more than 110% of
the Company's proposed valuation, but shall be borne
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solely by the Company if the Arbitrator's final valuation is more than
110% of the Company's proposed valuation.
(b) Any Subordinated Promissory Note issued pursuant to this Section 6
shall be a Subordinated Promissory Note of the Company which (A) shall be
payable in equal annual installments, commencing one (1) year after the date of
its issuance and with a final maturity date on the seventh anniversary of the
date hereof (provided, however, that if the Subordinated Promissory Note is
issued pursuant to the exercise of a Management Put Option, the final maturity
date thereof shall be the earliest date permitted by the Company's lenders), (B)
shall bear interest at a rate per annum equal to Prime plus two percent (2%),
but in no event shall such annual rate exceed twelve percent (12%) per annum or
be less than eight percent (8%) per annum and in each case, such interest shall
be payable monthly in arrears so long as permitted by the Company's lenders; (C)
shall be subordinated to the Company's indebtedness for borrowed money; (D)
shall be prepayable at any time without premium or penalty; (E) shall be subject
to mandatory prepayment in full without premium or penalty upon the occurrence
of a Trigger Event or the earliest date permitted by the Company's lenders; and
(F) shall include restrictive covenants identical to those set forth in the
promissory notes issued pursuant to the Purchase Agreement
(c) The closing of any purchase and sale of Common Stock and any
Options pursuant to this Section 6 shall be held at the principal place of
business of the Company on the date specified in the Management Put or Call
Notice, or 15 days after the final determination of the Management Put or Call
Price, whichever date is later. At the closing, the Company shall deliver the
purchase consideration against delivery by such Management Stockholder and any
Permitted Transferees of such Management Stockholder of certificate(s)
representing the purchased shares of Common Stock with stock power(s) duly
endorsed for the transfer thereof and appropriate instruments terminating all
rights existing under any purchased Options.
(d) Notwithstanding anything to the contrary herein, the exercise of
rights to purchase or the requirement of the Company to purchase shares of
Common Stock and any Options pursuant to this Section 6 shall be subject to
limitations, if any, imposed upon the Company under applicable law or, subject
to the Company's obligations in respect of seeking waivers from its lenders as
provided in Section 6.1(c) or 6.2(c) hereof, by any agreements with the
Company's lenders then in effect, including, without limitation, restrictions on
the ability of the Company to pay the cash portion of any Management Put or Call
Price and on the ability to pay principal or interest under the Subordinated
Promissory Note during the existence of any default under such lender's
agreements.
Sec. 7. PUT/CALL RIGHTS OF MANAGEMENT STOCKHOLDERS IN THE EVENT OF DEATH
7.1 Put. (a) In the event of the death of a Management Stockholder,
then at any time with one year of such event, the estate of such Management
Stockholder and any Permitted Transferees of any such Management Stockholder
may, at their option, sell to the Company, and require the Company to purchase,
all of the Common Stock and any Options owned by the estate of such Management
Stockholder and any Permitted Transferees of such Management Stockholder, at a
price per share equal to the Fair Market Value of such share of Common Stock and
at a purchase price for each Option, if any, equal to the Fair Market Value of
each share of Common Stock issuable thereunder net of the applicable exercise
price, all as determined as of the date of such death.
(b) The put option of the estate of such Management Stockholder and any
Permitted Transferees of such Management Stockholder pursuant to paragraph (a)
above shall be exercised by delivery of written notice to the Company, within
such applicable one year period, specifying
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<PAGE>
a date not less than 60 and no more than 90 days after the date of such notice
on which date the Company shall be required to close the required purchase of
such Common Stock and any Options owned by the estate of such Management
Stockholder and his Permitted Transferees.
7.2 Call. (a) In the event of the death of a Management Stockholder,
then at any time with one year of such event, the Company may, at its sole
option, purchase all of the Common Stock and any Options owned by the estate of
such Management Stockholder and any Permitted Transferees of such Management
Stockholder, and the estate of such Management Stockholder and any Permitted
Transferees of such Management Stockholder shall, upon the exercise of such call
option, sell to the Company all of such Common Stock and any such Options, at a
price per share equal to the Fair Market Value of such share of Common Stock and
at a purchase price for each Option, if any, equal to the Fair Market Value of
each share of Common Stock issuable thereunder net of the applicable exercise
price, all as determined as at the date of such death.
(b) The call option of the Company pursuant to paragraph (a) above
shall be exercised by delivery of written notice to the estate of such
Management Stockholder and any Permitted Transferees of such Management
Stockholder, within such applicable one year period, specifying a date not less
than 60 and no more than 90 days after the date of such notice on which date the
estate of such Management Stockholder and any Permitted Transferees of such
Management Stockholder shall be required to sell to the Company the Common Stock
and any Options owned by the estate of such Management Stockholder and his
Permitted Transferees.
(c) In the event the Company exercises a call option pursuant to
paragraph (a) above and purchases Common Stock and any Options at a price based
upon the Fair Market Value of shares of Common Stock and then, within twelve
months of the closing thereof, an Adjustment Event occurs, the Company shall pay
to the estate of such Management Stockholder and any of his Permitted
Transferees who shall have sold Common Stock and any Options pursuant to such
call option, as additional consideration with respect to such exercise of the
call option, the difference between the price per share paid as a result of the
Adjustment Event (less underwriting commissions and other appropriate
transaction costs and expenses) less the amount actually paid to such Management
Stockholder and his Permitted Transferees with respect to such call option.
7.3 (a) At the closing of the purchase of shares of Common Stock and
any Options owned by the estate of a Management Stockholder and his Permitted
Transferees pursuant to the exercise of a put or call option under Section
7.1(a) or 7.2(a) hereof, the Company shall pay in cash, or by certified or bank
cashier's check, the maximum amount of such purchase price then permitted to be
paid in cash by the Company's lenders, with the balance payable by delivery of a
Subordinated Promissory Note of the Company as described in Section 6.3(b)
hereof. The Company will utilize commercially reasonable efforts (without any
obligation on its part to raise additional equity or debt for such purpose) to
obtain any required waivers from its lenders so as to permit payment of the
purchase price in cash to the maximum extent possible.
(b) In the event the Fair Market Value of shares of Common Stock owned
by the estate of such Management Stockholder and his Permitted Transferees or
issuable under any Options owned by the estate of such Management Stockholder
shall not be agreed upon by the parties within 30 days after the mailing of the
applicable put or call notice, then the Fair Market Value of such shares shall
be determined in the manner specified in Section 6.3(a) hereof, with the cost of
such determination borne in the manner set forth in such Section.
(c) The closing of any purchase and sale of Common Stock and any
Options pursuant to this Section 7 shall be held at the principal place of
business of the Company on the date specified in the applicable put or call
notice, or 15 days after the final determination of the purchase price,
whichever date is later. At the closing, the Company shall deliver the purchase
consideration against delivery by the estate of such Management Stockholder and
his Permitted
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<PAGE>
Transferees of certificate(s) representing the purchased shares of Common Stock
with stock power(s) duly endorsed for the transfer thereof and appropriate
instruments terminating all rights existing under any purchased Options.
(d) Notwithstanding anything to the contrary herein, the exercise of
rights to purchase or the requirement of the Company to purchase shares of
Common Stock and any Options pursuant to this Section 7 shall be subject to
limitations, if any, imposed upon the Company under applicable law or, subject
to the Company's obligations in respect of seeking waivers from its lenders as
provided in Section 7.3(a) hereof, by any agreements with the Company's lenders
then in effect, including, without limitation, restrictions on the ability of
the Company to pay the cash portion of any put or call and on the ability to pay
principal or interest under the Subordinated Promissory Note during the
existence of any default under such lender's agreements.
Sec. 8. TAG ALONG RIGHTS.
In the event that Security Capital shall propose to Transfer to any
Person (other than to a Permitted Transferee), in any single transaction or
series of related transactions, 20% or more of the aggregate amount of Common
Stock held by Security Capital and its Permitted Transferees immediately prior
to giving effect to such transaction or transactions, such Transfer shall be
conditioned upon receipt by each of the other Stockholders of a binding written
offer (and the proposed transferee's compliance with the terms thereof if such
offer is accepted by any of the other Stockholders within 30 days of its
receipt) by the proposed transferee to purchase, for the same price per share
and upon the same terms and conditions as are applicable to Security Capital, a
portion of each other Stockholder's Common Stock of the Company up to (at such
other Stockholder's option) an amount equal to the same percentage of the other
Stockholder's Common Stock in the Company as the percentage of Security
Capital's Common Stock of the Company proposed to be sold or transferred (after
adjustment of such percentage to account for shares of Common Stock of each
other Stockholder, in each case to the extent thereof to be included in such
sale pursuant to the terms of this Section 8). The closing of the sale by any
participating Stockholders shall occur concurrently with the sale by Security
Capital to the proposed transferee.
Sec. 9. DRAG ALONG RIGHTS.
In the event that, at any time from and after the date hereof, Security
Capital receives a bona fide written offer from another Person which is not a
partner or an affiliate of Security Capital, or a stockholder of Security
Capital, or a Permitted Transferee of Security Capital, to purchase more than
80% of the issued and outstanding Common Stock of the Company held by Security
Capital, which offer Security Capital is prepared to accept, then Security
Capital may, by notice in writing to the other Stockholders, require the other
Stockholders to sell, and the other Stockholders shall then be required to sell
to the offeror the same percentage of Common Stock owned by them as the
percentage of shares being sold by Security Capital bears to all the shares of
Common Stock owned by Security Capital on the same terms and conditions
(including, without limitation, with respect to purchase price and terms of
payment) as are offered to Security Capital and as are specified in the
offeror's offer. The closing of the sale by Security Capital shall occur
concurrently with the sale by the other Stockholders to the offeror.
Sec. 10. CHANGE OF CONTROL PUT
10.1 (a) In the event there occurs (i) the sale of assets of the
Subsidiary having fair value greater than 80% of the fair value of all assets of
the Subsidiary pursuant to any single sale or series of related sales (other
than the sale of inventory in the ordinary course of business); (ii) a sale of
stock or series of related sales, or a merger, consolidation or similar
corporate reorganization of the Subsidiary, and as a result of which the Company
shall own, directly or indirectly, less than 51% of the outstanding voting
securities of the Subsidiary; (iii) a sale of stock or series of related sales
or a merger, consolidation or similar corporate reorganization of Security
Capital, and as a result of which Capital Partners shall own, directly or
14
<PAGE>
indirectly, in the aggregate less than 50% of the outstanding voting securities
of Security Capital owned by Capital Partners on the date hereof, or (iv)
Capital Partners shall cease to have the ability to elect a majority of the
Board of Directors of Security Capital (either through the ownership of voting
stock, by contract or otherwise), the Company agrees to give prompt written
notice of such event to the Management Stockholders, whereupon each of the
Management Stockholders may, at his option exercisable at any time within 90
days of the date of such notice, require the Company to purchase all of the
Common Stock and any Options owned by such Management Stockholder and any of his
Permitted Transferees, and the Company shall, upon the exercise of such put
option, purchase from such Management Stockholder and any of his Permitted
Transferees, all of such Common Stock and any such Options, at a price per share
of Common Stock equal to the Fair Market Value thereof, and at purchase price
for each Option equal to the Fair Market Value of each share of Common Stock
issuable thereunder net of the applicable exercise price, all as of the date of
such event, in accordance with the terms of this Section 10.
(b) The put options of the Management Stockholders pursuant to
paragraph (a) above shall be exercised by delivery of written notice(s) to the
Company, within such applicable 90 day period, specifying a date not less than
60 and no more than 90 days after the date of such notice on which date the
Company shall purchase all of the Common Stock and any Options owned by such
Management Stockholder and any of his Permitted Transferees.
10.2 (a) At the closing of the purchase of shares of Common Stock and
any Options pursuant to the exercise of a put option under Section 10.1(a)
hereof, the Company shall pay the purchase price therefor in cash.
(b) In the event the Fair Market Value of shares of Common Stock shall
not be agreed upon by the applicable parties within 30 days after the mailing of
the put notice, then the Fair Market Value of such Common Stock and any shares
issuable under any Options shall be determined in the manner specified in
Section 6.3(a) hereof, with the cost of such determination borne in the manner
set forth in such Section.
(c) The closing of any purchase and sale of Common Stock and any
Options pursuant to this Section 10 shall be held at the principal place of
business of the Company on the date specified in the applicable put notice, or
15 days after the final determination of the purchase price, whichever date is
later. At the closing, the Company shall deliver the purchase consideration
against delivery by such Management Stockholder and any Permitted Transferees of
certificate(s) representing the purchased shares of Common Stock with stock
power(s) duly endorsed for the transfer thereof and appropriate instruments
terminating all rights existing under any purchased Options.
(d) Notwithstanding anything to the contrary herein, the exercise of
the Company's obligations to purchase shares of Common Stock and any Options
pursuant to this Section 10 shall be subject to limitations, if any, imposed
upon the Company under applicable law or by any agreements with the Company's
lenders then in effect. The Company will utilize commercially reasonable efforts
(without any obligation on its part to raise additional equity or debt for such
purpose) to obtain any required waivers from its lenders so as to permit payment
of the purchase price in cash to the maximum extent possible.
15
<PAGE>
Sec. 11. PARTIES TO THE AGREEMENT.
(a) Every stockholder or holder of an Option of the Company shall, at
the option of the Company's Board of Directors, be required to become a party to
this Agreement by signing or causing to be signed on its behalf and delivering
to the Company an Instrument of Accession if such Person is not already a party
to this Agreement. Except as set forth herein, no Person shall become an owner
of record of any shares of Common Stock of the Company through a subsequent
transfer from any Stockholder unless and until the Company has received an
executed Instrument of Accession signed by such Person and, in the case of a
transferee other than a Permitted Transferee, such Instrument of Accession shall
have been accepted by the Company. No transfer of shares of Common Stock shall
be effective for any purpose unless and until recorded on the Company's record
of stockholders upon surrender of the certificates representing such Common
Stock, duly endorsed for transfer. Common Stock shall be issued and recorded
only in the name of the beneficial owner thereof or in the name or name(s) of
the trustee or nominee or trustees or nominees holding legal title thereto for
such beneficial owner on a fully disclosed basis.
(b) All certificates representing shares of Common Stock shall be
endorsed with the following legend:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, ENCUMBRANCE AND VOTING
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT DATED AS OF
MAY 17, 1996, AMONG P.D HOLDINGS, INC. AND ITS STOCKHOLDERS.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF P.D. HOLDINGS, INC."
Each Stockholder, by signing this Agreement or causing it to be signed,
represents and warrants to the Company that such Stockholder is acquiring or has
acquired its or his shares of Common Stock for its or his own account for
investment and not with a view to, or for resale in connection with, the
distribution thereof.
Sec. 12. REGISTRATION RIGHTS.
(a) If at any time or times after the date hereof the Company intends
to file a Registration Statement on Form S-1, S-2 or S-3 (or other form
permitting a public offering other than S-4 or S-8) with the Securities and
Exchange Commission with respect to its Common Stock, the Company shall notify
each Stockholder of its intention to file such a Registration Statement at least
thirty (30) days prior to each such filing. Such notice shall state the number
shares of Common Stock proposed to be registered thereby. If a Stockholder
notifies the Company in writing within fifteen (15) days after receipt of such
notice from the Company of his desire to have included in the Registration
Statement any shares of Common Stock held by such Stockholder, then, subject to
Section 12(b), the Company shall include such shares in the Registration
Statement. The expenses of such Registration Statement shall be borne by the
Company. As used in this Section 12(a) the term "expenses" of a registration
shall mean all expenses incident to the offering or the Company's performance of
or compliance with this Section 12, other than underwriting discounts and
commissions of the Stockholders and fees and disbursements of the Stockholders'
counsel provided that the Company shall pay the reasonable fees and
disbursements of a single counsel in connection with such registration, which
counsel shall be selected by the Stockholders holding a majority of the shares
covered by the Registration Statement.
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<PAGE>
(b) In the event that the underwriter or lead underwriter selected by
the Company notifies the Company that it is willing or able to proceed with the
proposed offering only with respect to a smaller number of shares of Common
Stock than the total number of shares proposed to be offered with respect to
such Registration Statement by the Stockholders, the Company and any other
securityholders of the Company electing to participate in such registration,
then the number of shares proposed to be offered by the Stockholders and such
other participating securityholders shall be reduced pro rata in accordance with
the number of shares proposed to be offered by each such offeror relative to all
shares proposed to be offered by all Stockholders and all such participating
securityholders. Notwithstanding anything in this Section 12 to the contrary, in
the event any such registration is being effected pursuant to registration
rights granted by the Company which provide to the holders thereof priority in
such registration, the Stockholders' rights under this Section 12 shall be
subject to the priorities contemplated by such registration rights.
(c) In connection with any registration pursuant to this Section 12:
(i) Each participating Stockholder, severally, but not
jointly, hereby agrees to indemnify and hold harmless the Company, each
director and officer of the Company who may sign such Registration
Statement and each other Person, if any, who controls the Company
within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which the Company or any
such officer, director or controlling Person may become subject under
the Securities Act or otherwise insofar as such losses, claims, damages
or liabilities (or actions in respect thereof), arise out of or are
based upon any untrue statement of any material fact contained in such
Registration Statement, or preliminary prospectus or final or summary
prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, where such statement or omission is
made in reliance upon and in conformity with information furnished in
writing to the Company by such Stockholder, and will reimburse the
Company and the officers and directors of the Company and any such
controlling Person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, liability or action to the extent ultimately determined to be an
indemnifiable claim hereunder. In no event shall the liability of any
Stockholder under this Section 12 (including liability under subsection
(iv) hereof) be greater in amount than the dollar amount of the
proceeds actually received by such Stockholder upon the sale of
securities giving rise to such indemnification obligation.
(ii) The Company hereby agrees to indemnify and hold harmless
each Stockholder, and each director, partner and officer of such
Stockholder and each other Person, if any, who controls such
Stockholder within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which such
Stockholder or any such officer, partner, director or controlling
Person may become subject under the Securities Act or otherwise insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof), arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such
Registration Statement, or preliminary prospectus or final or summary
prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided,
however, that such indemnification shall not extend to any such losses,
claims, damages, liabilities (or proceedings in
17
<PAGE>
respect thereof) or expenses which are caused (x) by any untrue
statement contained in, or by any omission from, information furnished
in writing to the Company by such Stockholder for use in any such
registration statement or prospectus or (y) any failure by such
Stockholder to deliver a prospectus or preliminary prospectus (or
amendment or supplement thereto) as and when required under the
Securities Act after such prospectus has been timely furnished by the
Company; and will reimburse such Stockholder and the officers and
directors of such Stockholder and any such controlling Person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability or action
to the extent ultimately determined to be an indemnifiable claim
hereunder.
(iii) Any Person entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to
such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably
withheld). An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim. The omission of notice of any claim
for indemnification to the indemnifying party will not relieve the
indemnifying party of its obligations under this Section 12(c), except
to the extent prejudiced thereby.
(iv) If, and only if, the indemnification provided for in this
Section 12(c) is unavailable or insufficient to hold harmless an
indemnified party under Section 12(c)(i) or (ii) above in respect of
any losses, claims, damages or liabilities (or action in respect
thereof) referred to therein, then each indemnifying party shall
contribute such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect the relative benefits and
the relative fault of the Company on the one hand and such Stockholder
on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as other relevant equitable considerations.
The relative benefits received by a Stockholder on the one hand and the
Company on the other shall be deemed to be in the same proportion as
the total net proceeds received by such Stockholder bear to the total
net proceeds received by the Company and the other Stockholders and
securityholders participating in the offering. The relative fault shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Stockholder on the one hand or the Company on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, provided,
however, that no Person guilty of fraudulent misrepresentations (as
defined in the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentations.
18
<PAGE>
Sec. 13. AMENDMENT AND WAIVER.
No modification, amendment or waiver of any provision of this Agreement
will be effective against the Company or any other parties hereto unless such
modification, amendment or waiver is approved in writing by all the parties
hereto. The failure of any party to enforce any of the provisions of this
Agreement will in no way be construed as a waiver of such provisions and will
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
Sec. 14. SEVERABILITY.
Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
Sec. 15. ENTIRE AGREEMENT.
Except as otherwise expressly set forth herein, this document embodies
the complete agreement and understanding among the parties hereto with respect
to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
Sec. 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be enforceable by (i)
the Company and its successors and assigns and (ii) the Stockholders and their
respective heirs, executors, administrators and permitted assigns of each of
them so long as they hold shares of Common Stock or until this Agreement is
terminated.
Sec. 17. SECURITIES LAWS.
(a) No holder shall Transfer shares of Common Stock which are not
registered under an effective registration statement under the Securities Act,
unless (i) such Transfer is effected pursuant to Rule 144 or any comparable rule
under the Securities Act or (ii) prior to such Transfer, the Company shall
receive, if requested by its Board of Directors, a written opinion reasonably
satisfactory in form and substance to the Company of counsel designated by such
holder and reasonably satisfactory to the Company that the proposed Transfer may
be effected without registration under the Securities Act. The holder of Common
Stock proposed to be Transferred will pay the reasonable fees and disbursements
of its counsel in connection with all opinions rendered pursuant to this
Section.
(b) The restrictions imposed by this Section 17 upon the
transferability of the shares of Common Stock shall cease and terminate as to
any particular security (i) when such securities shall have been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering such securities, or (ii) when, in the written
opinion of counsel for the Company or counsel to any Stockholder reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company, such restrictions are no longer required
in order to assure compliance with the Securities Act.
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<PAGE>
Sec. 18. COUNTERPARTS.
This Agreement may be executed in separate counterparts each of which
will be an original and all of which taken together will constitute one and the
same agreement.
Sec. 19. REMEDIES.
The parties hereto will be entitled to enforce their rights under this
Agreement specifically (without posting a bond or other security), to recover
damages by reason of any material breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief in order to enforce or prevent any
violation of the provisions of this Agreement.
Sec. 20. EMPLOYMENT.
Nothing contained in this Agreement is intended to create for any
Stockholder who is employed by the Company a right to continued employment with
the Company or employment in the same position or on the same terms as those
currently in effect.
Sec. 21. NOTICES.
Any notice or other communication in connection with this Agreement
shall be deemed to be delivered and received if in writing (or in the form of a
telex or telecopy) addressed as provided below (a) when actually delivered, in
person, (b) when telexed or telecopied to said address, and confirmed by mail or
overnight courier service, (c) in the case of delivery by mail, three business
days shall have elapsed after the same shall have been deposited in the United
States mails, postage prepaid and registered or certified, or (d) in the case of
delivery by overnight courier service, one business day shall have elapsed after
the same shall have been deposited with such courier in accordance with the
standard procedures of such courier.
(i) If to the Company or to Security Capital, at:
c/o Capital Partners
One Pickwick Plaza
Suite 310
Greenwich, Connecticut 06830
Attn: Philip L. Fitting
with a copy to:
Edwards & Angell
2800 Hospital Trust Tower
Providence, Rhode Island 02903
Attn: Christopher D. Graham, Esq.
(ii) If to Stanley or Lee, at the address for such Stockholder
specified on Schedule 2 hereto.
with a copy to:
20
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James P. Redding & Associates
170 Westminster Street
Providence, Rhode Island 02903
Attn: James P. Redding, Esq.
(iii) if to any other Person who becomes a party hereto, to it
at its address set forth in the Instrument of Accession signed
by such party.
Sec. 22. CONFLICT.
It is the intent of the parties that in the event of any conflict
between the provisions of this Agreement and the Certificate of Incorporation or
By-laws of the Company, the provisions of this Agreement shall be deemed to
govern, and the Stockholders agree to make their best efforts necessary to cause
such Certificate of Incorporation or By-laws to be amended to provide for terms
and conditions substantially similar to those contained in this Agreement.
Sec. 23. TERMINATION.
(a) This Agreement shall terminate as to any Stockholder, by the
Transfer (other than to a Permitted Transferee or an individual Stockholder's
estate) of all of his or its Common Stock and any Options in accordance with the
provisions of this Agreement.
(b) Except for Sections 4 and 12 of this Agreement, this Agreement
shall terminate as to all Stockholders upon the effective date of a registration
statement covering the Company's first public offering of Common Stock.
(c) Section 4 of this Agreement shall terminate ten (10) years from the
date hereof unless all parties hereto renew the same for an additional term
specified in writing.
Sec. 24. GOVERNING LAW.
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION
OF THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.
* * * * * * *
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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Sec. 25. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed under seal by their duly authorized
representatives on the day and year first above written.
COMPANY:
P.D. HOLDINGS, INC.
By: /s/ Philip L. Fitting
-------------------------------------
Philip L. Fitting
Chairman
STOCKHOLDERS:
SECURITY CAPITAL CORPORATION
By: /s/ Brian D. Fitzgerald
-------------------------------------
Title: Chairman of the Board
---------------------------------
/s/ Warren Stanley
-------------------------------------
Warren Stanley
/s/ Arnold Lee
-------------------------------------
Arnold Lee
22
<PAGE>
List of Schedules
Schedule 1 - Instrument of Accession
Schedule 2 - Addresses for Stockholder Notices
<PAGE>
Schedule 1
----------
to Stockholders'
Agreement
---------
Instrument of Accession
Reference is made to that certain Stockholders' Agreement dated as of
May 17, 1996, a copy of which is attached hereto (as amended and in effect from
time to time, the "Stockholders' Agreement"), among P.D. Holdings, Inc., a
Delaware corporation (the "Company"), and the persons set forth therein.
The undersigned, , in order to become the owner or holder of shares
(the "Shares") of Common Stock, $.01 par value per share, of the Company, hereby
agrees that by the undersigned's execution hereof, the undersigned shall become
a party to the Stockholders' Agreement subject to all of the restrictions,
conditions and obligations applicable to stockholders set forth in the
Stockholders' Agreement. This Instrument of Accession shall take effect and
shall become a part of said Stockholders' Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the State of
Delaware.
Signature:
--------------------------------
Address:
--------------------------------
To Which
Stockholder:
-----------------------------
Notices Sent Date:
-----------------------
Accepted:
P.D. HOLDINGS, INC.
By:
-------------------------------------
Title:
-------------------------------------
Date:
-------------------------------------
<PAGE>
Schedule 2
----------
to Stockholders'
Agreement
Addresses for Stockholders Notices
----------------------------------
Warren Stanley
507 Lillian Drive
Madiera Beach, FLA
Arnold Lee
61 Wedgewood Drive
Seekonk, MA 02771-3418
Exhibit 12
EMPLOYMENT, CONSULTING AND NON-COMPETITION AGREEMENT
EMPLOYMENT, CONSULTING AND NON-COMPETITION AGREEMENT, dated May 17,
1996, by and between Possible Dreams, Ltd., a Delaware corporation (the
"Company"), and Warren Stanley of Madeira Beach, Florida ("Stanley").
W I T N E S S E T H
WHEREAS, the Company, Possible Dreams, Ltd., a Massachusetts
corporation ("PDL"), Columbia National Corporation, a Massachusetts corporation
("Columbia" and together with PDL, the "Sellers"), and the shareholders of the
Sellers have entered into that certain Asset Purchase Agreement (the "Purchase
Agreement") dated as of May 17, 1996 whereby the Company shall acquire
substantially all of the assets, liabilities and business operations of the
Sellers; and
WHEREAS, the Sellers sell their products throughout the United States
and other parts of the world, and thus have been active competitors in the
United States and other worldwide marketplaces; and
WHEREAS, Stanley is a director and executive officer of each of the
Sellers and a shareholder of PDL and will derive substantial economic benefit
from the transaction contemplated by the Purchase Agreement; and
WHEREAS, it is a condition to the Company's performance under the
Purchase Agreement that Stanley enter into this Agreement in order to assure the
Company of Stanley's continued expertise in the conduct of the Company's
business and the least possible dislocation and loss of goodwill arising from
such sale; and
WHEREAS, Stanley is willing to enter into this Agreement in order to
induce the Company to purchase substantially all of the assets, liabilities and
business operations of the Sellers pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Consulting Contract Term. "Consulting Contract Term" shall mean
the period commencing on the date of expiration of the Employment Contract Term
(other than by termination pursuant to Section 2.07, 2.08, 2.09 or 2.10 hereof)
and continuing until or terminating on the occurrence of the earlier of:
<PAGE>
(a) One (1) year after such expiration of the Employment
Contract Term or;
(b) Stanley's death or Disability as provided in Section
3.04 hereof.
1.02 Contract Term. "Contract Term" shall mean the period commencing on
the Effective Date and expiring on the later of (w) three (3) years after
expiration of the Consulting Contract Term, or (x) three (3) years after the
expiration of the Employment Contract Term or any termination thereof pursuant
to Section 2.07, 2.08 or 2.10 hereof, or (y) three (3) years after payment by
the Company of the final installment of the unpaid annual Base Salary which
became payable upon a termination of the Employment Contract Term pursuant to
Section 2.09 hereof, or (z) five (5) years after the Effective Date.
1.03 Directors. "Directors" shall mean a majority of the Board of
Directors of P.D. Holdings, Inc.
1.04 Disability. "Disability" shall mean a mental or physical condition
which in the reasonable opinion of the Directors renders Stanley unable or
incompetent to properly carry out his duties and responsibilities contemplated
hereby, which condition shall have existed for a period of 120 or more
consecutive days. If Stanley should dispute the determination of the Directors
as to whether a Disability exists, either Stanley or the Company may require
that Stanley be examined by a physician and in such case the decision of such
physician shall be conclusive and binding on all parties. The examining
physician shall be mutually satisfactory to Stanley and the Company, except if
they are unable to agree, Stanley and the Company shall each designate a
physician and the examining physician shall be a physician mutually acceptable
to each of such designees.
1.05 Effective Date. "Effective Date" shall mean the date of this
Agreement.
1.06 Employment Contract Term. "Employment Contract Term" shall mean
the period commencing on the Effective Date and continuing until or terminating
on the occurrence of the earlier of:
(a) Five (5) years after the Effective Date, or such later
date as the Company and Stanley may agree pursuant to a written
extension or renewal hereof;
(b) Stanley's death or Disability as provided in Section 2.07
hereof; or
(c) Termination of the Employment Contract Term pursuant to
Section 2.08, 2.09 or 2.10 hereof.
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1.07 Good Cause. "Good Cause" shall mean (i) any conviction of, or a
plea of guilty or no contest to, any charge of embezzlement, theft or fraudulent
act, or any felony, which the Directors, acting in good faith, determine has had
or would reasonably be expected to have a material adverse effect upon the
business, operations, financial condition or prospects of the Company; (ii) any
breach by Stanley of Sections 4.01 or 4.02 hereof; (iii) willful misconduct or
gross negligence by Stanley in the course of performing any term or condition of
this Agreement; or (iv) material failure by Stanley in the performance of any
other term or condition of this Agreement (and, in the case of either clause
(iii) or (iv) above, which the Directors, acting in good faith, determine has
had or would reasonably be expected to have a material adverse effect upon the
business, operations, financial condition or prospects of the Company and for
which a cure is not commenced and diligently pursued within ten (10) days of
notice to Stanley from the Directors).
1.08 Trigger Event. "Trigger Event" shall mean the occurrence of any of
the following: (i) the sale of assets of the Company having fair value greater
than 80% of the fair value of all assets of the Company pursuant to any single
sale or series of related sales (other than the sale of inventory in the
ordinary course of business); (ii) a sale of stock or series of related sales or
a merger, consolidation or similar corporate reorganization of the Company, and
as a result of which P.D. Holdings, Inc., a Delaware corporation and sole
stockholder of the Company ("Holdings"), shall own, directly or indirectly, less
than 51% of the outstanding voting securities of the Company; (iii) a sale of
stock or series of related sales or a merger, consolidation or similar corporate
reorganization of Holdings, and as a result of which Security Capital
Corporation, a Delaware corporation and majority stockholder of Holdings
("Security Capital"), shall own, directly or indirectly, less than 51% of the
outstanding voting securities of Holdings; (iv) a sale of stock or series of
related sales or a merger, consolidation or similar corporate reorganization of
Security Capital, and as a result of which Capital Partners Holdings II-A, L.P.
and Capital Partners Holdings II-B, L.P., each a Delaware limited partnership,
or any of their affiliates (collectively, "Capital Partners"), shall own,
directly or indirectly, in the aggregate less than 50% of the outstanding voting
securities of Security Capital owned by Capital Partners on the Effective Date
or (v) Capital Partners shall cease to have the ability to elect a majority of
the Board of Directors of Security Capital (either through the ownership of
voting stock, by contract or otherwise).
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ARTICLE II
EMPLOYMENT AND SERVICES
2.01 Capacity and Services. The Company hereby employs Stanley as
President and Chief Executive Officer of the Company, and Stanley hereby accepts
such employment, for the Employment Contract Term and upon the other terms and
conditions set forth in this Agreement. During the Employment Contract Term,
Stanley shall devote substantially all of his attention and energies on a
full-time basis to the business and affairs of the Company and use his best
efforts to promote its interests; provided, however, that Stanley may devote
reasonable periods of time for personal purposes, trade associations and
charitable activities consistent with past practices of the Sellers so long as
such purposes, associations or activities do not (i) cause or result in a breach
by Stanley of Article IV hereof, (ii) adversely affect the interests of the
Company, or (iii) materially detract from or interfere with the performance of
the services otherwise required to be performed by Stanley as set forth herein.
During the Employment Contract Term, Stanley shall neither accept nor hold any
other employment without the prior written consent of the Directors. In his
capacity as President and Chief Executive Officer of the Company, Stanley (x)
shall report directly to the Directors and shall not be obliged to report to or
take direction from any other executive officer of the Company and (y) shall
have supervision and control over, and responsibility for, the general
management and operations of the Company subject to such limitations and
directions as may be imposed by the Directors from time to time, and shall have
such other powers and duties as determined by the Directors from time to time
(provided any such other duties are reasonably consistent with the duties of
president and chief executive officer). Such services to be provided by Stanley
hereunder shall be provided for the benefit of the Company without regard to
whether any of the Company's operations are conducted directly by the Company or
through any subsidiaries, joint ventures or unincorporated divisions of the
Company. During the Employment Contract Term, the Company shall provide Stanley
with an office and support staff reasonably necessary for the proper performance
of his duties hereunder and consistent with the past practices of the Sellers.
2.02 Limitations on Authority of Stanley. Notwithstanding anything in
Section 2.01 hereof to the contrary, without the authorization of the Directors,
Stanley shall not cause or permit the Company to:
(a) Make capital expenditures during any fiscal year in
amounts which exceed budgeted amounts approved by the Directors for
such fiscal year or for purposes other than those approved by the
Directors for such fiscal year;
(b) Dispose of any asset or group of related assets during any
fiscal year the fair market value of which exceed $10,000 at the time
of such disposition, other than the sale of inventory in the ordinary
course of business;
<PAGE>
(c) Borrow money or incur indebtedness during any fiscal year,
whether by guarantee, capital lease agreements or otherwise, other than
(x) advances for working capital and general corporate purposes made
under committed lines of credit authorized by the Directors and (y)
obligations in respect of capital leases to the extent such obligations
do not exceed limitations imposed upon the Company under agreements
pursuant to which the Company has incurred or may incur indebtedness
for borrowed money;
(d) Prepay any indebtedness, other than (x) repayments under
any existing committed lines of credit and (y) prepayments required
under agreements pursuant to which the Company has incurred or may
incur indebtedness for borrowed money;
(e) Make loans or advances of a similar nature to employees,
contractors, sales representatives, suppliers (other than deposits for
purchases made by the Company in the ordinary course of business) or
any other person or entity, other than in respect of normal business
advances to employees of the Company in the ordinary course of business
consistent with past practices of the Sellers and for other budgeted
items approved by the Directors;
(f) Hire, promote or determine the compensation of any
employee whose base compensation is in excess of $80,000 per annum, or
enter into any employment agreement with any employee or prospective
employee of the Company, other than an arrangement as an
employee-at-will;
(g) Amend any of the Company's bonus plans for executive,
management or non-management employees;
(h) Amend the Company's pension plan;
(i) Enter into any lease agreement relating to real estate;
(j) Replace the Company's auditors; or
(k) Approve audited financial statements.
2.03 Base Salary. The Company shall pay Stanley a base salary at the
rate of $175,000 per annum, payable consistent with past practices of the
Sellers, for the services rendered by Stanley to the Company during the
Employment Contract Term (the "Base Salary"). The Directors shall review the
Base Salary on a yearly basis for purposes of determining any increase thereof,
whether due to cost of living adjustments or merit, but any such determination
shall be made in the sole discretion of the Directors consistent with the
Company's compensation policies then in effect.
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2.04 Bonus. During the Employment Contract Term, Stanley shall be
entitled to receive an annual bonus (the "Bonus") pursuant to and in accordance
with the bonus plan described in Exhibit A hereto, as such plan may be amended
by the Directors from time to time to make reasonable provision for successors
or new appointments to executive management or to changes in projected earnings
based on acquisitions, divestitures, discontinued operations or other similar
changes in operations.
2.05 Fringe Benefits. During the Employment Contract Term, Stanley
shall be entitled to such employee fringe benefits as are described in Exhibit B
hereto and to such additional fringe benefits as may be made available by the
Company generally to its executive management employees after the Effective
Date. Stanley hereby expressly waives any right to severance or other
termination pay except to the extent expressly provided pursuant to Section 2.09
hereof. The Company agrees to purchase from the Sellers pursuant to the Purchase
Agreement the existing "split-dollar life insurance policy" on the life of
Stanley, and to maintain such policy in effect during the Employment Contract
Term. Upon any termination or expiration of the Employment Contract Term
hereunder, Stanley shall have the option to purchase such policy from the
Company for cash, at a purchase price equal to the cumulative aggregate of the
premiums paid thereon since the date of issuance.
2.06 Business Expenses. During the Employment Contract Term, the
Company will reimburse Stanley for all reasonable travel and out-of-pocket
expenses actually incurred by him, consistent with past practices of the
Sellers, or as otherwise directed by the Directors for the purpose of and in
connection with performing his services to the Company hereunder. Such
reimbursement shall be made upon presentation by Stanley to the Company of
vouchers or other statements itemizing such expenses in reasonable detail.
2.07 Death or Disability. In the event of the death or Disability of
Stanley during the Employment Contract Term, the Company shall have no further
obligations or liability to Stanley hereunder, including any obligation or
liability under Article III hereof, except to pay to Stanley or Stanley's estate
(in addition to and without regard for benefits, if any, due or to become due
under any insurance, retirement or other similar plan of the Company or any
other person or entity) (i) the amount of Stanley's Base Salary earned but
unpaid to the date of Stanley's death or Disability, (ii) any unpaid Bonus
declared or to be declared by the Directors for prior periods and for the period
in which his death or Disability shall occur (prorated to the date of such death
or Disability), and (iii) any unreimbursed business expenses incurred by Stanley
prior to his death or Disability and presented for payment pursuant to Section
2.06 hereof.
2.08 Voluntary Cessation by Stanley or Termination for Good Cause. The
Company may terminate the Employment Contract Term if at any time Stanley
voluntarily ceases to perform his duties and responsibilities hereunder without
the Directors' prior written consent or if Stanley's employment by the Company
pursuant to this Agreement is terminated for Good Cause, and thereupon Stanley's
employment hereunder shall immediately be terminated, and the Company shall have
no further obligations or liability to Stanley hereunder, including any
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<PAGE>
obligation or liability under Article III hereof, except to pay to Stanley (in
addition to and without regard for benefits, if any, due or to become due under
any insurance, retirement or other similar plan of the Company or any other
person or entity) (i) the amount of Stanley's Base Salary earned but unpaid to
the date of such termination, and (ii) any unreimbursed business expenses
incurred by Stanley prior to such termination and presented for payment pursuant
to Section 2.06 hereof.
2.09 Termination Not for Good Cause. To the extent Sections 2.07, 2.08
or 2.10 hereof do not apply, the Company may terminate the Employment Contract
Term for any reason, and thereupon Stanley's employment hereunder shall be
immediately terminated and the Company shall have no further obligations or
liability to Stanley hereunder, including any obligation or liability under
Article III hereof, except to pay to Stanley (in addition to and without regard
for benefits, if any, due or to become due under any insurance, retirement or
other similar plan of the Company or any other person or entity) (i) the amount
of Stanley's Base Salary earned but unpaid to the date of such termination, (ii)
any unpaid Bonus declared or to be declared by the Directors for prior periods
and for the period in which such termination shall occur (pro-rated to the date
of such termination), (iii) any unreimbursed business expenses incurred by
Stanley prior to his termination and presented for payment pursuant to Section
2.06 hereof, and (iv) an amount equal to the unpaid annual Base Salary which
would have been paid through the expiration of the Employment Contract Term but
for such termination (which amount shall be paid in monthly installments, net of
appropriate tax withholdings, through the date the Employment Contract Term
would have expired but for such termination).
2.10 Termination Upon Trigger Event. In the event a Trigger Event shall
occur, either the Company or Stanley may terminate the Employment Contract Term,
and thereupon Stanley's employment hereunder shall be immediately terminated and
neither the Company nor Stanley shall have any further obligations or liability
to the other hereunder, including any obligation or liability under Article III
hereof, except that Stanley shall continue to be bound by the obligations and
restrictions set forth in Article IV hereof, and except that the Company shall
be required to pay to Stanley (in addition to and without regard for benefits,
if any, due or to become due under any insurance, retirement or other similar
plan of the Company or any other person or entity) (i) the amount of Stanley's
Base Salary earned but unpaid to the date of such termination, (ii) any unpaid
Bonus declared or to be declared by the Directors for prior periods and for the
period in which such termination shall occur (pro-rated to the date of such
termination), and (iii) any unreimbursed business expenses incurred by Stanley
prior to his termination and presented for payment pursuant to Section 2.06
hereof.
ARTICLE III
CONSULTING SERVICES
3.01 Capacity and Services. Provided that the Employment Contract Term
is not terminated pursuant to Section 2.07, 2.08, 2.09 or 2.10 above, the
Company hereby appoints and engages Stanley as its consultant and advisor, and
Stanley hereby accepts such appointment and
7
<PAGE>
engagement, for the Consulting Contract Term and upon the other terms and
conditions set forth in this Agreement. Stanley agrees that during the
Consulting Contract Term, he will provide general business consulting services
if, when and as requested by the Directors from time to time. The Company and
Stanley agree that such consulting services shall be required only on a
part-time basis, although such basis may involve a substantial time commitment
of Stanley during any given period depending on the Company's need. Stanley will
have no obligation to provide such services for any period which exceeds six
consecutive weeks. The Company will provide Stanley with reasonable notice of
each such request and any such request shall not unreasonably interfere with any
of Stanley's previously scheduled commitments. Stanley and the Company
acknowledge that during the Consulting Contract Term, the relationship of
Stanley to the Company shall be that of an independent contractor to a
contractor and not that of an employee to employer. Stanley and the Company also
acknowledge that during the Consulting Contract Term, Stanley, as an independent
contractor, shall not be entitled to any fringe benefits offered to employees or
executive management of the Company, except as expressly authorized by the
Directors in writing.
3.02 Consulting Fee. The Company will pay to Stanley a consulting fee
retainer of $75,000 on the first day of the Consulting Contract Term (the
"Consulting Retainer"), which Consulting Retainer shall cover the first 500
hours of service to be provided by Stanley as a consultant hereunder (and which
shall be considered earned and shall not be refundable if fewer hours are worked
by Stanley). In the event Stanley provides more than 500 hours of consulting
services hereunder during the Consulting Contract Term, the Company will pay
Stanley a consulting fee at a rate of $75 per hour (the "Consulting Fee") for
each hour in excess of 500 hours, payable on a weekly basis.
3.03 Business Expenses. During the Consulting Contract Term, the
Company will reimburse Stanley for any reasonable travel and out-of-pocket
expenses which are actually incurred by him in connection with performing his
consulting services hereunder and which are pre-approved by the Company. Such
reimbursement will be made upon presentation by Stanley to the Company of
vouchers or other statements itemizing such expenses in reasonable detail.
3.04 Death or Disability. In the event of the death or Disability of
Stanley during the Consulting Contract Term, the Company shall have no further
obligations or liability to Stanley hereunder, except to pay to Stanley or
Stanley's estate (i) the amount of Stanley's Consulting Fee earned but unpaid to
the date of Stanley's death or Disability, and (ii) any unreimbursed business
expenses incurred by Stanley prior to his death or Disability and presented for
payment pursuant to Section 3.03 hereof.
ARTICLE IV
CONFIDENTIALITY AND NONCOMPETITION
The parties acknowledge that the Sellers presently sell into markets
throughout the United States and in many other markets throughout the world
through their distribution networks, that Stanley has been instrumental in the
development and growth of the business of
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each of the Sellers, and that Stanley's position as an executive officer of the
Sellers has made him extremely valuable to the continued operations and
prospects of the Company after the date hereof, and which, if available to
competitors, would be extremely detrimental to the Company's interests. Further,
the parties acknowledge that Stanley is well-recognized in the Christmas
collectable and ornament and religious artifact industries and is extremely
knowledgeable about the Sellers' products, pricing, operations, distributors,
and other customers and suppliers. As a result of the position of the Sellers
and Stanley in the Christmas collectable and ornament and religious artifact
industries, the Company and the Sellers have determined that a substantial
portion of the consideration for the Sellers' assets being paid by the Company
under the Purchase Agreement (a portion of which consideration shall be received
by Stanley by virtue of his status as a shareholder of PDL) should be allocated
to the goodwill of Sellers as and to the extent provided in the Purchase
Agreement, which goodwill Stanley has been instrumental in developing as
aforesaid, but the parties agree that such goodwill will continue to have
comparable value only so long as it is protected by the terms of this Agreement.
4.01 Confidentiality. Under no circumstances and at no time, during or
after the Contract Term, shall Stanley in any manner, whether directly or
indirectly, use for his own benefit or the benefit of any other person, firm,
entity or corporation, nor disclose, divulge, render or offer, any knowledge or
information with respect to the confidential affairs or plans, trade secrets or
know-how of the Company ("Confidential Information"), except on behalf of the
Company in the course of the proper performance of his duties hereunder. Stanley
acknowledges and agrees that any and all such Confidential Information will be
received and held by him in a confidential capacity, and that disclosure of such
Confidential Information would pose a direct threat to the Company in the hands
of its competitors. For purposes of this Section 4.01, the term "Confidential
Information" shall not include any information which is generally available to
the public other than as a result of a disclosure by Stanley.
4.02 Covenant Not to Compete.
(a) Stanley hereby agrees that during the Contract Term, Stanley will
not, singly, jointly, or as an employee, agent or partner of any partnership or
as an officer, agent, employee, director, stockholder (except of not more than
one percent (1%) of the outstanding stock of any company listed on a national
securities exchange or actively traded in the over-the-counter market) or
investor in any other corporation or entity, or as a consultant, advisor, or
independent contractor to any such partnership, corporation or entity, or in any
other capacity, directly, indirectly or beneficially, (i) own, manage, operate,
join, control, or participate in the ownership, management, operation, or
control of, or work for (as an employee, agent, consultant, advisor or
independent contractor), or permit the use of his name by, or provide financial
or other assistance to, any person, partnership, corporation, or entity which is
in direct or indirect competition anywhere in the United States or Canada (the
"Protected Territory") with the business as conducted by the Company on the date
hereof or at any time through the expiration of the Employment Contract Term,
including, but not limited to, the business of designing, manufacturing,
marketing, and selling Christmas collectibles and ornaments and religious
artifact products; (ii) induce or attempt to induce any person who, on the date
hereof or at any time during the Contract Term, is an employee of the Company,
to terminate his or her employment
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with the Company, except in the proper performance of his duties hereunder;
or (iii) induce or attempt to induce any person, business, or entity which is a
supplier, dealer, wholesaler, retailer, distributor or customer of the Company
or which otherwise is a contracting partywith the Company, as of the date hereof
or at any time during the Contract Term, to terminate or modify in any way
adverse to the interests of the Company, any written or oral agreement or
understanding with the Company, except in the proper performance of his
duties hereunder. The Company and Stanley agree that the covenants set forth in
this Section 4.02 have been negotiated with advice of counsel in the course of
the sale of a business and its goodwill, from which sale Stanley shall
receive substantial economic benefit, and therefore the Company and Stanley
agree that these covenants should and shall be enforced to the fullest extent
permitted by law. Accordingly, if in any judicial or similar proceeding a court
or any similar judicial body shall determine that such covenant is
unenforceable because it covers too extensive a geographical area or survives
too long a period of time, or for any other reason, then the parties intend
that such covenant shall be deemed to cover only such maximum
geographical area and maximum period of time and shall otherwise be deemed to be
limited in such manner as will permit enforceability by such court or similar
body.
4.03 Specific Performance. Stanley agrees that his breach of the
provisions of Sections 4.01 or 4.02 above will cause irreparable damage to the
Company and that the recovery by the Company of money damages will not
constitute an adequate remedy for such breach. Accordingly, Stanley agrees that
the provisions of Sections 4.01 or 4.02 above may be specifically enforced
against him in addition to any other rights or remedies available to the Company
on account of any such breach, and Stanley expressly waives the defense in any
equitable proceeding that there is an adequate remedy at law for any such
breach.
ARTICLE VI
MISCELLANEOUS
5.01 Assignment. This Agreement is personal to Stanley and shall not be
assigned, transferred, hypothecated, pledged or in any way encumbered by him;
provided, that the rights and obligations of Stanley hereunder shall be binding
upon, and inure to the benefit of, Stanley's estate. This Agreement shall be
binding upon, and inure to the benefit of, the Company's successors and assigns.
5.02 Amendment. This Agreement may not be amended, modified or
supplemented in any respect except by written agreement entered into by the
parties hereto.
5.03 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts without resort to its conflict of laws rules. Except with respect
to enforcement of the Company's equitable remedies pursuant to Article IV
hereof, any dispute arising under this Agreement shall be submitted to
arbitration, to be held in Providence, Rhode Island, in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions then in effect, and the determination of which shall be
final and binding on the parties hereto. The
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cost of such arbitration, unless otherwise determined thereby, shall be borne
50% by Stanley and 50% by the Company. Each of Stanley and the Company, to the
extent that each may lawfully do so, hereby consents to the jurisdiction of the
federal and state courts of the Commonwealth of Massachusetts, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of
enforcement of any such arbitration award or any of Stanley's obligations under
Article IV hereof, and each hereby expressly waives any and all objections which
it or he may have as to venue in any such courts.
5.04 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
Articles and Sections of this Agreement are inserted for convenience only and
shall not constitute a part hereof.
5.05 Entire Agreement. This Agreement contains the entire agreement of
the parties pertaining to the subject matter contained in it and supersedes and
is in lieu of any and all other employment arrangements between Stanley and the
Company.
5.06 Notices. (a) Any notice given pursuant to this Agreement by any
party to the other shall be in writing and shall be deemed given on the date
when personally delivered, or on the date the receipt is signed for by the party
or its agent when sent by registered or certified mail, return receipt
requested, postage prepaid, or on the next business day when sent by a
nationally recognized overnight delivery service, to the parties at their
addresses set forth below or to such other address as any party may hereafter
designate to the other by like notice.
If to Stanley:
Warren Stanley
507 Lillian Drive
Madiera Beach, Florida
with a copy to:
James P. Redding, Esq.
James P. Redding & Associates
170 Westminster Street
Providence, RI 02903
If to the Company, to:
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Possible Dreams, Ltd.
c/o Capital Partners
One Pickwick Plaza
Suite 310
Greenwich, CT 06830
Attn: Philip L. Fitting
with a copy to:
Christopher D. Graham, Esq.
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
5.07 Severability. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
* * * * * * * * *
THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, Stanley has executed this Agreement and the Company
has caused this Agreement to be executed by its duly authorized officer as an
instrument under seal as of the day and year first above written.
POSSIBLE DREAMS, LTD.
(a Delaware corporation)
By: /s/ Philip L. Fitting
---------------------------------
Philip L. Fitting
Chairman
/s/ Warren Stanley
-----------------------------------
Warren Stanley, individually
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Exhibit A to Employment Agreement
Based on Operating Profit as determined consistent with past practice
of Sellers (Operating Profit defined as pre-tax income plus interest, bonuses to
executive management, amortization of goodwill, depreciation and increases in
other expenses directly resulting from the asset purchase transaction, including
without limitation amortization of original issue discount and capitalized
acquisition expenses, management fees and inventory write-up (but exclusive of
increases in executive salaries), the Executive will earn as a bonus the
percentage of his Base Salary corresponding to the Operating Profit Level.
Operating Profit (in millions) Percentage
------------------------------ ----------
$3.75 10%
$4.00 20%
$4.25 30%
$4.50 40%
$4.75 50%
$5.00 60%
$5.25 70%
$5.50 80%
$5.75 90%
$6.00 100%
<PAGE>
Exhibit B to Employment Agreement
1. Health, life and long term disability insurance all in accordance
with past practices of the Sellers as disclosed on schedules to the
Purchase Agreement.
2. Five weeks vacation.
Exhibit 13
EMPLOYMENT, CONSULTING AND NON-COMPETITION AGREEMENT
EMPLOYMENT, CONSULTING AND NON-COMPETITION AGREEMENT, dated May 17,
1996, by and between Possible Dreams, Ltd., a Delaware corporation (the
"Company"), and Arnold Lee of Seekonk, Massachusetts ("Lee").
W I T N E S S E T H
WHEREAS, the Company, Possible Dreams, Ltd., a Massachusetts
corporation ("PDL"), Columbia National Corporation, a Massachusetts corporation
("Columbia" and together with PDL, the "Sellers"), and the shareholders of the
Sellers have entered into that certain Asset Purchase Agreement (the "Purchase
Agreement") dated as of May 17, 1996 whereby the Company shall acquire
substantially all of the assets, liabilities and business operations of the
Sellers; and
WHEREAS, the Sellers sell their products throughout the United States
and other parts of the world, and thus have been active competitors in the
United States and other worldwide marketplaces; and
WHEREAS, Lee is an executive officer of PDL and will derive substantial
economic benefit from the transaction contemplated by the Purchase Agreement;
and
WHEREAS, it is a condition to the Company's performance under the
Purchase Agreement that Lee enter into this Agreement in order to assure the
Company of Lee's continued expertise in the conduct of the Company's business
and the least possible dislocation and loss of goodwill arising from such sale;
and
WHEREAS, Lee is willing to enter into this Agreement in order to induce
the Company to purchase substantially all of the assets, liabilities and
business operations of the Sellers pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Consulting Contract Term. "Consulting Contract Term" shall mean
the period commencing on the date of expiration of the Employment Contract Term
(other than by termination pursuant to Section 2.07, 2.08, 2.09 or 2.10 hereof)
and continuing until or terminating on the occurrence of the earlier of:
<PAGE>
(a) One (1) year after such expiration of the Employment
Contract Term or;
(b) Lee's death or Disability as provided in Section 3.04
hereof.
1.02 Contract Term. "Contract Term" shall mean the period commencing on
the Effective Date and expiring on the later of (w) one (1) year after
expiration of the Consulting Contract Term, or (x) one (1) year after the
expiration of the Employment Contract Term or any termination thereof pursuant
to Section 2.07, 2.08 or 2.10 hereof, or (y) one (1) year after payment by the
Company of the final installment of the unpaid annual Base Salary which became
payable upon a termination of the Employment Contract Term pursuant to Section
2.09 hereof, or (z) three (3) years after the Effective Date.
1.03 Directors. "Directors" shall mean a majority of the Board of
Directors of P.D. Holdings, Inc.
1.04 Disability. "Disability" shall mean a mental or physical condition
which in the reasonable opinion of the Directors renders Lee unable or
incompetent to properly carry out his duties and responsibilities contemplated
hereby, which condition shall have existed for a period of 120 or more
consecutive days. If Lee should dispute the determination of the Directors as to
whether a Disability exists, either Lee or the Company may require that Lee be
examined by a physician and in such case the decision of such physician shall be
conclusive and binding on all parties. The examining physician shall be mutually
satisfactory to Lee and the Company, except if they are unable to agree, Lee and
the Company shall each designate a physician and the examining physician shall
be a physician mutually acceptable to each of such designees.
1.05 Effective Date. "Effective Date" shall mean the date of this
Agreement.
1.06 Employment Contract Term. "Employment Contract Term" shall mean
the period commencing on the Effective Date and continuing until or terminating
on the occurrence of the earlier of:
(a) Three (3) years after the Effective Date, or such later
date as the Company and Lee may agree pursuant to a written extension
or renewal hereof;
(b) Lee's death or Disability as provided in Section 2.07
hereof; or
(c) Termination of the Employment Contract Term pursuant to
Section 2.08, 2.09 or 2.10 hereof.
1.07 Good Cause. "Good Cause" shall mean (i) any conviction of, or a
plea of guilty or no contest to, any charge of embezzlement, theft or fraudulent
act, or any felony, which the Directors, acting in good faith, determine has had
or would reasonably be expected to have a material adverse effect upon the
business, operations, financial condition or prospects of the
2
<PAGE>
Company; (ii) any breach by Lee of Sections 4.01 or 4.02 hereof; (iii) willful
misconduct or gross negligence by Lee in the course of performing any term or
condition of this Agreement; or (iv) material failure by Lee in the performance
of any other term or condition of this Agreement (and, in the case of either
clause (iii) or (iv) above, which the Directors, acting in good faith, determine
has had or would reasonably be expected to have a material adverse effect upon
the business, operations, financial condition or prospects of the Company and
for which a cure is not commenced and diligently pursued within ten (10) days of
notice to Lee from the Directors).
1.08 Trigger Event. "Trigger Event" shall mean the occurrence of any of
the following: (i) the sale of assets of the Company having fair value greater
than 80% of the fair value of all assets of the Company pursuant to any single
sale or series of related sales (other than the sale of inventory in the
ordinary course of business); (ii) a sale of stock or series of related sales or
a merger, consolidation or similar corporate reorganization of the Company, and
as a result of which P.D. Holdings, Inc., a Delaware corporation and sole
stockholder of the Company ("Holdings"), shall own, directly or indirectly, less
than 51% of the outstanding voting securities of the Company; (iii) a sale of
stock or series of related sales or a merger, consolidation or similar corporate
reorganization of Holdings, and as a result of which Security Capital
Corporation, a Delaware corporation and majority stockholder of Holdings
("Security Capital"), shall own, directly or indirectly, less than 51% of the
outstanding voting securities of Holdings; (iv) a sale of stock or series of
related sales or a merger, consolidation or similar corporate reorganization of
Security Capital, and as a result of which Capital Partners Holdings II-A, L.P.
and Capital Partners Holdings II-B, L.P., each a Delaware limited partnership,
or any of their affiliates (collectively, "Capital Partners"), shall own,
directly or indirectly, in the aggregate less than 50% of the outstanding voting
securities of Security Capital owned by Capital Partners on the Effective Date
or (v) Capital Partners shall cease to have the ability to elect a majority of
the Board of Directors of Security Capital (either through the ownership of
voting stock, by contract or otherwise).
ARTICLE II
EMPLOYMENT AND SERVICES
2.01 Capacity and Services. The Company hereby employs Lee as Vice
President-Sales of the Company, and Lee hereby accepts such employment, for the
Employment Contract Term and upon the other terms and conditions set forth in
this Agreement. During the Employment Contract Term, Lee shall devote
substantially all of his attention and energies on a full-time basis to the
business and affairs of the Company and use his best efforts to promote its
interests; provided, however, that Lee may devote reasonable periods of time for
personal purposes, trade associations and charitable activities consistent with
past practices of the Sellers so long as such purposes, associations or
activities do not (i) cause or result in a breach by Lee of Article IV hereof,
(ii) adversely affect the interests of the Company, or (iii) materially detract
from or interfere with the performance of the services otherwise required to be
performed by Lee as set forth herein. During the Employment Contract Term, Lee
shall neither accept nor hold any other employment without the prior written
consent of the Directors. In his capacity as Vice President-
3
<PAGE>
Sales, Lee (x) shall report directly to the President and Chief Executive
Officer and (y) shall have supervision and control over, and responsibility for,
the sales and promotion aspects of the Company subject to such limitations and
directions as may be assigned by the Chief Executive Officer of the Company or
as may be determined by the Directors from time to time, and shall have such
other powers and duties as determined by the Chief Executive Officer of the
Company or the Directors from time to time (provided any such other duties are
reasonably consistent with the duties of a vice president of sales). Such
services to be provided by Lee hereunder shall be provided for the benefit of
the Company without regard to whether any of the Company's operations are
conducted directly by the Company or through any subsidiaries, joint ventures or
unincorporated divisions of the Company. During the Employment Contract Term,
the Company shall provide Lee with an office and support staff reasonably
necessary for the proper performance of his duties hereunder and consistent with
the past practices of the Sellers.
2.02 Limitations on Authority of Lee. The authority of Lee as Vice
President-Sales of the Company shall have such limitations as shall be
prescribed from time to time by the Chief Executive Officer of the Company and
the Directors.
2.03 Base Salary. The Company shall pay Lee a base salary at the rate
of $110,000 per annum, payable consistent with past practices of the Sellers,
for the services rendered by Lee to the Company during the Employment Contract
Term (the "Base Salary"). The Directors shall review the Base Salary on a yearly
basis for purposes of determining any increase thereof, whether due to cost of
living adjustments or merit, but any such determination shall be made in the
sole discretion of the Directors consistent with the Company's compensation
policies then in effect.
2.04 Bonus. During the Employment Contract Term, Lee shall be entitled
to receive an annual bonus (the "Bonus") pursuant to and in accordance with the
bonus plan described in Exhibit A hereto, as such plan may be amended by the
Directors from time to time to make reasonable provision for successors or new
appointments to executive management or to changes in projected earnings based
on acquisitions, divestitures, discontinued operations or other similar changes
in operations.
2.05 Fringe Benefits. During the Employment Contract Term, Lee shall be
entitled to such employee fringe benefits as are described in Exhibit B hereto
and to such additional fringe benefits as may be made available by the Company
generally to its executive management employees after the Effective Date. Lee
hereby expressly waives any right to severance or other termination pay except
to the extent expressly provided pursuant to Section 2.09 hereof.
2.06 Business Expenses. During the Employment Contract Term, the
Company will reimburse Lee for all reasonable travel and out-of-pocket expenses
actually incurred by him, consistent with past practices of the Sellers, or as
otherwise directed by the Directors for the purpose of and in connection with
performing his services to the Company hereunder. Such reimbursement shall be
made upon presentation by Lee to the Company of vouchers or other statements
itemizing such expenses in reasonable detail.
4
<PAGE>
2.07 Death or Disability. In the event of the death or Disability of
Lee during the Employment Contract Term, the Company shall have no further
obligations or liability to Lee hereunder, including any obligation or liability
under Article III hereof, except to pay to Lee or Lee's estate (in addition to
and without regard for benefits, if any, due or to become due under any
insurance, retirement or other similar plan of the Company or any other person
or entity) (i) the amount of Lee's Base Salary earned but unpaid to the date of
Lee's death or Disability, (ii) any unpaid Bonus declared or to be declared by
the Directors for prior periods and for the period in which his death or
Disability shall occur (prorated to the date of such death or Disability), and
(iii) any unreimbursed business expenses incurred by Lee prior to his death or
Disability and presented for payment pursuant to Section 2.06 hereof.
2.08 Voluntary Cessation by Lee or Termination for Good Cause. The
Company may terminate the Employment Contract Term if at any time Lee
voluntarily ceases to perform his duties and responsibilities hereunder without
the Directors' prior written consent or if Lee's employment by the Company
pursuant to this Agreement is terminated for Good Cause, and thereupon Lee's
employment hereunder shall immediately be terminated, and the Company shall have
no further obligations or liability to Lee hereunder, including any obligation
or liability under Article III hereof, except to pay to Lee (in addition to and
without regard for benefits, if any, due or to become due under any insurance,
retirement or other similar plan of the Company or any other person or entity)
(i) the amount of Lee's Base Salary earned but unpaid to the date of such
termination, and (ii) any unreimbursed business expenses incurred by Lee prior
to such termination and presented for payment pursuant to Section 2.06 hereof.
2.09 Termination Not for Good Cause. To the extent Sections 2.07, 2.08
or 2.10 hereof do not apply, the Company may terminate the Employment Contract
Term for any reason, and thereupon Lee's employment hereunder shall be
immediately terminated and the Company shall have no further obligations or
liability to Lee hereunder, including any obligation or liability under Article
III hereof, except to pay to Lee (in addition to and without regard for
benefits, if any, due or to become due under any insurance, retirement or other
similar plan of the Company or any other person or entity) (i) the amount of
Lee's Base Salary earned but unpaid to the date of such termination, (ii) any
unpaid Bonus declared or to be declared by the Directors for prior periods and
for the period in which such termination shall occur (pro-rated to the date of
such termination), (iii) any unreimbursed business expenses incurred by Lee
prior to his termination and presented for payment pursuant to Section 2.06
hereof, and (iv) an amount equal to the unpaid annual Base Salary which would
have been paid through the expiration of the Employment Contract Term but for
such termination (which amount shall be paid in monthly installments, net of
appropriate tax withholdings, through the date the Employment Contract Term
would have expired but for such termination).
2.10 Termination Upon Trigger Event. In the event a Trigger Event shall
occur, either the Company or Lee may terminate the Employment Contract Term, and
thereupon Lee's employment hereunder shall be immediately terminated and neither
the Company nor Lee shall have any further obligations or liability to the other
hereunder, including any obligation or liability under Article III hereof,
except that Lee shall continue to be bound by the obligations and restrictions
set forth in Article IV hereof, and except that the Company shall be required to
5
<PAGE>
pay to Lee (in addition to and without regard for benefits, if any, due or to
become due under any insurance, retirement or other similar plan of the Company
or any other person or entity) (i) the amount of Lee's Base Salary earned but
unpaid to the date of such termination, (ii) any unpaid Bonus declared or to be
declared by the Directors for prior periods and for the period in which such
termination shall occur (pro-rated to the date of such termination), and (iii)
any unreimbursed business expenses incurred by Lee prior to his termination and
presented for payment pursuant to Section 2.06 hereof.
ARTICLE III
CONSULTING SERVICES
3.01 Capacity and Services. Provided that the Employment Contract Term
is not terminated pursuant to Section 2.07, 2.08, 2.09 or 2.10 above, the
Company hereby appoints and engages Lee as its consultant and advisor, and Lee
hereby accepts such appointment and engagement, for the Consulting Contract Term
and upon the other terms and conditions set forth in this Agreement. Lee agrees
that during the Consulting Contract Term, he will provide general business
consulting services if, when and as requested by the Directors from time to
time. The Company and Lee agree that such consulting services shall be required
only on a part-time basis, although such basis may involve a substantial time
commitment of Lee during any given period depending on the Company's need. Lee
will have no obligation to provide such services for any period which exceeds
six consecutive weeks. The Company will provide Lee with reasonable notice of
each such request and any such request shall not unreasonably interfere with any
of Lee's previously scheduled commitments. Lee and the Company acknowledge that
during the Consulting Contract Term, the relationship of Lee to the Company
shall be that of an independent contractor to a contractor and not that of an
employee to employer. Lee and the Company also acknowledge that during the
Consulting Contract Term, Lee, as an independent contractor, shall not be
entitled to any fringe benefits offered to employees or executive management of
the Company, except as expressly authorized by the Directors in writing.
3.02 Consulting Fee. The Company will pay to Lee a consulting fee
retainer of $50,000 on the first day of the Consulting Contract Term (the
"Consulting Retainer"), which Consulting Retainer shall cover the first 1,000
hours of service to be provided by Lee as a consultant hereunder (and which
shall be considered earned and shall not be refundable if fewer hours are worked
by Lee). In the event Lee provides more than 1,000 hours of consulting services
hereunder during the Consulting Contract Term, the Company will pay Lee a
consulting fee at a rate of $75 per hour (the "Consulting Fee") for each hour in
excess of 1,000 hours, payable on a weekly basis.
3.03 Business Expenses. During the Consulting Contract Term, the
Company will reimburse Lee for any reasonable travel and out-of-pocket expenses
which are actually incurred by him in connection with performing his consulting
services hereunder and which are pre-approved by the Company. Such reimbursement
will be made upon presentation by Lee to the Company of vouchers or other
statements itemizing such expenses in reasonable detail.
6
<PAGE>
3.04 Death or Disability. In the event of the death or Disability of
Lee during the Consulting Contract Term, the Company shall have no further
obligations or liability to Lee hereunder, except to pay to Lee or Lee's estate
(i) the amount of Lee's Consulting Fee earned but unpaid to the date of Lee's
death or Disability, and (ii) any unreimbursed business expenses incurred by Lee
prior to his death or Disability and presented for payment pursuant to Section
3.03 hereof.
ARTICLE IV
CONFIDENTIALITY AND NONCOMPETITION
The parties acknowledge that the Sellers presently sell into markets
throughout the United States and in many other markets throughout the world
through their distribution networks, that Lee has been instrumental in the
development and growth of the business of each of the Sellers, and that Lee's
position as an executive officer of the Sellers has made him extremely valuable
to the continued operations and prospects of the Company after the date hereof,
and which, if available to competitors, would be extremely detrimental to the
Company's interests. Further, the parties acknowledge that Lee is
well-recognized in the Christmas collectable and ornament and religious artifact
industries and is extremely knowledgeable about the Sellers' products, pricing,
operations, distributors, and other customers and suppliers. As a result of the
position of the Sellers and Lee in the Christmas collectable and ornament and
religious artifact industries, the Company and the Sellers have determined that
a substantial portion of the consideration for the Sellers' assets being paid by
the Company under the Purchase Agreement (a portion of which consideration shall
be received by Lee by virtue of his status as a shareholder of PDL) should be
allocated to the goodwill of Sellers as and to the extent provided in the
Purchase Agreement, which goodwill Lee has been instrumental in developing as
aforesaid, but the parties agree that such goodwill will continue to have
comparable value only so long as it is protected by the terms of this Agreement.
4.01 Confidentiality. Under no circumstances and at no time, during or
after the Contract Term, shall Lee in any manner, whether directly or
indirectly, use for his own benefit or the benefit of any other person, firm,
entity or corporation, nor disclose, divulge, render or offer, any knowledge or
information with respect to the confidential affairs or plans, trade secrets or
know-how of the Company ("Confidential Information"), except on behalf of the
Company in the course of the proper performance of his duties hereunder. Lee
acknowledges and agrees that any and all such Confidential Information will be
received and held by him in a confidential capacity, and that disclosure of such
Confidential Information would pose a direct threat to the Company in the hands
of its competitors. For purposes of this Section 4.01, the term "Confidential
Information" shall not include any information which is generally available to
the public other than as a result of a disclosure by Lee.
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<PAGE>
4.02 Covenant Not to Compete.
(a) Lee hereby agrees that during the Contract Term, Lee will not,
singly, jointly, or as an employee, agent or partner of any partnership or as an
officer, agent, employee, director, stockholder (except of not more than one
percent (1%) of the outstanding stock of any company listed on a national
securities exchange or actively traded in the over-the-counter market) or
investor in any other corporation or entity, or as a consultant, advisor, or
independent contractor to any such partnership, corporation or entity, or in any
other capacity, directly, indirectly or beneficially, (i) own, manage, operate,
join, control, or participate in the ownership, management, operation, or
control of, or work for (as an employee, agent, consultant, advisor or
independent contractor), or permit the use of his name by, or provide financial
or other assistance to, any person, partnership, corporation, or entity which is
in direct or indirect competition anywhere in the United States or Canada (the
"Protected Territory") with the business as conducted by the Company on the date
hereof or at any time through the expiration of the Employment Contract Term,
including, but not limited to, the business of designing, manufacturing,
marketing, and selling Christmas collectibles and ornaments and religious
artifact products; (ii) induce or attempt to induce any person who, on the date
hereof or at any time during the Contract Term, is an employee of the Company,
to terminate his or her employment with the Company, except in the proper
performance of his duties hereunder; or (iii) induce or attempt to induce any
person, business, or entity which is a supplier, dealer, wholesaler, retailer,
distributor or customer of the Company or which otherwise is a contracting party
with the Company, as of the date hereof or at any time during the Contract Term,
to terminate or modify in any way adverse to the interests of the Company, any
written or oral agreement or understanding with the Company, except in the
proper performance of his duties hereunder. The Company and Lee agree that the
covenants set forth in this Section 4.02 have been negotiated with advice of
counsel in the course of the sale of a business and its goodwill, from which
sale Lee shall receive substantial economic benefit, and therefore the Company
and Lee agree that these covenants should and shall be enforced to the fullest
extent permitted by law. Accordingly, if in any judicial or similar proceeding a
court or any similar judicial body shall determine that such covenant is
unenforceable because it covers too extensive a geographical area or survives
too long a period of time, or for any other reason, then the parties intend that
such covenant shall be deemed to cover only such maximum geographical area and
maximum period of time and shall otherwise be deemed to be limited in such
manner as will permit enforceability by such court or similar body.
4.03 Specific Performance. Lee agrees that his breach of the provisions
of Sections 4.01 or 4.02 above will cause irreparable damage to the Company and
that the recovery by the Company of money damages will not constitute an
adequate remedy for such breach. Accordingly, Lee agrees that the provisions of
Sections 4.01 or 4.02 above may be specifically enforced against him in addition
to any other rights or remedies available to the Company on account of any such
breach, and Lee expressly waives the defense in any equitable proceeding that
there is an adequate remedy at law for any such breach.
8
<PAGE>
ARTICLE VI
MISCELLANEOUS
5.01 Assignment. This Agreement is personal to Lee and shall not be
assigned, transferred, hypothecated, pledged or in any way encumbered by him;
provided, that the rights and obligations of Lee hereunder shall be binding
upon, and inure to the benefit of, Lee's estate. This Agreement shall be binding
upon, and inure to the benefit of, the Company's successors and assigns.
5.02 Amendment. This Agreement may not be amended, modified or
supplemented in any respect except by written agreement entered into by the
parties hereto.
5.03 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts without resort to its conflict of laws rules. Except with respect
to enforcement of the Company's equitable remedies pursuant to Article IV
hereof, any dispute arising under this Agreement shall be submitted to
arbitration, to be held in Providence, Rhode Island, in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions then in effect, and the determination of which shall be
final and binding on the parties hereto. The cost of such arbitration, unless
otherwise determined thereby, shall be borne 50% by Lee and 50% by the Company.
Each of Lee and the Company, to the extent that each may lawfully do so, hereby
consents to the jurisdiction of the federal and state courts of the Commonwealth
of Massachusetts, as well as to the jurisdiction of all courts from which an
appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of enforcement of any such arbitration award or any
of Lee's obligations under Article IV hereof, and each hereby expressly waives
any and all objections which it or he may have as to venue in any such courts.
5.04 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
Articles and Sections of this Agreement are inserted for convenience only and
shall not constitute a part hereof.
5.05 Entire Agreement. This Agreement contains the entire agreement of
the parties pertaining to the subject matter contained in it and supersedes and
is in lieu of any and all other employment arrangements between Lee and the
Company.
5.06 Notices. (a) Any notice given pursuant to this Agreement by any
party to the other shall be in writing and shall be deemed given on the date
when personally delivered, or on the date the receipt is signed for by the party
or its agent when sent by registered or certified mail, return receipt
requested, postage prepaid, or on the next business day when sent by a
nationally recognized overnight delivery service, to the parties at their
addresses set forth below or to such other address as any party may hereafter
designate to the other by like notice.
9
<PAGE>
If to Lee:
Arnold Lee
61 Wedgewood Drive
Seekonk, MA 02771-3418
with a copy to:
James P. Redding, Esq.
James P. Redding & Associates
170 Westminster Street
Providence, RI 02903
If to the Company, to:
Possible Dreams, Ltd.
c/o Capital Partners
One Pickwick Plaza
Suite 310
Greenwich, CT 06830
Attn: Philip L. Fitting
with a copy to:
Christopher D. Graham, Esq.
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
5.07 Severability. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
* * * * * * * * * * * *
10
<PAGE>
IN WITNESS WHEREOF, Lee has executed this Agreement and the Company has
caused this Agreement to be executed as an instrument under seal as of the day
and year first above written.
POSSIBLE DREAMS, LTD.
(a Delaware corporation)
By: /s/ Philip L. Fitting
----------------------------------
Philip L. Fitting
Chairman
/s/ Arnold Lee
-----------------------------------
Arnold Lee, individually
11
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Exhibit A to Employment Agreement
Based on Operating Profit as determined consistent with past practice
of Sellers (Operating Profit defined as pre-tax income plus interest, bonuses to
executive management, amortization of goodwill, depreciation and increases in
other expenses directly resulting from the asset purchase transaction, including
without limitation amortization of original issue discount and capitalized
acquisition expenses, management fees and inventory write-up (but exclusive of
increases in executive salaries), the Executive will earn as a bonus the
percentage of his Base Salary corresponding to the Operating Profit Level.
Operating Profit (in millions) Percentage
------------------------------ ----------
$3.75 10%
$4.00 20%
$4.25 30%
$4.50 40%
$4.75 50%
$5.00 60%
$5.25 70%
$5.50 80%
$5.75 90%
$6.00 100%
<PAGE>
Exhibit B to Employment Agreement
1. Health, life and long term disability insurance all in accordance with
past practices of the Sellers as disclosed on schedules to the Purchase
Agreement.
2. Four weeks vacation.
Exhibit 14
FIRST AMENDMENT TO ADVISORY SERVICES AGREEMENT
This FIRST AMENDMENT TO ADVISORY SERVICES AGREEMENT, dated as of May
17, 1996, by and between SECURITY CAPITAL CORPORATION, a Delaware corporation
("Security Capital"), and CAPITAL PARTNERS, INC. a Connecticut corporation
("Capital Partners").
WITNESSETH
WHEREAS, Capital Partners and Security Capital entered into a certain
Advisory Services Agreement dated as of January 26, 1990 (the "Original
Agreement"), pursuant to which Capital Partners agreed to provide advisory and
other services to Security Capital and its subsidiaries in the areas of
investments, general administration, corporate development, strategic planning,
stockholder relations, financial matters and general business policy; and
WHEREAS, Capital Partners presented to Security Capital a potential
acquisition of substantially all of the assets and operations of Possible
Dreams, Ltd., a Massachusetts corporation and Columbia National Corporation, a
Massachusetts corporation (collectively, the "Sellers"), affiliated entities
engaged in the business of designing, marketing and selling proprietary and
non-proprietary Christmas ornaments and collectibles and religious artifact
products; and
WHEREAS, Security Capital formed an indirect subsidiary, Possible
Dreams, Ltd., a Delaware corporation ("PDL"), to acquire such assets and
operations of the Sellers and to own and operate the business so acquired; and
WHEREAS, the purchase of such assets and operations of the Sellers by
PDL has been consummated as of the date hereof and, concurrently therewith, PDL
and Security Capital entered into a Management Advisory Services Agreement
pursuant to which Security Capital will provide or will cause to be provided to
PDL management advisory services in the areas of corporate development,
strategic planning, investment and financial matters and general business
policies; and
WHEREAS, Security Capital intends to request the assistance of Capital
Partners in providing such management advisory services to PDL from time to time
and, in connection therewith, Capital Partners and Security Capital desire to
amend their Original Agreement to assure Capital Partners of adequate
compensation in respect of such additional services.
NOW THEREFORE, in consideration of the premises and for good and
valuable other consideration, receipt of which is hereby acknowledged, the
parties hereto agree, intending to be legally bound, as follows:
<PAGE>
1. Section 2 of the Original Agreement is hereby amended to increase the "Fee"
payable thereunder by $175,000 to an initial amount of $325,000, by amending the
first sentence of said Section 2 to read in its entirety as follows:
"Security Capital shall, during the term of this Agreement, pay to
Capital Partners an annual advisory fee (the "Fee") in an initial
amount of $325,000 for the services described in Section 1."
2. The parties hereto recognize that the scope of operations of Security Capital
and, in particular, changes in the scope of such operations resulting from the
acquisition of assets and operations of the Sellers made indirectly by Security
Capital, warrant an adjustment to the "Fee" payable under the Original
Agreement.
3. Security Capital hereby represents that, in accordance with Section 7 of the
Original Agreement, for purposes of this First Amendment, Security Capital has
acted through its independent directors.
4. Each of Capital Partners and Security Capital hereby ratifies and confirms
the Original Agreement in all respects, except as amended hereby.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
SECURITY CAPITAL CORPORATION
By: /s/ A. George Gebauer
-----------------------------
Name: A. George Gebauer
---------------------------
Title: President
--------------------------
CAPITAL PARTNERS, INC.
By: /s/ Brian D. Fitzgerald
-----------------------------
Brian D. Fitzgerald
President
- 2 -
Exhibit 15
CONSOLIDATED INCOME TAX SHARING AGREEMENT
AGREEMENT dated May 17, 1996 between Security Capital Corporation,
a Delaware corporation (the "Company"), P.D. Holdings, Inc., a Delaware
corporation ("Holdings"), and Possible Dreams, Ltd., a Delaware corporation
("PDL").
WHEREAS, as of the date of this Agreement, the Company directly owns
more than 80% of the outstanding shares of stock of Holdings, and Holdings
directly owns more than 80% of the outstanding shares of stock of PDL, and
WHEREAS, each directly or indirectly owned subsidiary of the Company
that is or that becomes eligible as an "includible corporation" to join in the
consolidated federal income tax return of the Company under Section 1501 of the
Internal Revenue Code of 1986 (the "Code"), as amended, by virtue of being a
Member of an "affiliated group" (the "Group") of which the Company is the
"common parent," as those terms are defined in Section 1504 of the Code,
consents or may consent to the filing of such a return, and
WHEREAS, the Company expects to file consolidated federal income tax
returns with such subsidiaries for each period of time during which such
subsidiaries have so consented, and
WHEREAS, the parties to this Agreement desire to provide for the proper
allocation of the consolidated federal income tax liability of the Group among
themselves, and to provide for the amount and time of payments with respect to
such allocated liabilities, and to provide for the proper allocation and payment
among the parties to this Agreement for the federal tax benefits derived from
their losses, credits, and deductions which reduce the consolidated federal
income tax liability of the group.
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NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Authorization to Allocate. For each taxable year in which a
subsidiary is included in a consolidated federal income tax return with the
Company, the Company is authorized to determine both the consolidated federal
income tax liability of the Group, the separate return federal tax liability of
each Participating Member of the Group (computed in accordance with Treas. Reg.
ss. 1.1552-1(a)(2)(ii)), the allocation of additional amounts to Participating
Members as calculated by the Company under the provisions of paragraph 2(2), and
the allocation of the consolidated federal income tax liability of the Group
among the Participating Members of the Group. The term "Participating Member"
means the Company and each of its directly or indirectly owned subsidiaries,
i.e., subsidiaries in which the Company has or had, during any part of the Group
taxable year, direct or indirect ownership of a controlling interest, including,
but not limited to, the corporations which are initial signatories to this
Agreement.
2. Method of Allocation.
(1) The consolidated federal tax liability shall be allocated to each
Participating Member of the Group on the basis of the percentage of the
consolidated federal tax liability which the separate return federal tax
liability of such Participating Member (computed in accordance with Treas. Reg.
ss. 1.1552-1(a)(2)(ii)), bears to the total amount of the separate return
federal tax liabilities for all Participating Members so computed;
(2) An additional amount shall be allocated to each
Participating Member (computed in accordance with Treas. Reg. ss.1.1502-33(d)(3)
equal to one-hundred percent (100%) of the
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excess, if any, of the separate return federal tax liability of such
Participating Member (computed in accordance with Treas. Reg.
ss.1.1552-1(a)(2)(ii)) over the amount of federal tax liability allocated to
such Participating Member as determined under subparagraph (1);
(3) The total of any additional amounts allocated under subparagraph
(2) shall be credited to the earnings and profits of those Participating Members
with federal tax benefits to which such total is attributable in accordance with
Treas. Reg. ss.1502-33(d)(3); and
(4) If the Group is subject to a consolidated alternative minimum tax,
then, for purposes of allocating such tax liability, separate computations of
such tax shall be made, and the consolidated alternative minimum tax shall be
allocated to each Participating Member of the Group in accordance with the terms
of paragraph 2(1), (2) and (3) above.
3. Tentative Allocations. The Company shall make tentative
allocations of consolidated federal income tax liability in accordance with the
principles set forth in paragraph 2 for each period in which it is required to
make an estimated federal income tax payment. On each date on which an estimated
tax payment becomes due (the "Quarterly Payment Date"), each Participating
Member of the Group shall pay to the Company an amount equal to the share of
consolidated federal income tax liability tentatively allocated to it for the
period (including any additional amount allocated to a Participating Member of
the Group under Paragraph 2(2)) and the Company shall pay to each Participating
Member an amount equal to any federal tax benefit tentatively allocated to that
Participating Member for the period.
4. Final Allocations, Payments and Credits.
(1) At the close of each taxable year, the Company shall
determine both the final federal income tax liability (including any additional
amount allocated to a Participating Member
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of the Group under Paragraph 2(2)) or final federal tax benefit for each
Participating Member of the Group in accordance with the provisions of paragraph
2. The amount of any liability determined under the preceding sentence shall be:
(a) reduced by any payments made by the Participating Member to the Company
under paragraph 3, and (b) increased by any payments made by the Company to the
Participating Member under such paragraph. The amount of any federal tax benefit
shall be: (a) increased by any payments made by the Participating Member to the
Company under paragraph 3, and (b) reduced by any payments made by the Company
to the Participating Member under such paragraph.
(2) If the net amount, as determined in paragraph 4(1) above, reflects
a federal net income tax liability of the Participating Member, such
Participating Member shall pay such amount to the Company on or before the date
on which the Company files the consolidated federal income tax return for the
Group. If the net amount, as determined above, reflects a net federal tax
benefit of the Participating Member, the Company shall pay such amount to such
Participating Member at the time set forth in paragraph 6.
(3) Payments made under paragraphs 3 and 4 shall not be treated as
a distribution with respect to the stock of the Participating Member making the
payment nor as a contribution to the capital of any other Participating Member.
5. Adjustments. If adjustments are made to a consolidated federal
income tax return in which the Company and any directly or indirectly owned
subsidiary of the Company are included that results in a final deficiency or
overpayment which would have required a larger or smaller payment by a
Participating Member of the Group to the Company under paragraph 4, or the
granting of a larger or smaller federal tax benefit by the Company to a
Participating Member
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under paragraph 4, if made on the original return in accordance with the method
of allocation described in paragraph 2, the Company shall pay to the
Participating Member or the Participating Member shall pay to the Company, as
the case may be, an appropriate amount to reflect the overpayment or deficiency.
Any amount due to the Company in respect of a deficiency shall be due on each
date on which a payment is made by the Company to the Internal Revenue Service
in respect of such deficiency, and any amount due to a Participating Member in
respect of any overpayment shall be due on the date on which the Company
receives a refund in respect of such overpayment. If an overpayment results in a
reduction of a federal income tax payment rather than a refund, then such amount
shall be deemed due on the date on which such overpayment is applied. If the
Company pays any interest or penalties in connection with a deficiency, then any
amount due to the Company with respect to such deficiency shall include the
Participating Member's allocable share of such interest and penalties. If the
Company receives any interest in connection with an overpayment, then any amount
due to a Participating Member shall include the Participating Member's allocable
share of such interest.
6. Treatment of Federal Tax Benefits. Any federal tax benefit due to
a Participating Member under paragraph 4 shall become payable on the date on
which the final allocations required under that paragraph are made, but only to
the extent the federal tax benefits or overpayments giving rise to such federal
tax benefit resulted in: (i) a reduction in the amount of consolidated federal
income tax paid by the Company on or before such date, or (ii) a tax refund
which was received by the Company on or before such date. Any remaining amount
of federal tax benefit shall become payable on the date or dates on which the
Company realizes a reduction in a consolidated federal income tax payment or
receives a refund, which reduction or
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refund is attributable in whole or in part to the federal tax benefits or
overpayments which gave rise to such federal tax benefit.
7. Late Payments. If any payment due to the Company from a
Participating Member or any payment due to a Participating Member from the
Company under the circumstances contemplated in this Agreement remains unpaid on
the fifteenth day after the date indicated for payment in this Agreement,
interest shall begin accruing on such fifteenth day on such unpaid amount at the
prime interest rate (as announced from time to time by Nations Bank) as adjusted
on each Quarterly Payment Date.
8. State, Local and Foreign Returns. In the event the Company or
any directly or indirectly owned subsidiary of the Company is required to or
elects to file combined or consolidated state, local or foreign income tax
returns with another member of the Group, the general principles of this
Agreement shall be applicable to the amount and time of tax liability payments
or credits.
9. Future Subsidiaries. Upon the joint consent of the Company and
any corporation that becomes a directly or indirectly owned subsidiary of the
Company after the effective date of this Agreement, such corporation is to be
bound by the terms and principles of this Agreement, and each party to this
Agreement agrees to use its best efforts to effectuate such intention.
10. Disputes. Any disputes with respect to the administration of
this Agreement shall be resolved initially by the Chief Financial Officer of the
Company subject to final confirmation by the Board of Directors of the Company.
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11. Effective Date. This Agreement shall be effective as of the date
first above written.
IN WITNESS WHEREOF, the parties hereto have this day
executed this Agreement as follows:
SECURITY CAPITAL CORPORATION
By: /s/ Brian D. Fitzgerald
--------------------------
Attest:
/s/ Grace M. Santacqua
- ------------------------
P.D. HOLDINGS, INC.
By: /s/ Philip L. Fitting
--------------------------
Attest:
/s/ Douglas G. Gray
- ------------------------
POSSIBLE DREAMS, LTD.
By: /s/ Philip L. Fitting
--------------------------
Attest:
/s/ Douglas G. Gray
- -----------------------
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